Crisis Intensifies Debate on EU Employment Strategy

by Andre Willis

EUOBSERVER / BRUSSELS - European Commission president Jose Manuel Barroso admitted on Thursday (12 March) that unemployment is soaring in the European Union, but insisted that the necessary safety-nets are in place to protect citizens.

"The European social model is working …working much better than the financial system or the economy as a whole," he said, referring to the stymied banking sector and the fall in EU growth that have dominated the political agenda for the last six months.

"When people lose work in Europe we don't consider it to be their fault – we don't just put them on food stamps," he said, adding that the European model had a lot to offer other countries around the world, particularly in the area of "automatic stabilisers" (social security payments).

"We would like others to work on these matters," he said, in an apparent reference to the United States, where unemployment benefits are considerably lower than in Europe.

The debate over stimulus spending has intensified in recent days following calls by Larry Summers, chief economic advisor to US president Barack Obama, for governments around the world to increase their spending to fight the economic downturn.

His call has not found favour with many eurozone governments, which are extremely reluctant to add to already high levels of public debt and who argue that the EU stimulus package will reach 3.3 percent of GDP, if the stabilisers are included.

Mr Barroso's comments came after a meeting with the secretary general of the European Trade Union Confederation, John Monks, and President of Business Europe, Ernest-Antoine Seilliere, to discuss measures to deal with rising unemployment, predicted to reach 10 percent in the EU by the end of this year.

The three agreed on the importance of worker retraining and the use of flexi-time to reduce unemployment. A number of consultative meetings have been scheduled for the coming weeks before an EU leaders summit in May that will concentrate on jobs.

Figures released by Eurostat in January show EU27 unemployment on 7.6 percent (representing 18.4 million people), ranging from 2.8 percent in the Netherlands to 14.8 per cent in Spain.

Mr Seilliere predicted the crisis will cost 4.5 million more European jobs this year.

Lisbon Agenda

The precarious situation has added to the discussion on the merits on the bloc's longterm growth strategy – known as the Lisbon Agenda - and what should follow in its footsteps after 2010, when it is due to expire.

"The Lisbon Agenda is not the cause of the current crisis. On the contrary, it is the answer to it," said Jakub Durr, deputy education minister of the Czech Republic, currently holding the EU's six-month rotating presidency.

The Lisbon Agenda, agreed by EU leaders is 2000, set out to make Europe "the most competitive and dynamic knowledge-based economy, capable of sustainable economic growth, with more and better jobs and greater social cohesion" by 2010.

Mr Durr was speaking on Thursday at the launch of a new survey that monitors how the largest 14 EU economies are performing in reaching the goals set out under the Lisbon Agenda.

Despite the frequent criticism of government inactivity in recent years, the survey suggests that six of these states would have met the Lisbon targets had it not been for the financial crisis. Target areas include human capital, growth, jobs and sustainability of public finances.

The six states on target were Finland, Greece, the Netherlands, Poland, Spain and Sweden. Prof Michael Heise, chief economist with Allianz SE who presented the survey, said that despite news reports to the contrary, the economies of Poland and Spain were on a solid footing.

Finland topped the survey's scoreboard whereas Italy came in last place. Ireland dropped the greatest number of places since last year's report, due to growth of a "superficial" nature Mr Heise said, boosted by a credit and a housing bubble.

Source: www.euobserver.com

Brussels Pushing Finance Deregulation in Third World

by Leigh Phillips

EUOBSERVER / BRUSSELS - While EU and other global leaders have talked tough about re-regulating the financial sector in the wake of the economic crisis, they remain committed to pushing through banking deregulation in the developing world via trade deals.

This strategy is undermining poverty reduction in these countries and is reproducing the same type of circumstances that led to the crisis in the first place, warns a new report published on Wednesday (11 March) by the World Development Movement, an UK-based anti-poverty NGO.

Both via the WTO negotiations on a General Agreement on Trade in Services (GATS) and potential EU bilateral or regional trade deals with 34 countries in Latin America, Asia and the Mediterranean, the bloc continues to push for the lifting of restrictions on how Western banks operate in developing countries.

The EU In 2002, via "GATS" global trade talks, requested that 94 countries open up their financial industry, 20 of which were least developed countries and 30 were low income countries.

A financial services component of GATS would mean that countries would not be able to introduce new rules that are more restrictive than those already operating, making it difficult to pass laws on risky trading such as "short-selling" or to limit the numbers of service providers or the number of transactions.

All new financial services would also have to be permitted, giving the green light to the very same complex financial products that have been held responsible for the creation of the toxic asset problem in the north.

