Economic Recovery Wach 14 January 2010

Centre For European Studies
ECONOMIC RECOVERY WATCH

Last updated on 14/01/2010 To view full articles click on hyperlinks.

CONTENTS
WATCHTOWER

EU MEMBER STATES

WORLDWIDE

INSTITUTIONS

EPP VIEWS

OUR COMPETITORS' VIEWS

FROM THE BLOGOSPHERE…

UPCOMING EVENTS

www.thinkingeurope.eu



“Watchtower”
Happiness vs. GDP
Foreword by CES Head of Research

Don’t buy even for a minute all the nonsense about ‘spaceship Brussels’ and ‘faceless bureaucrats
distant from real life’ that many a Eurosceptic would like you to believe about Europe’s capital. No,
Brussels is a very real place. For example, it sports trends and fashions like all other capitals. The latest
fashionable trend is discarding GDP as a measure of economic performance, and replacing it by a
happiness index, or, as some would prefer, an index on well-being. According to the adherents of this
theory, mere quantitative economic output, measured in the market value of products and services,
belongs to the 20th century. It is not only inhumane inhumane and imprecise (because it leaves out the
granny taking care of her grandchildren without pay, for instance), but socially and ecologically
unsustainable (because it includes CO2-belching factories as well as the hazardous gambling of the
turbocapitalists, and all their bonuses to boot).

There was a precursor debate to this around 2006, but that was more limited to academia. You
might even go back to 1972, when the then King of Bhutan, Jigme Singye Wangchuck, included
happiness into the kingdom’s Constitution as a goal of state. Among other things, this was to be
achieved by five year plans, and television was forbidden until 1999. More on the moderate end of the
scale, the EU Commission recently published a report about ‘GDP and Beyond’ and French President
Sarkozy prominently invited Joseph Stiglitz and Amartya Sen to make recommendations on shifting the
focus of measuring economic performance. In any case, today, in Brussels, in seminars and
conferences, the happiness index is back with a vengeance, largely due to the twin scourges of the
turn of the decade: climate change and the financial and economic crisis.

First of all, we need to see the seriousness of the challenge. This is no mere semantic problem. In
fact, the happiness index is intended to pave the way for a ‘paradigm shift’ in the way EU decision
makers think about economics: away from the focus on economic growth, away from the ‘Washington
consensus’. Actually, the renewed attack on GDP as a measure of performance is the attempt to
regain what the Global Left considers a lost opportunity: to question the market economy as such,
when the crisis was still fresh in 2008 and 2009. They say ‘Washington Consensus’ and they mean
capitalism. This has to be exposed. The truth is and remains: GDP is, of course, no guarantee of
happiness. But with all its flaws, GDP tells us pretty exactly what we want to know about economic
performance. Certainly more exactly than any index based on very subjective feelings. Moreover,
material goods and a decent income can be great catalysts of a successful existence – contrary to
poverty. And the globalisation that was begun in the 1980s has lifted hundreds of millions out of
poverty and into a new new middle class in countries like India and China. The crisis hasn’t even come
close to reversing that process.



And concerning climate change: the world is not going to get anywhere without incentives to
innovate. Those incentives can be strengthened by government action, but in the end it will be
personal gain (or, as the Fathers of the US Declaration of Independence called it: the pursuit of
happiness) that is most effective here, and therefore makes the difference. Working for a better
personal future, improving and expanding, is deeply rooted in human nature. And Smart Green
Growth is still growth!

What will count in the end, however, and determine the further development of this debate, are
the universal economic solutions proposed by the happiness gurus, such as Richard Layard in 2006:
higher job security, lowering growth by raising taxes, reducing mobility, government control of
television and advertising to stop improper role models, etc. I would call that socialism by another
name.

So far, it has remained one of the great successes of Europe’s Centre Right that the market
economy did not fall victim to the crisis, only its speculative excesses that can and should be put under
stricter controls. But if we don’t watch out, this fad may linger for a longer time than fads usually do
in the corridors of power in Brussels. And if higher taxes, less economic freedom, media control and
fewer working hours are to follow the talk about replacing GDP with happiness or well-being, it will be
to the detriment of humankind. Which is what we should keep pointing out.

