What can the EU do to tackle the global recession?

Civitas, 20 March 2009

The International Monetary Fund recently forecast that the world economy will contract by 0.6% desipte the earlier prediction that it would grow by 0.5%, writes Kyial Arabaeva. At a time of deepening recession, increasing unemployment, soaring prices and gloomy economic prognosis by economists and experts who claim that the global economy will get worse before it gets better, debate about the current economic turmoil is certain to become more heated.

So, what could be done to tackle the recession? What could the international community and particularly supranational bodies such as the EU do about it?

During a talk by the Economic and Social Research Council on Global Poverty and the Recession yesterday, when asked what the EU should do to tackle the recession, the panel members did not give exhaustive answers, except to say that the EU should avoid protectionism. This could be because people are sceptical about how much influence the EU really has.

Now the world is awaiting the recommendations of the forthcoming G20 summit of the world leaders in London on 2nd April i.e. whether they can come up with unified solutions to the crisis. However, the previous G8 summit did not bring any concrete proposals.

Meanwhile, EU leaders are meeting in Brussels ahead of the G20 meeting to discuss possible reform of the financial sector.

The EU must take decisive measures to tackle unemployment, which is currently one of the bloc’s biggest challenges. Unemployment brought millions of  protesters to the streets of France this week, who blame the French government for enacting  ineffective policies. The unemployment rate  in France has reached 8% and is expected to continue to rise. Similar strikes have erupted in other EU member states, including Italy. Britain expects to see demonstrations prior to the forthcoming world leaders’ summit because charities and trade unions are planning to call for world leaders to “put people first”. If the EU leaders do not come up with effective new policies, the tensions are likely to intensify and demonstrations could spread.

Despite calls from Washington and the European Commission President Jose Manuel Barroso to spend more money to boost the economy, many member states have said that the EU is already spending too much – the EU argues that although it committed €200 last year for a recovery plan it is likely to spend  €400 billion in reality in 2009 and 2010, and the €5 billion budget for energy and broadband project was cleared after a long dispute, but no more increases in public spending are expected.

However, according to Paul Krugman, American Nobel-prize-winning economist, the EU needs to spend €500 billion for 2009 and about a trillion in the next three years to recover from the economic crisis. While better regulations for the financial sector could help, leaders should also take measures to stimulate their economies. As noted by Mr. Graham Watson, leader of the European Liberal Democrats group in the European Parliament, during an interview  with EurActiv, we need to focus on both “regulating the banks and reflating the economies”. However, in the past, whilst the EU has often emphasised crucial issues at EU summits, it has frequently failed to implement effective policies.

There are high expectations for the next summit of the EU leaders, scheduled for 7th May,  with both trade Unions and businesses calling for the EU to come up with  “a new social deal”. So let’s see whether the EU can meet the high expectations and enact measures to relieve the social consequences of the current economic crisis.