Also under GATS, full ownership by foreign banks would be allowed, which can make it hard for a host country's financial supervisor to monitor the foreign bank's activities and to ensure it is acting in the interests of the host country.

Even in the EU, the problem of foreign bank ownership is exacerbating the crisis in the east. The tap of credit to much of eastern Europe - where most of the banks are owned by Austrian, Swedish and other EU parent companies - today has been all but turned off, as the owners focus on provision of credit in their home markets.

After seven years of talks, however, countries are still haggling over a GATS deal, and the EU has sought bilateral and regional trade deals to get over the impasse.

The bilateral strategy, known as "Global Europe," seeks to remove regulations on European financial service companies, along with other liberalising measures in a range of sectors, in case a deal at the WTO level is not reached.

The EU trade deals already signed with Chile and Mexico contain substantial chapters on financial services, while the Caribbean Economic Partnership Agreement with the EU signed in October last year contains many of the financial liberalisation clauses proposed in GATS. Similar pressure on central American nations is being brought to bear to open up their financial sectors.

The report reveals that where banking liberalisation has occurred, looking in particular at India and, crucially, Mexico - home to one of the most liberalised financial sectors in the world, with 80 percent foreign ownership, poor people and small businesses see their access to credit, bank accounts and other financial services restricted.

At the same time, where such credit does exist, it is in the form of credit cards, car loans or mortgages, boosting spending on consumer items rather than productive sectors of the economy such as farming or manufacturing.

On Monday (9 March), UK Prime Minister Gordon Brown himself spoke out against the "do as we say, not as we do" attitude of Western countries regarding economic policies promoted to the developing world.

At an international development conference in London, he announced that he would push the World Bank and other wealthy nations to create a new fund for developing countries to help the poor through the crisis, although he did not attach any figures to the idea.

While there, he criticised the imposition of "economic orthodoxy" on the developing world.

"Too often in the past our responses to such crises have been inadequate or misdirected - promoting economic orthodoxies that we ourselves have not followed and that have condemned the world's poorest to a deepening cycle of poverty," he said.

The World Development Movement (WDM) however, says that there is an acute contradiction between such leaders' words and deeds in pushing for financial deregulation in the third world.

"On the one hand, Gordon Brown has developed a mantra of tough talk on the re-regulation of banks," said Benedict Southworth, the director of WDM. "On the other, together with other European leaders, he is aggressively pushing free trade deals which demand that developing countries follow a deregulated and liberalised banking model."

"That model has clearly and spectacularly failed here and has also failed poor people in the developing countries," she added.

The study highlights how the presence of European banks in developing countries has resulted in foreign banks cherry-picking the richer customers, resulting in an overall decline in services and credit for others, and notably to rural areas.

In urban areas where foreign banks are concentrated, low-income householders and small businesses struggle to meet the criteria to open an account, let alone to receive a loan.

In response, WDM is calling for financial services liberalisation to be reoved from from proposed bilateral and multilateral EU trade deals.

An official with the European Commission told EUobserver that they were studying the report very closely, but that the report's authors had "confused liberalisation with deregulation."

"Market access for European financial service providers in no way restrains the ability of countries to regulate financial services," the official said. "The question is whether such moves become protectionist."

Source: www.euobserver.com

Sustainable Forest Management Could Net 10 Million New Jobs

10 March 2009 – Ten million new “green jobs” can be created by national investments in sustainable forest management, the United Nations Food and Agricultural Organization (FAO) said today.

“As more jobs are lost due to the current economic downturn, sustainable forest management could become a means of creating millions of green jobs, thus helping to reduce poverty and improve the environment,” said Jan Heino, Assistant Director-General of FAO’s Forestry Department.

Since forests and trees are vital storehouses of carbon, such an investment would also make a major contribution to climate change mitigation and adaptation efforts, he said.

Jobs in forest management include agro-forestry and farm forestry, improved fire management, development and management of trails and recreation sites, expansion of urban green spaces, restoring degraded forests and planting new ones.

A number of countries, including the United States and the Republic of Korea, have included forestry in their economic stimulus plans, and it is an important component of India’s rural employment guarantee programme, FAO said.

Employment in sustainable forest management will be a major topic of World Forest Week, to be held in conjunction with FAO’s Committee on Forestry, 16 to 20 March in Rome.

Source: www.un.org

EU Leaders Paper Over Divisions on Economic Crisis

EUOBSERVER / BRUSSELS - Just hours after the European Commission approved a French car aid plan, EU leaders on Sunday (1 March) sought to put a lid on damaging divisions in the bloc on how to deal with the financial crisis by saying that none of its member states is being protectionist.

