Europe should take a leap

In normal periods the summer month of August is dedicated to vacations, to spending time with the family, to the Feast of Saint Anthony Mary Gianelli, of Saint Augustine, culminating with the Feast of the Ascension of the Mother of God. Each year, Europe languishes whilst looking forward to this joyous time of respite from the tiring previous months. But this year, that time of rest and feast was seriously marred by the news regarding the financial markets. And nonetheless, after the summit of the Heads of State or Government in the euro area on July 21st things seemed to be going in the right direction. In exchange for the promise of structural reforms and privatization program Greece obtained another aid package amounting to 160 billion euro, including voluntary participation in the financial sector, accounting for a quarter of the overall sum. At the same time European loans for Greece were reviewed, extending deadlines and decreasing interest rates. The same conditions were granted to the Portuguese and to the Irish. Indeed, the latter had decided to participate “constructively” to discussions on the harmonization of the tax base for enterprises in the European Union. Another important decision was to increase the flexibility of the European Stability Mechanism, a sort of European IMF. Finally, before bidding farewell, our leaders asked Herman van Rompuy to develop a set of concrete proposals for the month of October, aimed at “improving working methods and stepping up crisis management in the framework of the euro-zone.” And finally, vacation time arrived.There ensued a conflict on the budget at the American Congress with the threat of bankruptcy of the American Federal State…, the fall of world stock markets after the downgrade of U.S. federal debt…and new doubts on global economic recovery solidity. In Europe, financial markets’ long-lasting lack of trust in Italian and Spanish debt caused European Central Bank intervention whilst the two countries hastily announced new measures to redress public finances. On August 17, on the aftermath of the summit at the Presidential building, Angela Merkel and Nicolas Sarkozy submitted written proposals to Herman van Rompuy aimed at boosting euro area economic governance to include budget balance regulations within euro area national legislations. On the same occasion Germany and France agreed to apply harmonization of tax base on enterprises starting in 2013.However, at the end of the month of August, restlessness lingered on. In a spectacular speech delivered on August 27 in Jackson Hole, Wyoming, Christine Lagarde, the new executive chairperson of the IMF, guarded against two persisting global unbalances: over-consumption of the public sector and countries with commercial surpluses that don’t consume enough. Regarding the Europeans, she called for the need to consolidate public finances in the long run, limiting expenses for pensions and public health so as to have room for manoeuvre to boost short-term growth. She also called for the urgent capitalization of our banks to prevent contagion and domino effect in case a financial institution was in a risky situation. Finally, she almost implored our politicians to recover a common vision on the future of Europe. The firm and urgent tone of the one who in her capacities as ex French Minister of Public finances is well accustomed to European business and who from now on will have to take global stands, took the media by surprise. It means that nothing is regulated and that Europe needs to take a greater leap forward. This leap will require political courage and pedagogy towards citizens. This will be the challenge of the coming fall, and we must hope that our governments have been capable of recovering their forces, in spite of everything, during this month of August. They will need those forces, along with our prayers.