Leading article: The wrong priority

Share
Related Topics

The European Commission is not only locking the stable door after the horse has bolted; it also appears to be installing a faulty lock. Yesterday the Commission unveiled plans to impose automatic fines on EU states that allow their public borrowing to breach certain limits.

The Commission's concern with sovereign debt levels across the EU is understandable. Bond markets are alarmed by the soaring public debt of all eurozone nations and in particular the so-called "PIIGS": Portugal, Ireland, Italy, Greece and Spain. Investors fear that there will be a default and, as a result, are pushing up the rates at which these countries can borrow. With these new rules, the Commission hopes to inject some confidence back into financial markets. And it cannot be denied that the previous EU arrangements, the Stability and Growth Pact, manifestly failed to impose fiscal discipline.

Yet the Commission appears to be missing the point about the crisis. Though Greece's borrowing was out of control, Ireland and Spain had modest levels of public debt levels before the downturn began. Spain even ran a budget surplus. The crisis in these economies was the result of the massive indebtedness of the private sector and the reckless property lending of their banks. It is to private debt, as much as public debt, that the Commission needs to direct its attention.

The other problem with these new rules is that the Commission is not addressing the immediate crisis facing nations on the eurozone periphery. When nations such as Spain, Greece and Ireland have suffered severe economic shocks in the past their currencies have depreciated, giving a boost to their exporters and helping them to grow their way out of trouble. But this time they are locked into the single currency: there can be no depreciation. And it is the removal of this safety valve which is making it so difficult for them to recover from this slump.

A balanced public budget alone is not the solution for these economies. Ireland has imposed severe public sector austerity over the past year in order to bring down its budget deficit but this has not resulted in the rebound in confidence that was hoped for. Indeed Ireland seems to be perilously close to the second leg of a double-dip recession. The EU Commission needs to broaden its thinking. By focusing on sovereign debt levels, it is missing the larger crisis in European economies.

React Now

Latest stories from i100
iJobs Job Widget
iJobs General

Recruitment Genius: PHP Developer - 3-4 Month Fixed Contract - £30-£35k pro rata

£30000 - £35000 per annum: Recruitment Genius: This is a 3-4 month pro rata fi...

Recruitment Genius: Telesales Executive - OTE £26,000+

£16000 - £26000 per annum: Recruitment Genius: A Telesales Executive is requir...

Recruitment Genius: Area Sales Manager

£25000 per annum: Recruitment Genius: This is an exciting opportunity to join ...

Recruitment Genius: Freight Forward Senior Operator

£22000 - £26000 per annum: Recruitment Genius: This logistics firm are looking...

Day In a Page

Read Next
The message displayed on the monitor of a Piraeus Bank ATM in Athens. The Bank of Greece has recommended imposing restrictions on bank withdrawals  

Get off your high horses, lefties – Big Government, not 'austerity', has brought Greece to its knees

Kristian Niemietz
A church in South Carolina burns after a fire breaks out on June 30, 2015  

America knows who has been burning black churches, but it refuses to say

Robert Lee Mitchell III
Seifeddine Rezgui: What motivated a shy student to kill 38 holidaymakers in Tunisia?

Making of a killer

What motivated a shy student to kill 38 holidaymakers in Tunisia?
UK Heatwave: Temperatures on the tube are going to exceed the legal limit for transporting cattle

Just when you thought your commute couldn't get any worse...

Heatwave will see temperatures on the Tube exceed legal limit for transporting cattle
Exclusive - The Real Stories of Migrant Britain: Swapping Bucharest for London

The Real Stories of Migrant Britain

Meet the man who swapped Romania for the UK in a bid to provide for his family, only to discover that the home he left behind wasn't quite what it seemed
Cheaper energy on the way, but it's not all sunshine and rainbows

Cheaper energy on the way, but it's not all sunshine and rainbows

Solar power will help bring down electricity prices over the next five years, according to a new report. But it’s cheap imports of ‘dirty power’ that will lower them the most
Katy Perry prevented from buying California convent for $14.5m after nuns sell to local businesswoman instead

No grace of God for Katy Perry as sisters act to stop her buying convent

Archdiocese sues nuns who turned down star’s $14.5m because they don’t approve of her
Ajmer: The ancient Indian metropolis chosen to be a 'smart city' where residents would just be happy to have power and running water

Residents just want water and power in a city chosen to be a ‘smart’ metropolis

The Indian Government has launched an ambitious plan to transform 100 of its crumbling cities
Michael Fassbender in 'Macbeth': The Scottish play on film, from Welles to Cheggers

Something wicked?

Films of Macbeth don’t always end well - just ask Orson Welles... and Keith Chegwin
10 best sun creams for body

10 best sun creams for body

Make sure you’re protected from head to toe in the heatwave
Wimbledon 2015: Nick Bollettieri - Milos Raonic has ability to get to the top but he must learn to handle pressure in big games

Nick Bollettieri's Wimbledon files

Milos Raonic has ability to get to the top but he must learn to handle pressure in big games
Women's World Cup 2015: How England's semi-final success could do wonders for both sexes

There is more than a shiny trophy to be won by England’s World Cup women

The success of the decidedly non-famous females wearing the Three Lions could do wonders for a ‘man’s game’ riddled with cynicism and greed
How to stop an asteroid hitting Earth: Would people co-operate to face down a global peril?

How to stop an asteroid hitting Earth

Would people cooperate to face a global peril?
Just one day to find €1.6bn: Greece edges nearer euro exit

One day to find €1.6bn

Greece is edging inexorably towards an exit from the euro
New 'Iron Man' augmented reality technology could help surgeons and firefighters, say scientists

'Iron Man' augmented reality technology could become reality

Holographic projections would provide extra information on objects in a person's visual field in real time
Sugary drinks 'are killing 184,000 adults around the world every year'

Sugary drinks are killing 184,000 adults around the world every year

The drinks that should be eliminated from people's diets
Pride of Place: Historians map out untold LGBT histories of locations throughout UK

Historians map out untold LGBT histories

Public are being asked to help improve the map