P.S. The CES is working on a policy brief critically analyzing the efforts to replace GDP, to be published
in March. Its prospective author is Johan Norberg from the Stockholm based think tank TIMBRO.




EU Member States
Austria
Austria's unemployment rate rose to 8.6 per cent of the workforce in December. Austria's central
bank and its financial market regulator have put Österreichische Volksbanken, the country's top
cooperative bank, on a watch list and asked it to find a new strategy. Austria's finance minister says
he wants his country's central bank to be fully nationalised to make financial supervision more
efficient. The federal government currently owns about 70 per cent of Österreichische Nationalbank's
capital. An investigation has been launched to clarify the circumstances surrounding the near demise
of troubled financial institution HGGA. Austria nationalised HGGA on 14 December, a unit of German
public-sector bank BayernLB, to prevent it from sliding into a bankruptcy fueled in part by bad loans —
most of them in Eastern Europe. Austria agreed to a full takeover of HGGA and will inject as much as
450 million euros into the troubled lender in the country’s second bank nationalidation since the start
of the financial crisis. The European Commission said it had approved for now state aid involved in the
rescue of HGGA, but demanded that the Austrian bank presents a restructuring plan by the end of
March 2010. Austria may drop its opposition to tax deal. Resistance from Austria, with its strong
tradition of banking secrecy, held up the agreement until now. Austria’s concern focus on the
competitive disadvantage its financial centres could face against Switzerland, Liechtenstein and other
non-EU countries with light fiscal controls.

Bulgaria
A total of 95 per cent of Bulgarian firms saw their sales decline in 2009 as a result of the global
economic crisis, according to the fifth annual survey of the Bulgarian Industrial Association (BIA).
The BIA forecasts that by the end of 2010 the unemployment in the country will be 16,4 per cent. The
figure arose from adding 5 per cent of “unofficial” or unregistered unemployment to the government
forecast for an unemployment rate of 11,4 per cent. The BIA Chair said export-oriented sectors such
as the machine building and shipbuilding sectors, as well as the construction and transport sectors, are
doing worst. The food industry, agriculture, and production of pharmaceuticals are doing better but
they are oriented mainly towards the domestic market. He called 2010 a year of survival, and
recommended that companies limit their investments, and in some cases switch to other products.

Cyprus
Cyprus’s EU-harmonised inflation stood at 1.6 percent. Over the year, the harmonized index of
consumer prices (HICP) tracker was running at 0.2 percent, pushed down by lower fuel prices. It was
the lowest annual rate of change on record, following a 4.4 per cent HICP inflationary spike on high
commodity and fuel prices in 2008. In 2009, the sharpest increases were recorded in healthcare costs,
at 6.6 per cent, followed by a 4.9 per cent increase in education. The most pronounced drop was a 7.6
per cent decline in fuel-related utility bills and transport costs at 7.3 percent.

.




CzechcRepublic
The Czech 2010 budget projects a record deficit of 163 billion crowns (about 5.3 per cent of GDP).
Additional financial transfers, as pushed through by the left before the budget´s approval in
December, raise the deficit by 12 billion crowns. The Czech Green Party (SZ) will not back the left-wing
proposals raising the budget deficit and said that it is up to the finance minister to decide on the
preservation of the 2009 level of maternity benefits demanded by the Christian Democrats (KDU-CSL).
The maternity benefits have been reduced since 1 January within a package of austerity measures
adopted by the parliament. The next session in the lower house will also discuss the left-wing parties´
proposals for the distribution of an extra monthly pension, for the abolition of health fees and for the
reintroduction of sickness benefits paid to patients in the first three days of illness.

