There's nothing you can do that can't be done. Nothing you can sing that can't be sung. Nothing you can say but you can learn how to play the game. It's easy. Nothing you can make that can't be made. No one you can save that can't be saved. Nothing you can do but you can learn how to be you in time. It's easy…
The old lyrics from The Beatles have recently received new life from Eurozone crisis managers. It started as a theme in the French presidential election campaign but now seems to have become the new tune for the entire Eurozone: All You Need Is Growth.
More and more politicians and policymakers, in both peripheral countries but also core countries, are calling for more European focus on economic growth. Last week, when talking to European Parliament in Brussels, ECB president Mario Draghi gave this new initiative a name: a growth compact.
As last year, when Mario Draghi was the name patron of the latter fiscal compact, the big question now is what exactly is a growth compact? The funny and charming characteristic of Draghi’s fiscal compact is that it is something for everyone. Of course, all European policymakers immediately embraced the idea of a growth compact. A surprise? Not really. Who would seriously not be in favour of more growth? However, at the current juncture, there are still diverging interpretations of what a growth pact for the Eurozone could be.
For one group, the growth compact looks like a synonym for diluting the fiscal framework, including the fiscal compact signed in March, and the austerity-based Eurozone crisis management. For this group, the growth pact means less austerity, more deficit spending and hoping for growth. Eight Eurozone governments, including France and the Netherlands, need to bring their deficits back to 3% of GDP next year. Weak or no growth would complicate this undertaking. However, it is a misconception that renegotiating the fiscal compact would change the 3%-target for next year. The 3%-norm and the so-called excessive deficit procedure are part of the European Treaty.
For the second group, the growth compact would be complementary to the fiscal compact but would lean on additional European initiatives, as for example bolstering the European Investment Bank and using EU infrastructure funds more flexible. Last week’s news of a proposed increase of the EU budget by more than 6% shows the direction, even if such an increase still faces lots of national oppositions. Some in this second group also favour common Eurobonds to lower refinancing costs of most Eurozone governments, freeing more government funds for growth.
For the third group, the growth compact simply means sticking to deleveraging and structural reforms to restore competitiveness and economic growth. This group looks willing to further formalise measures discussed last year under the Euro plus pact and refer to increased policy coordination under the fiscal compact but not much more.
So far, it looks as if French presidential candidate Hollande can be placed somewhere between group one and two, while Mario Draghi and German Chancellor Merkel look likely to define a growth compact according to group two and three.
For the time being, the growth compact for the Eurozone is still a grab bag. With the ECB meeting and the upcoming second round of the French presidential elections, the next days could shed more light on what a growth compact for the Eurozone could look like. However, no matter what the Eurozone will find in the grab bag, it will clearly not be a silver bullet.