Economic Recovery Watch 3 November 2009

Centre For European Studies
ECONOMIC RECOVERY WATCH

Last updated on 03/11/2009 To view full articles click on hyperlinks.

CONTENTS
WATCHTOWER

EU MEMBER STATES

WORLDWIDE

INSTITUTIONS

EPP VIEWS

OUR COMPETITORS' VIEWS

FROM THE BLOGOSPHERE…

UPCOMING EVENTS

ANNEX

www.thinkingeurope.eu



“Watchtower”
The GM-Saga – A Euro-American Problem?
Foreword by CES Head of Research

The phone call came as a shock. Chancellor Merkel had just spoken to both Houses of Congress on
the occasion of the Fall of the Berlin Wall, praising America as the Land of the Free and provider of
hope to those living under communism, like herself, until 1989. She received standing ovations for
comparing the fight against climate change in our century to the fight against communism in the last.
And on the way back to the airport, she was informed that the deal to have Opel sold by General
Motors to the Russian controlled investor Magna, with heavy German government subsidies, was fell
flat and that GM was going to do the restructuring itself. Six months of off-and-on, up and down
negotiating between Opel personnel and management, the former Berlin government and the
hesitant CEOs in Detroit. Thousands of jobs are in jeopardy. And no hint of all this in the Chancellor’s
talks to the US Government – which by now owned a good part of GM. The fury in Germany was
almost understandable. Some politicians saw “the ugly face of turbo capitalism”. Others lambasted
GM for threatening to lay off German workers eight weeks before Christmas.

But it was only almost understandable. True, the waffling in Detroit, where decisions were taken
slowly and then revised several times, did not make things easier. And true, by European standards,
the US Government might have exerted its influence over GM in a more favorable way. But this is the
point: Whose standards count here? The administration in Washington does not want to interfere in
any of its bailouts for fear of appearing socialist to American voters. And what is even more important
in this context: German firms that have invested billions overseas, also sometimes take wrong
management decisions, some of them are partly owned by the German government, and sometimes
they even lay off foreign workers. The logistics provider DHL (owned by Deutsche Post of which one
third is in the hands of the Federal government) sent thousands of employees to the dole in
Wilmington, Ohio, in November 2008, five years after having cashed in half a billion USD in American
subsidies. And a few days before Thanksgiving!

Of course, the GM-Opel-Magna drama has many more aspects than this. And the frustration of the
German government is legitimate, after having invested so much; if not in money (the subsidies are
off, for the moment) then in time and political energy. On the other hand, the European Commission
had legitimate questions as to whether Berlin’s planned subsidies were in conformity with EU
competition rules. But above all, a self-righteous attitude about “American turbo capitalism” vs. “the
European Social Model” is completely besides the point. Next to saving jobs, our priority in this
recovery must be to facilitate the creation of new ones. And that, for one thing, is equally valid on
both sides of the Atlantic Ocean.




EU Member States
Austria
The Austrian steelmaker Voestalpine will apply for a state loan guarantee of 300 million euros. The
group will be asking for the maximum amount possible under the Austrian law, in which the
government set aside as much as 10 billion euros of loan guarantees for Austrian companies in an
attempt to ease the credit crunch. A spokesman for Voestalpine said the company had no urgent
liquidity need but was still encountering a difficult market for long-term credit, which the government
guarantee would help to address. Meanwhile, Austria and Luxembourg are blocking the adoption of
an EU anti-fraud agreement with Liechtenstein, because of concerns that their banks will be left at a
competitive disadvantage. They are also opposing mandates for the European Commission to
negotiate similar agreements with Andorra, Monaco, San Marino and Switzerland.

Belgium
Franco-Belgian bank Dexia is awaiting the final approval from the European Commission for last year’s
6.4 billion euro bail-out provided by the common efforts of Belgium, France and Luxembourg. Neelie
Kroes, EU competition commissioner, who approved other rescue packages at the height of the
financial crisis, is now scrutinising restructuring plans to see they do not distort
competition. She is expected to decide on Dexia before the end of the year. Pierre Mariani, CEO of
Dexia, declared in a press conference that he is optimistic about the decision. Dexia, under the
leadership of the new CEO appointed in the height of the crisis, went under a major restructuration
that included the dismissal of the insurance branch FSA and a progressive reduction in Dexia’s
participation in Credit du Nord.