Denmark
Despite inflation rising by 1.3 per cent in 2009, economists believe consumers will benefit this year
from a number of financial incentives. Danske Bank estimates that salary levels rose by 2.9 per cent for
2009, with wages rising by about 1.6 per cent. With the tax relief and drops in interest rates , living
standards are expected to improve even more in 2009. However, the bad news is that budget deficits
in city hospitals have forced a number of them to cut staff, leaving patients with longer waiting times.
Herlev Hospital in North West Copenhagen has been forced to introduce mass layoffs as a result of the
hospital’s 200 million kroner budget deficit. Other hospitals in the Capital Health Region have also
been hit bybudget deficits .

Estonia
Estonia, despite being in recession, hopes to meet the key economic targets on inflation and budget
deficit set by the EU and adopt the single currency at the start of next year. By law, if the evaluation is
positive and backed by the EU's 27 finance ministers, Estonia could become the euro zone's 17th
member next year. However, economist Heido Vitsur says that if Estonia's unemployment rate
exceeds 25 per cent, the state would become non-competitive which could restrict Estonia’s potential
entry to the euro zone. Vitsur added that based on the data of the Unemployment Insurance Fund
which show that about 2,500 people registered as unemployed every week, Estonia's unemployment
rate must be over 20 per cent already now. Mart Laar, chairman of IRL, also believes that growing
unemployment could cause that budget revenues to fall short of the target and that this could become
an obstacle for Estonia securing its place in the euro zone. But the good news is that Estonia’s
economy will grow 1.5 per cent this year and 4.5 per cent in 2011 according to the Swedbank.
According to the International Monetary Fund (IMF), Estonia must focus on investment, closing tax
loopholes and boosting revenue to ease the recession. The IMF called for changes to the pension
system, broadening the tax base and eliminating poorly targeted exemptions.

France
In December French business confidence reached its highest level since March 2008. It is a clear sign
that Europe’s third largest economy is recovering from the recession. Forecasts are indicating at least
a 1 per cent growth – from the current 0.75 – in the French economy in 2010.




Germany
Germany's centre-right Cabinet approved a 2010 budget plan on 16 December 2009 that includes
record levels of new debt and higher government spending as the country seeks to safeguard its
recovery from the recession. The budget puts spending at 325.4 billion euros, a 7.3 per cent increase
on this year's planned outlay of 303.3 billion euros. It foresees new borrowing of 85.8 billion euros—
about 48 billion euros more than this year, and the largest figure since World War II. However, the
new government has placed an emphasis on tax relief as it tries to stimulate the economy. German
Chancellor Angela Merkel said the economic crisis is not yet over and there will be tough negotiations
ahead to agree on the international timing of an exit strategy. Germany’s economy stagnated at the
end of 2009, after contracting by 5 per cent in the year as a whole – its worst recession in post-war
history. Germany's IMK economic institute raised its forecast for the German economy, saying it
expected growth of two per cent in 2010. Opel car sales may fall as much as 5 percent in 2010, as
tentative signs of economic recovery are offset by the end of scrapping incentive schemes. Also
Beiersdorf AG, Nivea skincare maker, posted a steep drop in full-year operating profit as its industrial
adhesives business took a hard hit from the global recession.

Greece
A European Union inspection team has asked Greece for a more specific three-year plan to shore up
the country's ailing finances. Greece has pledged to cut its double-digit budget gap to below 3 per cent
of GDP limit by 2012. Meanwhile, the Spanish EU Presidency said that there were "limits" to the
amount of support Greece can expect from the European Union in its fight to contain its ballooning
budget deficit. Greece’s socialist government revealed the budget deficit would reach 12.7 per cent
of GDP in 2009 and that Greece is also set to become the EU's most indebted country this year, with
debt rising to 124.9 per cent of GDP according to EU data. The Greek government has already
announced a series of measures, including a 10 per cent cut in supplemental public sector wages, and
a 10 per cent reduction in social security expenditure this year. However, financial markets question
whether the government can introduce such drastic austerity measures without sparking labour
unrest and social disorder. The civil servants’ union already announced a one-day strike on 10
February to protest against the measures. Amid financial and political turmoil, Greece now also faces
accusations from the European Commission that figures on the country's public debt are unreliable
and belie the country's true debt burden. Separately, an International Monetary Fund technical team
also went to Athens in response to a Greek request for help with a radical overhaul of the tax system
due to be completed in March. The mission will advise the Greek government on pension reform, tax
policy, tax collection and budgetary controls but will not have any role in developing or vetting
Greece’s fiscal consolidation plan. Even the limited IMF involvement is highly sensitive because of
market speculation that Greece may ultimately require a joint bail-out from the IMF and the European
Union.