"We agreed that there is no case that we see as protectionist," said Czech prime minister Mirek Topolanek, who called the informal gathering of EU leaders to discuss the threat of protectionism.

Downplaying the public spat between Paris and Prague sparked by French comments against car companies relocating to eastern Europe, the Czech leader added: "We agreed that this is rather more a media thing than reality".

The summit had been called on the back of rising fears that internal market rules would be breached as countries sought to protect industries, particularly the car sector, from haemorrhaging jobs.

Bullish talk by Mr Sarkozy in the run-up to the summit on his right to protect industry had led to tension around the EU. But the heat was taken out of the summit after a u-turn by the French government relaxing some of the conditions for its €6 billion car industry aid plan, meaning the European Commission could give its approval to the plan just ahead of the summit.

Bad word - bad idea

After Sunday's meeting French president Sarkozy told reporters that protectionism was a "bad word" and a "bad idea."

Polish prime minister Donald Tusk, who chaired a pre-summit gathering of nine central and eastern European states said: "Everybody without exception agreed that protectionism is not a cure for the crisis. We also reached agreement that the EU will jointly try to stabilise currencies, no matter how many countries are in the eurozone."

European Commission president Jose Manuel Barroso noted that "it was very clearly stated that the internal market is the engine for recovery."

There was also a concerted effort to stop talk of an east-west divide as richer member states look to spend their way out of the crisis.

Mr Barroso stressed that each country has to be looked at on its own merits and that the region could not be viewed as a homogenous whole, while Czech prime minister Topolanek said: "I think it is clear that the EU is going to leave nobody in the lurch."

No bailout for eastern Europe

However, a push by the new member states to speed up the procedure for entering the eurozone as a way of helping them cope with the economic crisis was rejected by other EU member states. A proposal by Hungary to set up a fund of at least €160 billion for central and eastern European countries was also turned down.

German chancellor Angela Merkel rejected the need for a one-size-fits-all bailout, saying the situation in Hungary - which has been hard hit by the global credit crisis - cannot be directly compared to other countries in the region.

The final statement of the summit says that protectionism is "no answer to the current crisis" and has a line saying that support for "parent banks should not imply any restrictions on the activities of subsidiaries in the EU host countries." Eastern member states fear that if parent banks in western countries get into financial trouble they could withdraw capital from their daughter banks in eastern Europe.

Although diplomats said there was a harmonious atmosphere around the table, little of substance was agreed.

Business group Eurochambres complained about the results of the meeting, saying there were no "tangible actions."

"This summit was yet another rather unproductive political showpiece, bringing no concrete solutions to the dramatic economic situation and showing a worrying lack of economic co-ordination among member states. We deeply hope that the spring European Council will do better in a couple weeks time," said secretary general Arnaldo Abruzzini.

EU leaders are due to meet for their regular spring meeting on 19-20 March.

Source: www.euobserver.com

EU Reaches Agreement on Reduced VAT Rates

by Andrew Willis

EUOBSERVER / BRUSSELS - EU finance ministers reached a political agreement on Tuesday (10 March), enabling member state governments to reduce Value Added Tax in a number of energy intensive service sectors.

Under the current EU directive controlling the sales tax, member states are not allowed to reduce VAT below 15 percent. Following Monday's decision, governments will be able to reduce the tax to as low as 5.5 percent in a number of areas, including the restaurant sector.

"Some of the issues we solved today have been on the agenda for over ten years," said taxation commissioner Laszlo Kovacs, who attended the meeting.

The French government has pushed hard for reduced VAT rates, especially in the restaurant sector, but up until today it has faced considerable opposition from the German government over concerns of reduced tax revenue.

Fears also existed that variable VAT rates amongst member states could cause considerable price differences throughout the European Union.

The agreement will allow service areas where reduced VAT levels already exist to maintain the derogation beyond the previous deadline of 2010.

These service areas include bicycle repairs, hairdressing, renovation of private dwellings and window-cleaning.

Domestic care services for children, the elderly, sick, and disabled are also eligible for reduced VAT rates.

Mr Kovacs stressed that member states were not being forced to reduce the sales tax. "I want to underline that reduced rates are not an obligation, it's an option," he said.

So while EU citizens may now pay less for a ‘plat du jour' in Paris, there is no guarantee this will be the case in other capital cities.

Bulgaria, Denmark, Estonia, Germany and Lithuania attached a statement to the ministers' agreement saying they "do not wish to make use of the extended scope of VAT rates."

There was praise for Czech finance minister Miroslav Kalousek, who chaired the meeting, that ran over time by more than four hours as member states insisted on numerous amendments to the negotiating text provided by the Czech presidency.