Bulgaria
Finance Minister Simeon Djankov handed over the 2010 draft budget to the Parliament and
surprisingly stated that next year's budget envisages more spending in the health care, environment,
domestic security and justice sectors. In fact the budget bill imposes a freeze on pensions and public
sector wages and envisages less spending on almost all sectors, ranging from health and education to
defence. The government has set a fiscal deficit at BGN 465.7 M or 0.7 per cent of GDP next year but
will target a zero gap in a bid to speed up euro zone entry. The state aid, the main share of which will
come from the EU budget, is planned at 2,000 million leva. The government expects the economy to
shrink by 2 per cent next year after contracting by 6.3 per cent in 2009. This improvement can be
explained by the recovery in Germany and Western Europe in general. One of the negative effects of
the crisis is that the number of bankruptcies in Bulgaria has increased by 141 per cent compared to
September 2008. The most bankruptcies have been registered in the agriculture and municipal
economy.




Cyprus
Revenue from tourism in Cyprus fell by 19.1 per cent over the year earlier to 200.2 million euros in
September, compared with 247.4 million euros in September 2008. This was partially caused by the
weak sterling, since the UK still accounts for more than half of all tourists. Moreover, Cypriot industrial
turnover recorded a decrease of 11.7 per cent compared to July 2008. The good news is that the
European Commission approved a Cypriot scheme using special government bonds to reinforce
stability in financial markets and mitigate the effects of the crisis. The measure is limited in time and
scope, requires adequate remuneration and foresees sufficient safeguards to minimise distortions of
competition. Under the scheme, Cyprus would issue special government bonds that it would lend to
credit institutions to use as collateral to obtain liquidity from the European Central Bank (ECB) and on
interbank markets. The special bonds would pay no coupons and would have a maturity of maximum
three years.

Czech Republic
In the first reading, the Czech Chamber of Deputies passed the fundamental parameters of the 2010
state budget with a deficit of 162.7 billion crowns, which is 5.3 per cent of GDP and will be approved
in the final reading in December. The cuts made by the government and the approved anti-deficit
austerity package made it possible to cut the deficit from the threatening 230 billion crowns to
approximately 163 billion. The budget counts with a 0.5 per cent economic decline and projects
revenues at about 1,022 billion crowns and expenditures at 1,185 billion crowns. The Christian
Democrats (KDU-CSL) and Social Democrats (CSSD) want to make additional payments to farmers, to
preserve maternity allowances at this year's level and to give more money to the operators of social
services. The public finance deficit in 2010 should be 5.3 per cent of gross domestic product (GDP) in
comparison the 6.6 per cent GDP deficit this year. However, the Czech Republic will still not meet the
criterion for euro adoption which sets a limit for the deficit at 3 per cent of GDP.

Denmark
According to the latest figures from Statistics Denmark, the number of unemployed people grew by
9.200 people from August to September and reached 113,500, the equivalent of 4.1 per cent of the
workforce. The combined debt of the country’s 25 largest companies has also grown and has almost
doubled in the last five years from 326.7 to 642.7 billion kroner. Surprisingly, the country has
experienced the lowest level of inflation in almost five years. Another news is that Karsten Ree, the
former owner of Den Blå Avis (a buy, sell and exchange newspaper which he sold about a year ago), is
going to help save Amagerbanken which has long been on the brink of collapse. It has just announced
a terrible financial report for the first nine months of the year with a deficit before tax of 719 million
kroner. Now, the bank negotiated a deal in which Ree will invest between 250 and 500 million kroner
in connection with an expansion of Amagerbanken’s base capital. The bank is looking to get 1.4 billion
kroner in loan capital from the state.




