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At EU Summit, a New Focus on Growth, Not Just Austerity

January 30, 2012 at 12:00 AM EDT
Margaret Warner speaks with Jeffrey Brown from the European Union summit in Brussels, where there's a new emphasis on the need for growth, not just austerity measures, to keep the continent from facing another recession.
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JEFFREY BROWN: I talked with Margaret a short time ago after she filed that report.

Margaret, the pattern we have watched has been an agreement and a sigh of relief followed by a new realization of just how bad things are. So, where are we now? What kind of urgency do you sense at this meeting?

MARGARET WARNER: Well, there’s a great sense of urgency at this meeting.

The European leaders know that, as you said, they seem to try to solve this crisis at every summit, and the markets don’t see it that way. Credit ratings not only of the countries really in trouble, but most European countries, have been steadily knocked downward.

And what’s worse — which costs them more to borrow — and then what’s worse is that in this year-and-a-half of budget cuts and tax hikes, that growth has really slowed dramatically, from about 2 percent Europe-wide in 2010 to a percentage-and-a-half last year, projected to only be half-a-percent next year. So they know something has to be done.

JEFFREY BROWN: And as you said in your report, Greece, which we have talked about so many times on the program and seemed to be some resolution, well, it’s still there right in the midst of all the problems, right?

MARGARET WARNER: Right, Jeff.

I mean, one, these negotiations with the private creditors are grinding on. But the deeper thing that’s in the air here is this mistrust of the Greek government’s ability and commitment to actually carry out reforms. There’s a so-called troika down there observing what Greece is doing now from the European Central Bank, the E.U., and the IMF.

And what they are finding, I’m told, is that even the reforms they do are really more sleight of hand. One example. They’re supposed to cut their state work force. Well, the people they let go were all within a year of retirement and about to go on generous pensions. And that’s apparently quite typical.

The sense here is that the other political parties are biding their time until the next election. They’re not really letting anything happen. And I just came from a press conference by Angela Merkel, the German chancellor, who said all the political parties have to do their part and all these countries — I mean, everybody in Greece has to live up to these promises.

But there was a story floated in The Financial Times last Friday that Germany was circulating a document to make Greece have to agree to have some sort of E.U. super commissioner who could veto its budget decisions as a price for getting the next bailout fund. And one Western diplomat to me, you know, the days of Greeks promising to reform and us promising to believe them is over.

JEFFREY BROWN: Now, austerity, of course, is still the name of the game.

But you’re — you’re sensing a new emphasis on and a new awareness of the need for growth. Tell us what you’re hearing. Tell us what they’re talking about there.

MARGARET WARNER: Well, the Europeans realize that it’s not only that they can’t — if they don’t start growing, they can never cut their way out of debt.

But as one diplomat said to me here, we hear in the U.S. and elsewhere in the world this sense that Europeans are so obsessed with austerity that they’re about to use, austerity measures are going to kill the patient. So they wanted to send a signal really to the world and to investors that they’re taking growth seriously.

That said, some of the measures they talked about today and that they are going to sign off — that they signed off on to use some existing funds within the European Union to help apprentice programs get going or help small- and medium-sized businesses, they’re not insignificant, but they aren’t, as I said in my piece, really going to have — be able to jump-start economic growth.

JEFFREY BROWN: And in the meantime, Margaret, this still unresolved question — and this goes back to where we started of the urgency here — the unresolved question of the overall size of the bailout, of any bailout.

MARGARET WARNER: Absolutely, Jeff.

And this was actually a huge issue, really erupted at the Davos World Economic forum last week, where really the international community ganged up on Germany over this. Everybody from the French and British finance ministers, to Christine Lagarde, head of the IMF, to Timothy Geithner, the U.S. treasury secretary, all said, the firewall which — as they call it, this sort of bailout fund that’s supposed to signal to the world that you can go after Italy and Spain all you want, we’re going to protect them, we’re going to stand behind them, it’s currently set at about 550 billion euros, that that needs to increase at least up to 750 billion.

But, Germany, which, of course, has most of the money, is resisting. And Angela Merkel last week in Davos and her finance minister made clear they think if the bailout fund is bigger, then it removes the incentive for the debtor countries to really do the tough stuff.

So, that was sidestepped here today. And it will go back to their finance ministers, but that has not really come to terms with. I have to say, too, that Merkel is reflecting her own population, her own public. There was a poll last week by a major German network said that only — three-quarters of Germans do not want the bailout fund increased.

JEFFREY BROWN: Well, Margaret, of course, it’s an E.U. meeting, but it’s much watched here in Washington and beyond because of the stakes for the U.S. and the global economy.

MARGARET WARNER: Absolutely, Jeff. Think of it this way. The E.U. is the United States’ greatest trading partner. A quarter of all U.S. exports go to the E.U.

And so if the E.U. slips into recession, it stops buying goods, the U.S. is going to have a very hard time boosting its own economic growth.

JEFFREY BROWN: All right, Margaret Warner in Brussels, thanks so much.

MARGARET WARNER: Thanks, Jeff.