Hungary
Hungary could join the euro zone in the next four years if the new government formed after elections
due in April remains on the track of tight fiscal policy set by the current cabinet, Prime Minister




Gordon Bajnai said. The country has missed several euro entry dates in the past and currently meets
none of the criteria needed to adopt the single currency. It does not have an official target date for
either ERM-2 or euro zone membership. According to the latest polls, markets expect Hungary to
adopt the single European currency in 2014. Hungary’s budget deficit came in about HUF 75 billion
lower than expected in 2009, according to the latest (cash flow based) data. The International
Monetary Fund (IMF) on December 18 completed the fourth review of Hungary’s economic
performance. The completion of the review makes about 788 million euros available, but the
authorities do not intend to draw this amount. The availability of Fund resources will help to provide
insurance against the impact of any unforeseen deterioration in external financing conditions. The
total amount disbursed under the program remains about 8.27 billion euros. Other news is that
imports continued to decrease more than exports but the contraction of both slowed as the sharp
decline which started with the crisis in October 2008 entered the base. Hungary's motor vehicle
market is expected to stabilise from the second half of 2010, and the Hungarian Association of Vehicle
Importers (MGE) sees full-year sales rising 7.4 per cent to 85,200.

Latvia
Latvia's gross domestic product (GDP) contracted 19.3 per cent in the third quarter of 2009,
compared to the second quarter. This was the largest GDP decrease in the EU in the third quarter of
2009. Latvia’s industrial production fell in November at the slowest pace in 17 months as the
country's wood, metal and chemistry industries increased output. Latvian economy contracted 19 per
cent in the third quarter, the steepest downturn in the EU, as consumer spending slumped, credit
evaporated and manufacturing dropped. In 2009, there was a record decline in prices for all segments
of the Latvian real estate. According to Global Property Guide only in Riga for this year the cost per
square meter of the real estate has fallen to 59,7 per cent. The decrease in consumption, as well as
the withdrawal of foreign investments and pessimistic expectations on the part of the population
determined the collapse of the property prices in 2009. The decline in the market was accompanied by
a sharp deterioration in the economic situation of the country, by the liquidation of the mortgage
market and by the real impoverishment of the population. All this has further deepened the economic
depression and reduced tax collection. It would seem that such a development would inevitably lead
to a further collapse in real estate prices and the exodus from the market of remaining foreign
investors. However, since September 2009, the market began to show first signs of stability, and then
cautious, but sustained growth.

Lithuania
According to Statistics Lithuania, seasonally adjusted retail sales in November 2009 were 27.8 per cent
lower than in November 2008. On a more positive note, in 2010 the Lithuanian economy will recover
more rapidly than the majority of Lithuanian and foreign analysts expected, life insurance and pension
company Aviva Lietuva forecasts. The Baltic Course reported that, according to the company, export
growth will be one of the main engines for recovery. It said that while July 2008 – April 2009 exports
fell 43 per cent, in April 2009 – October 2009 export volumes increased 23 per cent.




Poland
Poland continues to be the statistical leader of the EU member states in terms of economic
performance. The country’s GDP grew by 1.7 per cent (according to the Polish Central Statistical
Office) in the third quarter of 2009 compared with the same period in 2008. Polish Minister of Finance
Jacek Rostowski will soon unveil a two-year public finance consolidation plan which will tackle the
problem of country’s growing public debt. The plan is based on the gradual phasing out of special
pension privileges for certain professional groups, the raising of the retirement age, the reform of
open pension funds, the acceleration of privatisation and the introduction of new fiscal discipline, as
well as the “expenditure rule” limiting the increase of state spending.

