EU reform leads to “fragile” shoots of recovery

The only credible reaction to the effective suspension of the EU's notoriously misnamed Stability and Growth Pact is "good riddance", said Wolfgang Munchau in the Financial Times: In the end, the pact exploded because of its legal and economic contradictions. The trouble was not so much its lack of flexibility, as its adherence to an arbitrarily chosen target set out in the Maastricht treaty - a deficit-to-gross-domestic-product ratio of 3% that proved impossible to meet - when the real goal should have been the long-term sustainability of debt.

The ease with which the pact has been torn to shreds certainly reveals a "power vacuum" at the heart of the EU, said Ambrose Evans-Pritchard inThe Daily Telegraph. And it coincides with growing alarm in the financial markets about the mushrooming debt in weaker eurozone states. Yet the main downside of the pact was surely that it gave too much emphasis to stability and not enough to growth, said Larry Elliott in The Guardian. As one German finance minister remarked, it "made the corset too tight" and "ended up doing the opposite of what it intended to do". A single currency zone needs a set of rules, "but not a set of rules that turns downturns into recessions, and recessions into slumps". No wonder then that Gerhard Schrder's popularity rating is at an all-time low.

Don't get too excited, said Anatole Kaletsky in The Times. In the end, this is unlikely to make any short-term difference to Europe's dire economic conditions. Released from their strait-jackets, the German and French governments could, in theory, announce radical Keynesian programmes of tax reduction and counter-cyclical spending to reduce unemployment and stimulate domestic demand, which remains chronically weak. In practice, nothing of the kind will happen.

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In fact, fiscal policies across Europe are set to become more restrictive - good news for bean counters, but bad for economic growth. The upshot is that the eurozone "seems set to remain an island of mass unemployment in a booming global economy for the next year or two".

The picture is by no means all doom and gloom, said the Financial Times. A flurry of relatively bullish economic reports in Germany this week suggest that Berlin's forecast of 1.5%-2% growth this year is assured. And the fact that France and Germany appear to be loosening the bonds of the 35-hour week demonstrates that the continental European economy "is far less sclerotic than critics maintain". Nonetheless, Germany's rosier growth figures are mainly down to exports, which may weaken as the rising euro takes its toll. Within the country, domestic demand, private consumption and "animal spirits" all remain subdued. Thus, while there are certainly signs of recovery in the eurozone, they remain "fragile and vulnerable" - with or without the Stability Pact.