Estonia
Following a credit boom, the Estonian economy is now undergoing a severe recession. However, a
full-fledged crisis has been avoided due to existing buffers and a determined response by both the
public and the private sector. An IMF report released on 26 October and praising the country’s fiscal
management said that the euro adoption in 2011 appears within reach. Following an extraordinary
fiscal effort, the 2009 budget deficit is likely to remain close to its target of 3 per cent of GDP. Keeping
the 2010 deficit below the Maastricht deficit limit presents a key challenge. But euro adoption is no
panacea and the economic outlook remains challenging. Efforts —both by the government and the
private sector—should focus on consolidating economic stability and laying the foundations for
sustained growth.

Finland
Despite the forecasts of an upturn in the global economy, the Research Institute of the Finnish
Economy (ETLA) does not expect orders for the Finnish technology industry to show any quick
improvements in 2010. The reason for the pessimism is the depressed state of investments. In the
third quarter of this year, technology industry companies got 40 per cent less orders than they did a
year ago, according to a report from the Federation of Finnish Technology Industries. Next year could
be even worse than this year for engineering works, which have managed to maintain employment
this year by delivering goods that had been ordered before the slump. In mobile phone industry the
dark market forecasts of the early part of the year have taken a more positive turn, but next year’s
prospects remain gloomy. During the recession gloomy also is the Finnish motorists’ eagerness to
consider the environment when choosing a car. Only 7 per cent of the car buyers appreciate low
emission rates and environmental friendliness in comparison to last year’s 13 per cent.

France
The French government announced that it will add new fees for its financial industry in order to pay
for increased supervision. Christine Lagarde, French finance minister, excluded the possibility of a 10
per cent tax on capital profits. This proposal was recently approved by the financial committee of the
lower chamber of the Parliament. Mrs Lagarde already denounced the disruptive potential of this
proposal strongly supported by Didier Migaud, Socialist president of the finance committee. The
industry opposes the “Watchdog tax” as unjustified and warned that it would severely hit profitability
just as the banks prepared to set aside increased amounts of capital to meet new regulatory
requirements.

Germany
German business confidence rose for a seventh consecutive month in October as Europe's largest
economy showed more signs of recovery and firms' outlook for exports improved. The most recent
forecasts say that the economy will grow by 1.2 per cent next year after shrinking 5 per cent in 2009.
However, Germany’s leading institutes have warned that the pace of economic recovery is
"unsustainable" and that the country's banks may face a fresh crisis over the next year as bad debts




surface. Germany’s new centre-right government is charting a pro-business course to focus on
lowering tax and bureaucratic hurdles on companies, and on boosting private consumption as the
fastest way to drag Germany out of the economic crisis. The government will appoint the Bundesbank,
the German central bank, as sole regulator for banks and strip Bafin, the financial market watchdog, of
its banking remits. Germany has recently assured General Motors and the Opel Trust that its 4.5 billion
euros offer in financial aid for Opel is not tied to the choice of an investor or a plan. The Commission
said that there were significant indications that the promised aid was subject to a pre-condition that
Magna and Sberbank was selected to buy Opel, in breach of strict EU state aid and internal market
rules. The bad news is that German mail-order company Quelle is shutting down more than 80 years
after revolutionising the country's retail landscape.

Greece
The Greek Socialist government decided to end a car scrapping scheme in place for older vehicles,
while maintaining at high levels the road tax set by the previous government for a large number of
cars. This move is certain to raise objections by sector professionals who had based their business
plans on the scheme, as well as sparking complaints from citizens who had heard the Greece’s Finance
Minister Papaconstantinou in the last few days say that there would be changes to the measures, but
not its abolition altogether. Meanwhile, Environment Minister Birbili said that a plan for
environmentally friendly vehicles only being allowed in the city center is also being withdrawn.
However, the European Commission seems reluctant to accept the estimates by Mr Papaconstantinou
that the deficit will slide to 9.5 per cent next year. At the same time, an EFG Eurobank analysis
suggested that the public debt this year will reach 114.6 per cent of GDP before soaring to 126.5 per
cent in 2010.