Romania
A joint team of European Commission and IMF visited Bucharest during 14-16 December 2009 to
continue discussions under the multilateral assistance programme. Discussions focused on fiscal
policy issues. The mission found that good progress had been made to reach the 2009 budgetary
target of a cash deficit of 7.3 per cent of GDP. Yet, tight expenditure control remains essential.
Regarding 2010, the mission set of fiscal consolidation measures amounting to about 2.5 per cent of
GDP, mostly on the expenditure side of the budget. Taking into account the better than expected
macroeconomic outlook for 2010, these measures seem sufficient to achieve the government cash
deficit target of 5.9 per cent of GDP set in the programme. Provided these developments are
confirmed, the Commission hopes to successfully conclude the review by end January 2010. This
would release a tranche of 1 billion euros under the EU balance of payments assistance programme.

Slovakia
In one sense, 2009 was the year of the economic downturn in Slovakia, but it was also Slovakia’s first
year using the common European currency, the euro. A year after the switch, it seems that Slovaks
have got used to to the euro without major problems and that the majority of the population feels
positively about the euro. Exchange-rate stability, lower conversion costs and, after the
unprecedented reduction of ECB interest rates, more favourable monetary policy conditions, which
have fed through into lower interest rates for new corporate loans, have positively impacted the
effects of the global recession on the Slovak economy. The first days of 2010 were marked by the
launch of the electronic highway toll collection mega-project– with a price tag of over 850 million
euros. The mega-project received extensive negative publicity when the contract to construct a
nationwide satellite-based system was awarded to the sole remaining bidder, SkyToll – the successor
company to a consortium which had made the most expensive bid. The European Commission
subsequently asked for more information as to why three bidders had been eliminated from the final
round of the high-value tender. While its operator calls the launch of e-toll collection successful and
problem-free, transporters and truck drivers lining up in 10-hour queues at border crossings call the
project a chaotic failure. Highway transporters have been calling on the state to suspend the system’s
operation for six months, saying it has not been sufficiently prepared. The Union of Road Carriers
(UNAS) launched a petition on 4 January demanding that the state cut its excise tax on fuels as well as
its road tax as a form of compensation for what they call far too expensive highway tolls.




Slovenia
Economic activity continued to strengthen gradually in the third quarter in Slovenia, given that GDP
increased by 1.0 per cent, but its year-on-year drop (-8.3 per cent) remained among the largest in the
EU. GDP growth was largely propelled by stronger exports and export-oriented manufacturing
activities. Investment activity, on the other hand, remained weak. The crisis in construction is
deepening. Labour market indicators continued to deteriorate in the third quarter, given that the
number of employed persons declined further and that in November, the number of registered
unemployed was more than half higher than last year. Altogether 95,446 persons are unemployed,
50.6 per cent more than in November 2008. In November, the year-on-year inflation rate increased
(1.6 per cent) as expected after fluctuating around zero for several months. The college of deputy
group leaders called for 20 January and emergency session dedicated to proposal from the strongest
opposition party to discuss cronyism in business and a package of crisis measures.

Spain
Spanish Economy Minister Elena Salgado said the reduction of budget deficits in Europe should be
gradual in order not to harm the economic recovery. Spain's budget deficit has risen sharply due to the
economic downturn and the country is so far lagging the recovery that has begun in many places in
Europe. Spain's budget deficit is expected to reach about 10 per cent of gross domestic product in
2010. The national Statistic Institute reported that Spanish industrial output fell 5.7 percent in
November year-on-year. The continuing industrial contraction came despite a massive public works
programme that is helping to push Spain's fiscal balance, towards a deficit of 10 per cent of GDP in
2009. Spain's gross domestic product will record quarterly growth through all of 2010 but the
government still expects an annual contraction of 0.3 per cent for the year. Consumer prices rose in
November after falling for eight consecutive months, but deflation concerns lingered in an ailing
economy showing little sign of recovery.

