HOW LONG TIL THE WHEELBARROWS COME OUT?:

Stop griping and reform, Dutchman tells EU (Graham Bowley, December 16, 2004, International Herald Tribune)

As Europe struggles to combat economic weakness, national governments should seize the moment to push through crucial supply-side restructuring rather than complaining about the strength of the euro, said Gerrit Zalm, chairman of the European Union's group of finance ministers.

"The reform agenda is indeed the only agenda for Europe," Zalm, who is also the Dutch finance minister, said in an interview Tuesday night. "All the discussion about the demand side of the economy is rather irrelevant." [...]

"If you look at the long term, exchange-rate policies never made a country a big success or a big failure. The essential issue in Europe is on the supply side," he said. "We are not flexible enough, the welfare state is too generous, the labor market is not functioning well enough."

During the past six months, Zalm, in his role as head of the EU finance ministers' group, has presided over a rancorous debate about overhauling rules governing how European countries steward their public finances.

The Stability and Growth Pact, which sets the fiscal rules for countries that use the euro, is seen as crucial to defending the credibility of the currency. But some nations have complained that it hinders their efforts at encouraging economic growth by setting strict deficit targets that limit their ability to support growth through spending.

Political momentum for changing the pact grew this year, after big countries including Germany and France argued that their fiscal efforts to combat feeble growth made it impossible to avoid pushing their budget deficits above 3 percent of gross domestic product, the limit set by the pact.

Bowing to pressure, Brussels this autumn agreed to allow countries more time to straighten their finances during periods of sluggish growth.

In a final message before the Netherlands hands over the EU presidency to Luxembourg, Zalm said the proposed changes had not yet undermined the credibility of the pact. But he warned that further measures championed by countries, including Germany and Italy, to exclude some areas of spending from the rules risked destroying the pact's reputation completely.

Zalm, whose government is one of the chief critics of attempts to water down the pact, said there were outstanding questions that risked "burying the pact."

"You get the Germans bringing forward their net contribution to the EU budget, Britain bringing forward its investment, Italy its research and development, Greece its defense spending," he said. "Then you are completely out of control and the pact is gone."

And with it the "strong" euro that fools are rushing into.

Posted by Orrin Judd at December 16, 2004 11:21 PM