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THE WALL STREET JOURNAL





Can Europe's Governments Hold The Line?

Posted by Terence Roth

Strikes and other protest actions that now have spread from Greece to Europe's big economies cast a cloud over European Union reforms and economic recovery.

Scenes from France and the U.K. this week are confirmation that Europe's political elite haven't sold workers and households on the austerity thing. Brussels and national leaders are nobly pursuing fiscal rehab, but their electorates aren't going down without a fight.

That's dangerous, with financial markets and ratings agencies never blinking when looking for signs of weakening on deficit-reduction programs.

France could become the toughest test. Say what you will about a retirement age at a generous 60 years. French workers are now told they need to work another two, AND pay higher taxes during their working lives for good measure.

U.S. workers would shake their heads in disbelief at retiring at that age with full benefits. But they aren't in Lille or Lyons and haven't paid into a generous system for others that now looks more elusive for them.

Expect similar actions elsewhere in Europe as the austerity programs decided in the spring begin turning into law after the summer break.

The earliest endgame will come in Greece. The long-suffering Greek treasury now is paying nearly 12% interest on its 10-year bonds, an unsustainable rate that is 9.6 percentage points more than the Germans pay.

At one point, the Greek treasury won't be able cover debt servicing unless the market gives it slack, which sure doesn't appear likely soon. That means a possible restructuring and another euro crisis.

Governments in the rest of Europe, tempted to lower the steam with a few concessions, need only take a trip to Athens.

-For continuously updated news from The Wall Street Journal, see WSJ.com athttp://wsj.com.

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EU Takes Stand To Boost Growth, Financial Supervision


AFP

STRASBOURG -- The European Union laid out ambitious goals Tuesday to strengthen its economy as the European Commission proposed a joint EU-wide bond and ministers approved tighter financial supervision.

European Commission President Jose Manuel Barroso told the E.U. parliament in Strasbourg that the 27-nation bloc's economic outlook was better today than one year ago thanks to the "determined action" of member states.

But he warned that not all EU states were benefiting from the recovery--a view shared by economists who have pointed to the struggles of countries battling big deficits and debt such as Greece.

"The recovery is gathering pace, albeit unevenly within the Union. Growth this year will be higher than initially forecast," he said.

"The unemployment rate, whilst still much too high, has stopped increasing. Clearly, uncertainties and risks remain, not least outside the European Union," he said.

The head of the EU executive arm called for efforts to boost growth, deepen the single market and generate three million "green jobs" by 2020 amid a 10% unemployment rate.

"This is Europe's moment of truth," Barroso said in his first ever State of the Union speech before the E.U. lawmakers.

"Europe must show it is more than 27 different national solutions. We either swim together, or sink separately. We will only succeed if, whether acting nationally, regionally or locally, we think European," he said.

He also proposed the creation of a European bond to finance major infrastructure projects, a controversial idea which has been rejected by several members including Germany.

"Pooling money at the European level allows Member States to cut their costs, avoid overlaps and get a better return on their investment," Barroso said.

"We should also explore new sources of financing for major European infrastructure projects. For instance, I will propose the establishment of EU project bonds, together with the European Investment Bank," he said.

Objections to a European-wide instrument to borrow money arise largely because a joint bond would raise issues concerning the principle of pooling risk and national credit ratings.

Opponents hold that this might be an important step away from national sovereignty and responsibility in issuing debt towards a more federal arrangement.

Germany industrial orders dropped sharply -2.2%

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