Europe putting fiscal house in order

As in the Greek tragedies they usually invoke, some commentators in the United States seem to believe that the European ‘sovereign debt crisis’ can only have a bad ending. They are overlooking two fundamental facts.

First, the European Union (EU) is addressing head-on not only the symptoms but also the root causes of the problems. Second, since its introduction, the euro has been a major boon to businesses and consumers, as well as a unifying political factor, and no country will allow it to fail.

{mosads}Of course, every economic system has potential flaws. None can claim to be perfect, as the last two years have proved. And none was immune to the crisis. What really matters is how we deal with the problems. In the case of the EU and the euro, observers have placed too much focus on the sometimes noisy rhetoric of our internal debates, and not enough on the substance of what is being done.

And what is being done is unprecedented. The crisis has propelled Europeans to revamp the economic framework underpinning the euro, and to vastly accelerate national growth-enhancing reforms. European leaders have established new forms of macroeconomic surveillance, allowing, for example, national governments to review each other’s draft budgets before submitting to their respective parliaments. They have also granted conditional emergency loans to two countries undergoing difficulties, agreed to set up a permanent mechanism to deal with such crises, and created a Europe-wide supervisory system for the financial sector. Moreover, national governments are making major structural reforms in their labor markets, pension, healthcare and banking sectors. 

In less than 12 months — break-neck speed, in political terms — the EU has put in place legal and political instruments to deal with the euro crisis, and prevent future ones. Twenty-seven EU member countries worked together to make this happen. I wonder how many individual countries would have been able to push through such extensive and far-reaching reforms in the same time frame.

This affirms the commitment of European leaders to defend the euro and promote growth. They have sent a clear message that they will do whatever is required to ensure the stability of the euro area. Few on this side of the Atlantic seem to have gotten the memo about these considerable achievements.

Another news story has been overshadowed by all the focus on the debt crisis: Europe’s economic engine is coming back to life. Europe’s manufacturing sector has improved markedly in recent months.

Skeptics should also be aware that, despite the problems in the European countries most affected by the debt crisis, government deficit levels in the euro area were 6.3 percent of GDP in 2010. This is significantly below those of other major industrialized countries, including the U.S. (10.5 percent) and Japan (7.7 percent). 

We all realize that the crisis is not yet behind us. The coming years will be challenging, with socially and politically painful remedies necessary to build a stronger and more competitive future. New decisions will be needed and the debate around them will continue to be intense and lively. But tragedy lovers should think twice before betting on yet another bad ending. Europe is proving them wrong.

Vale de Almeida is head of the European Union Delegation to the United States