UnitedcKingdom
According to the British Chambers of Commerce the UK economy will soon exit from recession.
Improvements have taken place mainly in the manufacturing sector, and stores saw their best
December growth for eight years. However even though the level of economic confidence is improving
and exports are strengthening, the economy will have to struggle hard to enter the recovery phase in
these difficult and uncertain trading conditions.

WORLDWIDE
Argentina
Argentina’s government is seeking to use $6.5 billion of its central bank reserves, which amount to
$48 billion, in order to cover an international debt of $13 billion. This plan was masterminded by the
President of the Latin America’s third-largest economy Cristina Fernández de Kirchner. It caused




severe political tensions between the president and the Congress, because the central bank president,
Martín Redrado, was first dismissed and then reinstated. Even though Argentina’s financial market is
in turmoil, the world markets responded positively to the announcements on restructuring $20 billion
in foreign debt from the 2001-2002 default.

China
Chinese central bank has raised short-term interest rates and withdrawn liquidity from the market.
The weekly sale of three-month central bank bills inched up to 1.3684 per cent from the previous
1.328 per cent. This decision has been considered a turning point in China’s monetary policy. Due to a
surge in lending by government-controlled banks Chinese government investments, real estate
construction and consumer spending have been rising for the last 6 months.

The Chinese economy is expected to achieve a 9.5 per cent growth thanks to real estate investments
and mild inflation in 2010. Moreover, the state media have reported that China’s exports rose to 17.7
per cent in December 2009 suggesting the country has overtaken Germany as the world's largest
exporter. According to China’s Association of Automobile Manufacturers, the world’s third-largest
economy has overtaken the U.S. in car sales. Approximately 13.6 million vehicles were sold in China in
2009 compared with 10 million in the U.S.

Iceland
Iceland is considering withdrawing a foreign depositor bill and renegotiating the accord to
compensate the U.K. and Dutch governments for settling depositor claims stemming from the failure
of Landsbanki Islands Hf in October 2008. Most polls forecast that voters will reject the current bill in
the forthcoming referendum. Repayment of the $5bn debt is considered to be harmful for the
Icelandic economy, forcing taxpayers to pay for bankers’ mistakes. Iceland’s president Olafur Grimsson
stated that no matter the outcome of the referendum the country will honour its obligations.

India
The country’s industrial production has achieved its highest level in 25 months. Output at factories,
utilities and mines rose by 11.7 per cent in November 2009. This is likely to encourage India’s central
bank to raise interest rates in the first half of 2010. If Asia’s third-largest economy’s growth quickens
to 10 per cent in a couple of years, it may exceed the Chinese growth level as early as 2014.

Japan
Newly appointed Japanese minister of finance, Mr Kan, called for a weaker yen, saying that it would
help the world’s second-largest economy to battle the threat of deflation and a public debt of 200 per
cent GDP. Moreover, Japan’s bank loans fell for the first time in four years in December. Demand for
funds is said to be weak regardless of the size of companies. GDP is therefore forecast to expand
modestly in 2010, mainly due to foreign demand.




UnitedcStates
According to the Federal Reserve Bank the situation on the U.S. labour market is improving and the
unemployment rate is due to fall in 2010. 7.2 million jobs have been lost since the recession began in
December 2007. The improvement is mainly due to an increase in domestic consumption and a
stabilisation in the housing industry. The American economy’s recovery from the worst recession since
the Great Depression is also being influenced by increased growth on Asian markets.

INSTITUTIONS
EU Special Summit on EU Economic Policy: EU leaders will meet in Brussels on 11 February to
discuss a multi-annual plan to boost the EU's economic growth. The meeting has been called by
Herman Van Rompuy, the president of the European Council, who wants the meeting to influence the
European Commission's preparatory work on the plan. José Manuel Barroso, the president of the
Commission, launched a consultation on the plan, known as EU2020, on 25 November. It is billed as
the successor to the Lisbon Strategy – the series of policy initiatives and targets agreed by EU leaders
in 2000 to turn Europe into the world's “most competitive and dynamic knowledge-based economy”
by 2010. Leaders will also have a more general discussion on Europe's recovery from the economic
crisis. On 8 January, Commission President Barroso and Van Rompuy went to Spain – the current
holder of the EU's rotating presidency – to prepare the summit with José Luis Rodríguez Zapatero,
Spain's prime minister.