Hungary
Hungary posted a 254 million euros trade surplus in August. The figure exceeds the preliminary
estimate of 229 million euros. In August, euro-term exports fell 20.3 per cent and imports decreased
26.9 per cent compared to August a year earlier. In October, recovery was less convincing than in July
and August, but it brought back the upward trend. However, figures from the Central Statistics Office
show unemployment rose to 10.3 per cent on average in July-September this year, a rate last seen
more than 13 years ago when the unemployment rate was 10.6. Unemployment could peak at 11 per
cent at the end of 2009 and possibly at 11.5 per cent in the first months of 2010. Hungary also plans to
subsidise the installation of new production lines for next-generation engines and engine components
at the plant. But the European Commission opened a formal investigation into HUF 14.9 billion of
Hungarian state aid for a HUF 153.4 billion investment by Audi Hungaria Motor at its plant in Győr.
The Commission's preliminary investigation revealed doubts that in some markets for passenger cars
the 25 per cent market share threshold of the regional aid guidelines would be exceeded.




Ireland
The Irish government announced a plan to cut 1.3 billion euros in the public-sector pay bill through a
combination of reform, pay cuts and pension changes. The Government also declared that will try to
generate the anticipated 1.3 billion euros reduction through reform rather than by pay cuts. Social
partners will meet with the Government in an intensive session of discussion to discuss the
implementation of the plan and the consequences for civil servants in Ireland.

Italy
Italian Prime Minister Silvio Berlusconi said on 16 October that works on a bridge connecting Sicily to
the Italian mainland will begin between December and January. According to the Italian government
this bridge would constitute a crucial development for North-South trade in Europe, allowing faster
connections with Sicilian ports in the Mediterranean and Europe’s industrial core. Developments on
the bridge were blocked for 3 years after the centre-left Prodi government dismissed the project in
2006. On the other hand, Italy is to take a more cautious position on public spending in order to deal
with the disproportionate national public debt. Voices over a conflict between Mr. Berlusconi and
Giulio Tremonti, Minister of Economy, were dismissed on the 22 October. The Italian PM, initially
favourable to a gradual reduction of a key business tax declared that the solidity of the Italy’s finances
is a vital aim of this government.

Latvia
Over the past year, Latvia’s economy has shrunk by almost a fifth; its jobless rate has risen to 17.4 per
cent and house prices are down by two-thirds from their peaks. Extraordinary international efforts
have kept Latvia from disaster. Still, neither the government, nor outsiders such as the IMF and
European Commission, can agree on what to do about it. However, after a catastrophic decline (a
likely 18 per cent this year), the economy should start growing in late 2010. The collapse in imports is
helping balance the books. Having had one of the biggest current-account deficits in the world relative
to GDP, Latvia now has one of the biggest surpluses. The national currency, the lat, is still pegged to
the euro. The government wants to keep the peg, as do a large majority of Latvians. But despite a bail-
out worth several billion euros from the European Union, the IMF and others, some members inside
the IMF think that devaluation is inevitable. But other economists reckon the damage to credibility
would outweigh the gain to competitiveness. Meanwhile, the government reached agreement on the
key measures to reduce spending and increase revenue in the 2010 state budget and so reduce the
planned deficit of 500 million lats. The budget revenue is to be raised mostly through increasing the
base rate of the personal income tax and expanding the property tax base. Latvia’s president said that
the parliament is likely to back the 2010 budget, a key part of efforts to ensure the Baltic state
continues to get loans from a 7.5 billion euro rescue. An IMF and EU mission is due to carry out
another review of the loan programme in November.

ThefNetherlands
ING, the Dutch financial services group, announced that it dismisses its insurance and investment
management businesses to focus solely on banking following the intense pressure from the European




Commission over state aid. The Dutch group had already declared in the past its willingness to
abandon its “bancassurance” model by splitting the management of banking and insurance at board
level. But the latest news goes substantially further than expected and also includes a requirement
that ING sell ING Direct USA, its US direct bank. Meanwhile, Iceland declared on Sunday 18 October it
had agreed to a new deal to repay Britain and the Netherlands billions of dollars of deposits lost when
the Icelandic banks collapsed in 2008, paving the way for new aid from international lenders and lifting
a hurdle for its EU accession bid.