Speaking after the meeting, Mr Miroslav said ministers had also reached an agreement on the main document on the economic situation to be submitted for adoption by EU leaders at a summit on 19-20 March.

He also said they had agreed on a common EU position for the G20 finance ministers' meeting this coming Saturday and the leaders summit on 2 April in London.

Economy commissioner Joaquin Almunia expressed his satisfaction that finance ministers had adopted the stability and convergence programmes for 21 EU states, documents that outline government taxation and spending plans for the next few years.

Source: www.euobserver.com

The Signing of Economic Agreements at the 14th ASEAN Summit

Cha-am, Thailand, 1 March 2009

ASEAN Economic Ministers met on 26 February 2009 at the sidelines of the 14th ASEAN Summit to sign the ASEAN Trade in Goods Agreement (ATIGA), ASEAN Comprehensive Investment Agreement (ACIA), Protocol to Implement the 7th Package of Commitments under ASEAN Framework Agreement on Services (AFAS), Agreement Establishing the ASEAN-Australia-New Zealand Free Trade Area (AANZFTA), and Protocols on the Accession of Thailand to the ASEAN-Korea Agreement on Trade in Goods and the Agreement on Trade in Services.

The ATIGA integrates all existing ASEAN initiatives related to trade in goods into one comprehensive framework, ensuring synergies and consistencies among those various initiatives. It contains a number of key features that would enhance transparency, certainty and predictability within the ASEAN legal framework, and enhance ASEAN Free Trade Area’s rules-based system, which is of importance to the ASEAN business community.

The ACIA incorporate elements of investment liberalisation, promotion, awareness, facilitation, and protection. Investment liberalisation will be progressive with a view towards achieving a free and open investment environment in the region in line with the goals of the ASEAN Economic Community (AEC). The comprehensive provisions of ACIA improve investors’ confidence in the region and encourage further development of intra-ASEAN investment, especially among multinational corporations based in ASEAN through expansion, industrial cooperation and specialisation. It will contribute to enhancing economic integration.

The Secretary-General of ASEAN Dr Surin Pitsuwan said, “The ATIGA and ACIA allow for a streamlined, consolidated, predictable and transparent set of rules that will facilitate businesses to operate more efficiently in the ASEAN region”.

The 7th Package is the most ambitious of commitments made to date under AFAS in line with the targets set under the AEC Blueprint. These include the
movement of services supplied across border without restrictions, committing higher foreign equity levels, and progressively removing other restrictions. “Under the 7th package, ASEAN Member States are expected to continue expanding the depth and breadth of their services commitments towards achieving free flow of services by 2015,” Dr Surin said.

The ASEAN Economic Ministers also met their counterparts from Australia and New Zealand, and the Republic of Korea (ROK) to sign landmark agreements that are meant to reinforce ASEAN’s outward-looking strategy.

Dr. Surin lauded the signing of the Agreement Establishing the ASEAN-Australia-New Zealand Free Trade Area (AANZFTA), the single most comprehensive economic agreement entered into by ASEAN to date. “The AANZFTA Agreement is an important milestone not only for the ASEAN Economic Community but also for Australia and New Zealand’s Closer Economic Relations,” according to the Secretary-General. The Agreement is expected to create an open market of over 600 million people with a combined GDP of US$ 2.3 trillion, based on the IMF’s 2007 figures.

With the Republic of Korea, Ministers signed two Protocols on the accession of Thailand to the Agreement on Trade in Goods and the Agreement on Trade in Services under the ASEAN-Republic of Korea Framework Agreement on Comprehensive Economic Cooperation. Dr. Surin welcomed Thailand’s accession to the two agreements and is delighted that “ASEAN as a regional entity is finally on the road to creating a genuine free trade area with the Republic of Korea.”

On the ASEAN-India FTA, ASEAN Member States had secured the mandate and were prepared to sign four Agreements with India, including the much-awaited Agreement on Trade in Goods under the Framework Agreement on Comprehensive Economic Cooperation between ASEAN and India. However, the request by India in early February 2009 for a change in the effective date of entry into force of this Agreement required an amendment to the finalised Agreements. This would result in ASEAN Member States needing more time to undergo another round of domestic processes to seek Cabinet/Parliament approval for signing. “It is unfortunate that India could not join us in Cha-am, Thailand,” said the Secretary-General of ASEAN. Nevertheless, ASEAN remains committed and hopeful that both Parties could sign the Agreement within the shortest possible time, and create the ASEAN-India Free Trade Area by 2012.

Source: ASEAN Updates