European Union (EU): Eurozone unemployment jumped to an 11-year high in November and is
likely to rise further this year, adding to the instability of an economic recovery now based on fickle
inventory rebuilding and exports. Unemployment across the 27 EU member states is set to worsen in
2010, and may not begin to fall until 2011, the European Commission said in its annual Joint
Employment Report on 15 December. According to the latest Commission forecasts, unemployment
will worsen over the course of 2010, peaking towards the end of the year at approximately 10.3 per
cent. This would mean that a total of 28 million Europeans should be out of work in a year's time.

European Parliament (EP): The European Parliament on 15 December gave the go-ahead for a
scheme to help unemployed people to set up their own businesses. The scheme makes a 100 million
euros budget for 2010 to 2014 available to national, regional and local financial institutions through
the European Investment Bank. Its aim is to guarantee small-scale loans for setting up businesses. The
economic crisis could also present an opportunity to harmonise taxation policy across EU member
states, according to officials at the European Parliament who contributed to a major report on the
future development of the EU. Unified corporate tax rates, a long-standing target of European
federalists, is set out as an objective. This will cause controversy in some corners, not least in Ireland,




which last year was given assurances by European leaders that the Lisbon Treaty would not affect its
relatively low corporate tax regime.

European Commission (EC): Europe's economic recovery depends on greater fiscal co-ordination
and speaking with a single voice at global economic fora, Olli Rehn, the EU's incoming economic and
monetary affairs commissioner, told MEPs at a parliamentary hearing on 11 January. Two concrete
points to emerge from the hearing were Rehn's insistence on the adoption of the EU's new financial
supervisors and the creation of a single EU representative to participate in international economic
fora like the G20. Rehn said he would be issuing a recommendation for a single representative in the
coming months.

European Investment Banks (EIB): In 2009, the EIB provided 2.5 billion euros in 16 credit lines
for financing the investment projects (1 955 million euros) and local authorities (545 million) in Spain.
These credit lines are managed by Spanish financial institutions, which, under agreements signed with
the EIB, match the amount provided, bringing the total made available to SMEs and local authorities to
5 billion euros.

International Monetary (IMF): The IMF is launching a consultative process as it begins to
examine policy options for how governments can recover public money that was used to support
banks and other financial institutions during the current crisis. Some form of financial sector tax is one
of the options under examination.

World Bank (WB): The World Bank, the European Bank for Reconstruction and Development and
fund manager CRG Capital said on 11 January that they had launched a fund to buy toxic assets in
Central and Eastern Europe hit by the global financial crisis. The CEE Special Situations Fund will raise
some 200 million euros to buy or invest in corporate distressed assets in the region to aid its recovery
from deep recession.

EPP Views
Joseph Daul believes that the Commissioners-Designate will be judged "on their European
commitment, which must be beyond doubt", but also "on their ability to manage their respective
portfolios." At a time when unemployment in Europe is greater than 10 per cent, the Commission
needs experts. This should be ensured at the Hearings and throughout the mandate of the Barroso II
Commission.

Following several months of negotiations managed by rapporteur László Surján, the EU Budget for
2010 was adopted with clear support from the European Parliament at the Strasbourg plenary session
on 17 December. The EPP Group considers this result as a great success, as the budget will provide




further support for Europe in the economic recovery. In order to manage the crisis and to stimulate
the economy, the 2010 budget provides significant funds to support the recovery. The EPP Group
welcomes the fact that several programmes, initiated by Members of the EPP Group, were
incorporated into the budget. On account of these efforts, the budget, for example, ensures financial
support for creating a European Microfinance Facility programme that will provide micro-credits to
small businesses with the aim of improving social inclusion and job-creation. The 300 million euros
infusion in the dairy industry in order to manage the milk crisis is also an achievement of the greatest
importance. The budget includes the completion of the financing of the European Economic Recovery
Plan, out of which 1.98 billion euros will be spent on energy projects, and 420 million euros dedicated
to rural development.