Poland
According to the Polish Customs Service, Poland has imported less than 600,000 used cars imported
less than 600,000 used cars since the start of the year – a 40 per cent decrease when comparing to
2008. The results also show that the economic slowdown is starting to affect Poland's internal
consumer market, resulting in a predicted slower GDP growth of 1.1 per cent, as opposed to the 5 per
cent growth in 2008. Retail sales in Poland have also risen less significantly than previously expected.
The results highlight the weakening consumer demand due to higher unemployment levels and salary
decreases. While Poland has avoided recession, rising unemployment, which reached 10.9 per cent in
September, has resulted in pay cuts and salary caps in many companies. On the other hand, more
optimistic news is that the European Commission representatives have revised the economic forecast
for Poland and now they estimate 1.6 per cent GDP growth in 2010 - a figure twice as high as the
previous forecast.

Portugal
Portugal's GDP grew 0.3 per cent in the second quarter of 2009 compared to the previous three-
month period after three quarters of consecutive contraction, the National Statistics Institute (INE)
said. In its final estimate, the institute said GDP contracted 3.7 per cent year-on-year in the second
quarter of 2009, compared with a contraction of 4 per cent in the January-March period this year.

Romania
Romania’s approval of a 2010 budget by 10 December is essential for Bucharest to receive quickly a
third tranche of aid from the IMF. Mihai Tanasescu, Romania’s IMF representative in Washington, said
he saw a 50-50 chance of the IMF disbursing the 1.5 billion tranche, while analysts said political
jostling ahead of a 22 November election could birth a quick budget deal. Romania needs the aid to
shore up its finances and avert further upheaval after the crisis sent its economy spinning lower 8.7
per cent in the second quarter.

Slovakia
In its most recent economic review, the Slovak Central Bank (NBS) states that current developments in
Slovakia's industrial production show a real improvement in the Slovak economy. On the other hand,
the rate of registered unemployment in Slovakia reached 12.45 per cent at the end of September, as
reported by the Central Office of Labour, Social affairs and Family. Meanwhile, the Slovakia’s




Parliament, in a fast-track proceeding on October 27, approved a revision of the 2009 state budget to
triple the deficit. This is now predicted to reach 3.154 billion euros in 2009; the original figure was
1.009 billion euros. The 2010 state budget will be discussed at the Parliament’s plenary session. A non-
profit organisation, the Slovak Governance Institute (SGI), which promotes transparent and effective
public services, has launched an on-line petition urging decision-makers to amend next year's draft
government budget. Its petition has the phrase “So that we are not left indebted, stupid and without
jobs” and is asking MPs to set up a fund to provide state aid for strategic investments in Slovakia's less-
developed regions, to increase allocations for schools and universities, and to provide a basic package
for bankrolling science at least equaling the level of 2009.

Spain
Spain's Prime Minister Jose Luis Rodriguez Zapatero is under attack from some of his own left-wing
allies, who accuse him of a haphazard response to the economic crisis and of surrounding himself with
yes-men. While there is a left-wing consensus supporting the broad sweep of government policy,
which includes a massive public works program that will push the fiscal deficit this year close to 10 per
cent of GDP, there is concern that little is being done to prepare for the day the stimulus is withdrawn.
Moreover, unions representing more than 7,000 workers at Opel’s Spanish plant in Figueruelas voted
for an initial four one-day strikes against plans by Magna to scale back production at the facility. The
action, scheduled to start on 28 October, follows weeks of talks between Magna representatives,
Spanish politicians and labour leaders. Lastly, a recent report by the real estate analysts RR de Acuña y
Asociados said it could take six years to absorb the country’s oversupply of housing. Standard and
Poor’s credit rating agency predicted in June that the market would remain in despair until 2012. The
construction boom that had made Spain one of Europe’s fastest growing economies slowed to a
standstill in the economic crisis.

UnitedcKingdom
Britain's economy contracted in the third quarter of this year, turning down hopes the downturn
would end soon, instead marking the longest recession on record. The data released by the Office for
National Statistics underlined the fact that British gross domestic product fell by 0.4 per cent between
July and September, meaning the economy has contracted for six successive quarters for the first time
since records began in 1955. Pound Sterling fell sharply and the recent data showed that the UK
economy unexpectedly contracted in the third quarter. As a result, the British currency erased early
gains, falling 0.8 per cent to $1.6482 against the dollar. It dropped 0.8 per cent to £0.9113 against the
euro and lost 0.3 per cent to Y151.25 against the yen. Alistair Darling, the Chancellor of the
Exchequer, hit back and stuck to his forecast that the economy will be growing again by the end of the
year.