The European Parliament adopted a Resolution on “the prospects for the Doha Development Agenda
(DDA) following to the Seventh WTO Ministerial Conference” reflecting the strong input of the EPP
Members of the International Trade Committee. The EPP Group reiterates its commitment to the
multilateral trading system and the WTO as the guarantor of a rule-based trade system which has a
key role to play in ensuring better management of globalisation and in stimulating worldwide
economic recovery after the financial and economic crisis. The second day of the EPP Group's Study
Days began with a debate on helping political and economic integration and social cohesion in the
new Member States.

OUR COMPETITORS’ VIEWS
S&D

The S&D spokesman for Economic and Monetary Affairs, Udo Bullmann, commented after a three-
hour hearing at the EP in Brussels that the nominee for new EU Economic and Monetary Affairs
Commissioner “lacks ambition and vision”. He added furthermore that: "We took note of his
commitment to a framework for services of general interest and also that he is open to demands for
the introduction of Eurobonds and a financial transaction tax. We share the key priority of relaunching
growth and employment - and we will support his efforts to fight tax fraud and evasion. However, he
failed to provide sufficient detail in his responses, for example on the exit strategy in the recession.”

The S&D Group believes that an effective and reformed multilateral trade framework is needed to
build a more balanced and fair economic system as part of new global governance at the service of
development and the eradication of poverty. Therefore the S&D Group reaffirms the indispensible role
of the WTO and the need to improve multilateral trade rules.

S&D leader Martin Schulz mounted an attack on “the money-driven economy” , pledging to control
financial markets, close tax havens, curb uncontrolled speculation and tackle climate change in a
serious way. He roused delegates at the Party of European Socialists’ Congress in Prague with a call for




defense of working people’s interests, solidarity with the poorest people in the world and action to
ensure that no jobless young person “is left by the side of the road”. Mr Schulz attacked bankers for
their failure to use the public funds they received during the financial crisis to make loans to small
businesses.

ALDE
The Alliance of Liberals and Democrats for Europe is satisfied with the results of the negotiations with
the Council on the budget for 2010 which will allow financing of the last section of the European plan
for economic recovery. ALDE group leader, Guy Verhofstadt, presented the strategic priorities of the
Liberals and Democrats for the incoming members of the European Commission who face a series of
hearings in January before being approved. Verhofstadt said that the next five years will be critical
and the current economic and environmental situation requires a fundamental rethinking of how we
structure our economy and our society. The ALDE group believes the EU should focus its efforts on
five broad priorities, amongst them: tackling the economic and financial crisis and rethinking the EU
budget and system of own resources.

FROM THE BLOGOSPHERE…
The Growing Role of the EIB: Roberto Foa comments on the significance of the European Investment
Bank for the EU.

Do Europeans want a dynamic economy?: The Economist’s Charlemagne columnist analyses failure of
the Lisbon Strategy

Enjoy the cheap money while it lasts: Hamish McRae states there is a troubling possibility that rising
interest rates will choke off the recovery

UPCOMING EVENTS
Event: Meetings of finance ministers - Eurogroup and ECOFIN

Date: 18 – 19 January 2010, Brussels

Event: EU Special Summit on EU Economic Policy

Date: 11 February 2010, Brussels




Editor: Roland Freudensteinffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffff
Research Assistance: Katarína Králikovácccccccccccccccccccccccccccccccccccccccccccccccccccccccccccc
Additional Assistance: Xochil Guillen, Diana Wasilewska, Patricia Murraybbbbbbbbbbbbbbbbbbbbbb
Design: José Luis Fontalbaccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccc
Questions and comments: briefs@thinkingeurope.eu


Economic Recovery Wach 14 January 2010

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