WORLDWIDE
Brazil
Brazil’s currency and stocks fell sharply on 21 and 22 October after the government imposed a 2 per
cent tax on foreign portfolio investments to constrain the rapid rise of its exchange rate. The move
followed steady gains in Brazil’s currency, the real, which has advanced 36 per cent against the US
dollar this year, reducing the competitiveness of Brazilian exports. The Authorities declared that the
measure will not have any impact on foreign direct investments, and pointed out that similar
measures have been put in place successfully in other countries in order to limit speculation. Local
investors and consumers seem to be extremely confident in their economic outlook as proven recently
in a survey by Nielsen that sees Brazil leading the global chart on consumers and investors confidence.

China
Haruhiko Kuroda, president of the Asian Development Bank, said on 25 October that China, Japan and
other East Asian countries must strengthen currency co-operation to prevent a recurrence of violent
fluctuations that have raised trade tensions in the region. In a period of economic turmoil, currency
movements threaten the growth of trade between Asian countries. Kuroda declared that a coherent
strategy to support inter-Asian trade represents a key way of reducing the region’s reliance on exports
to the US and Europe. Contemporarily, a border dispute increases the pressure at the Tibetan border
between India and China. Dueling territorial claims along this heavily militarised mountain border,
coupled with economic tensions between the two nations, are kindling a 21st-century rivalry. The
increasing distrust has created a dilemma for neighbouring countries about how to court one nation
without angering the other.

India
Microfinance industry continues to expand in India despite last year's global financial meltdown, the
main reason is to find an influx of private equity and bank funding, according to a new study.
Microlenders recorded a 60 per cent increase in clients in India, mainly for projects directed to
fostering entrepreneurship and trade. However, the relations between local communities and
multinationals remain tense in Northeastern India. Steel companies have invested billions of dollars to
expand in India, but they are struggling to secure the land they need in two mineral-rich states
because of intense opposition from local tribes and cumbersome government procedures. The
standoffs in the northeastern states of Orissa and Jharkhand have hit two of the world's top five steel
producers, ArcelorMittal and Posco, and are threatening to stall a key driver of India's industrial
activity in the years ahead.

UniteddStates
More industries in the U.S. are experiencing an increase in demand and profits. This represents a
further signal the economy started growing again in the third quarter after a prolonged recession.




In its latest industry survey, the National Association for Business Economics said the improved
optimism had pushed its net rising index (NRI) for demand to 23 in the July-September quarter, the
first time it had risen in five quarters. However, statistics regarding the financial sector reveal a darker
scenario. The number of bank failures in the United States since the crisis began reached 106 on 23
October. Seven more small banks closed, marking the highest annual level of failed institutions since
1992 during the savings and loan crisis. Furthermore, Capmark Financial Group, one of largest
commercial real-estate lenders, filed for bankruptcy protection in Delaware, the latest sign that
problems in that market are far from over.

INSTITUTIONS
European Union: The EU is emerging from recession, with GDP growing in the second half of the
year. However, with the downturn at the start of the year, the forecast for 2009 as a whole remains
largely unchanged: GDP is expected to fall by 4 per cent. Looking ahead, the economy is likely to
expand just 0.75 per cent in 2010 and 1.5 per cent in 2011. The rebound stems mainly from
improvements in world trade and in financial conditions. Both monetary policy and government
spending are also driving the pickup in activity. Unemployment is set to reach 10.25 per cent in 2010
and public deficit will likely rise to 7.5 per cent of GDP in the EU. The recovery could be surprisingly
strong in the months ahead. Whether it can be sustained remains to be seen.

Eurogroup and ECOFIN: The finance ministers met on 19 and 20 October in Luxembourg to
assess the outcome of the IMF annual meetings and how to best enhance the euro area voice and
representation in the IMF and at the G20. Ministers also prepared a contribution to the G20
Ministerial meeting of 6 - 7 November and discussed economic and financial developments, including
exit strategies. The Council adopted conclusions on a coordinated fiscal exit strategy across countries
in compliance with the Stability and Growth Pact. Dependent on further economic recovery forecasts,
2011 would be the latest start date for fiscal consolidation requiring efforts above 0.5 per cent of GDP
for most countries. The Council also reached broad agreement to create a European Systemic Risk
Board as part of the reform of the EU financial services supervisory framework and referred this issue
to the European Council. On the anti-fraud agreement with Liechtenstein and the negotiating mandate
for the Commission, the Council broadly agreed on their substance and will come back to the issue in
December.

European Commission (EC): On 20 October, the European Commission launched a consultation
on how to put European banks on a level playing field and spread the burden of future crises. Two key
areas of the consultation will be whether institutions can commit to the same rules on insolvency
procedures and transfer assets to struggling subsidiaries. The guidelines aim to form the basis of a
fully-fledged EU proposal on regulating cross-border banks, following the consultation with the
banking sector and with lawmakers. The consultation has already been welcomed by some




stakeholders but experts raised serious doubts over how the EU will convince member states to agree
to the collective responsibility of bank rescues.

European Parliament (EP): Keeping an open mind on how best to regulate financial markets was
one of the battle cries at the inaugural meeting of a special committee on the financial crisis in the
European Parliament. The committee will have no legislative power but will make recommendations
to the European institutions at the end of a 12-month mandate. Another committee that addresses
the financial and economic crisis is the Employment Committee. Its Members backed microcredit
loans in order to help small businesses and people who want to be self employed. Although pioneered
in the developing world, members are convinced that microcredits can create jobs and boost
enterprise in Europe. In particular they could help people who are unable to access conventional
credit, especially at a time of economic crisis.

Committee of the Regions (CoR): On 25 October, the Lisbon Monitoring Platform of the
Committee of the Regions launched the online survey, "The European Economic Recovery Plan in
Regions and Cities: One Year On". The aim of the survey is to assess the impact of the economic and
financial crisis at local/regional level, to provide an initial evaluation by local and regional authorities
of actions taken on the ground under the European Economic Recovery Plan (EERP), and to stimulate a
debate on past, ongoing and future anti-crisis measures and the involvement of local and regional
authorities. The results will be presented early next year at the 2010 Territorial Dialogue. All EU
regions and cities are invited to participate in this survey by 30 November 2009. dddddddddd

European Central Bank (ECB): According to a bank lending survey carried out by the ECB, it
should now be easier for enterprises, households and consumers to access funding, as fewer eurozone
banks reported a tightening of credit standards in the third quarter of 2009. However, demand for
loans by firms continued to decline, the survey found. The percentage of eurozone banks reporting a
tightening of credit conditions to firms fell to 8 per cent in September, in comparison with 21 per cent
in the second quarter of 2009. Of the 118 eurozone banks surveyed by the ECB, only nine recorded
worsening conditions in their loan activities to firms. All the others reported an improvement "bringing
the net tightening close to a halt".

EPP Views
The EPP Summit on 29 October addressed, besides the ratification of the Lisbon Treaty and the
climate change, also the economic and financial crisis which still poses a threat to social cohesion in
most of the Member States. This was also highlighted by EPP Group Vice-Chairman Marian-Jean
Marinescu MEP in the plenary debate on 21 October during which he underlined that at present;
already 17 out of 27 Member States will have to face a deficit procedure from the European
Commission as their




national budgets excessively violate the stability criteria. The next day, on 22 October, the European
Parliament voted on the first reading of the EU budget for 2010. László Surján MEP, EPP Group
Rapporteur called for raising the expenditures of the 2010 EU budget because the 120 billion euros
suggested by the Council is not sufficient. The first reading of the parliamentary proposal sets out a 12
per cent increase compared to the 2009 EU budget. In the meantime, the EPP Group welcomed the
creation of an ad hoc committee in the European Parliament on the economic and financial crisis to
find solutions to the serious economic crisis that we are facing and to analyse the impact and
dimensions of the crisis in the European Union and its Member States. With the recent agreement of
EU Ministers for Agriculture and Commissioner Fischer-Boel to make available 280 million euros for
the creation of a new EU milk fund, an important demand of the European Parliament has been
fulfilled. However, attempts by the Socialist Group in the European Parliament to use the milk fund for
unrealistic demands thereby risking its coming-into-force were unacceptable to the EPP Group.

OUR COMPETITORS’ VIEWS

S&D
An S&D initiative in Strasbourg to defend the call for a 600 million euro new fund was finally foiled
by the opposition from the EPP. As the EPP Rapporteur on the Budget, László Surján himself said, the
European Parliament could only vote on "300 million euros or nothing". Technicalities prevailed over
policy consistency. As a result of that, the S&D reluctantly voted to secure the 300 million euros. Some
weeks earlier, Socialist and Democrat Euro MPs backed the introduction of a financial transaction tax
to support the recovery of the world economy. Following the G-20 in Pittsburgh a European
Parliament resolution calls for "speedy progress" on this issue. S&D spokesperson on economic affairs,
Udo Bullman said: "Citizens and taxpayers have so far borne the cost of the financial and economic
crisis. It is time that those who actually plunged the word economy into recession should pay their
share for the repair job." The S&D group also expressed satisfaction at commitments by world leaders
to strengthening financial supervision and regulation in Pittsburgh.

ALDE/ ADLE
On 22 October in Strasbourg, Liberals and Democrats backed re-establishment of the budgetary
figures proposed by the Commission for most of the areas cut by the Council and in some cases going
further for those budget lines aiming to increase future competitiveness and research. "Council's first
reading lacks coherence and realism," stated Anne Jensen, an ALDE group spokesperson on the budget
committee. "It is the case that many Member States currently have budgetary problems but we won't
be able to assist in the exit from the crisis if we cut investment from innovative energy projects or
efforts to combat climate change or in the area of research. These are the Union's priorities and they
need to be properly financed in the framework of relaunching the European economy."




GUE/ NGL
While expressing his support for the extra 3 billion euros for structural funds and social programmes in
the draft budget for 2010, Portuguese GUE/NGL MEP Miguel Portas criticised the fact that this was
not an extraordinary budget for exceptional circumstances. "There's no point in following policies that
will only end up being a drop in the ocean. We need a strong rural and social policy in coordination
with national policies so that we confront the problems head-on" he said, adding that "there is enough
money if we begin to investigate tax havens and tax dodgers." Portas finished his intervention with a
call for a total review of the system for MEP expenses and allowances, demanding that
Parliamentarians "set an example".

FROM THE BLOGOSPHERE…
Why curbing finance is hard to do: Martin Wolf comments on the debate on prudential regulations
and the regulatory challenges set by the financial crisis.

Privatising Royal Mail - now is not the time: Ian Senior (for IEA blog) comments on the project of
liberalisation of postal services in the UK.

Competitiveness gaps test unity of the eurozone: Tony Barber analyses the threats to economic
cohesion and protectionist measures in response to the crisis.

UPCOMING EVENTS

Event: G20 Finance Ministers and Central Bank Governors Meeting

Date: 6 - 7 November 2009, St. Andrews, Scotland

Editor: Roland Freudensteinffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffffff
Research Assistance: Katarína Králikovácccccccccccccccccccccccccccccccccccccccccccccccccccccccccccc
Additional Assistance: Xochil Guillen, Vincenzo Confortivvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvvv
Design: José Luis Fontalbaccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccccc
Questions and comments: briefs@thinkingeurope.eu



Annex

World Economic and Financial Surveys

World Economic Outlook: Sustaining the Recovery

October 2009

The World Economic Outlook (WEO) presents the IMF staff's analysis and projections of economic
developments at the global level, in major country groups (classified by region, stage of development,
etc.), and in many individual countries. It focuses on major economic policy issues as well as on the
analysis of economic developments and prospects. It is usually prepared twice a year, as
documentation for meetings of the International Monetary and Financial Committee, and forms the
main instrument of the IMF's global surveillance activities.

<<IMF: WEO>>


Economic Recovery Watch 3 November 2009

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Economic Recovery Watch 3 November 2009