Joaquín Almunia, European commissioner for economic and monetary affairs, tells Karina Robinson why states must reduce their debt burdens while they can.
"Are you Catalan?” asked Joaquín Almunia, European Commissioner for Economic and Monetary Affairs, when we first met last year in Istanbul and I spoke to him in Spanish. Not a good start. Insinuating that someone raised in Madrid, as I was, might be from Barcelona is as unwelcome as telling someone from Barcelona that they sound Castillian, or asking a Canadian where they come from in the US.
This time, on a rainy day in Berlin at a conference on fiscal policy in Europe, he made himself unpopular with the German minister of finance, Peer Steinbrück, who was on the stage with him.
“Germany could be more ambitious in 2008,” he said to Mr Steinbrück, talking about the need for members of the eurozone to take advantage of the economic recovery to cut their debt burdens so as to be prepared to deal with the medium to long-term challenge of Europe’s ageing population.
That is Mr Almunia’s new mantra. With the average nominal budget deficit for EU members having fallen to 2% of gross domestic product (GDP) and with debt to GDP declining for the first time since 2002 (albeit still high), the days when he had to remind finance ministers that the Stability and Growth Pact which underpins the euro had two main pillars – an annual budget deficit no higher than 3% of GDP and public debt to GDP no higher than 60% – are almost over. This is due to a number of states like Germany cutting their deficits and a recovery in European growth. Plus, a March 2005 ‘revision’ of the pact, according to Mr Almunia, who negotiated it. Critics, instead, call it a ‘loosening’ of the Pact.
The 59 year old is now campaigning to ensure that governments do not waste the good years.
“We can’t act in the same way as we did on climate change,” he says, pointing out that Gro Harlem Bruntland first reported on climate change to the United Nations 20 years ago, when she was chairwoman of the World Commission on Environment and Development. “We can’t wait for 2015 to see the negative impact of old age making social security unsustainable.”
Europe’s old age dependency ratio is set to rise to 50% by 2050 from 25% now, according to figures from the EU Commission. The Commissioner believes that by 2015, EU citizens will understand the problem but it may be too late to take effective action.
When asked over lunch in an Italian restaurant in Berlin later that day whether the European Central Bank’s (ECB) goals should be modified to include job creation, the green-eyed, married father of two has a rather odd response: “You have to ask the question in French,” he says.
“No-one else asks it. [French ECB president Jean-Claude] Trichet answers it in English and he is learning German,” he adds, in a not-so-veiled reference to the Bundesbank, Germany’s central bank, which had a reputation as an inflation hawk.
In defence of the ECB
French politicians, in full general election mode, have been attacking the ECB, blaming it for a strong euro.
Mr Almunia elucidates: “I don’t waste time on that discussion. Good monetary policy is necessary for economic growth and employment but by itself does not create employment. If anything, [the ECB’s] monetary policy is still accommodative.”
But his lack of diplomacy – so far, riling me, the German minister and the French – is not always in play. In 1982, at 34 years of age, he was the youngest minister (of employment and social security) in Spain’s Socialist government, a feat in itself, but allied to this he led a negotiation with the unions which formed one of the bases of the Spanish economic miracle (see page 68).
That must have involved a large dose of diplomacy. But someone who worked with him for several years accuses him of having had such a poor relationship with Spain’s minister of economy Carlos Solchaga, during his later stint as minister of public administration in 1986-91, that he was unable to get any funding out of the minister to modernise the state apparatus.
“I got along very well with him,” responds Mr Almunia. “But in 1987 he didn’t give money to anyone, not even God, because we had just joined the EU and he was obsessed with getting the peseta into the euro, so these were years of fiscal consolidation.”
That pre-euro experience must come in handy with the new EU states that are looking to join the euro. The process has been a bit bumpy. Hungary has twice had to abandon target dates for joining the euro. Lithuania was refused entry. Romania, according to Central Bank governor Mugur Isarescu in an article in sister paper the Financial Times, recently declined Mr Trichet’s informal invitation to join the euro a few years before its 2014 target date.
The implication must surely be that the target dates are too ambitious.
Mr Almunia admits that in some cases this is true. He says the issue needs to be analysed rigorously because there is a political economy dilemma involved. He notes the inflation conditions for the euro are the most difficult of the criteria, but that recent members need to grow their economies, which involves credit expansion and wage growth, sometimes leading to large current account deficits.
Tallying this with the Maastricht criteria for low inflation implies trade-offs or, as he calls it “nuances”, a word often used by those educated by Jesuits. Mr Almunia graduated in law and economics from the University of Deusto, one of Spain’s outstanding Jesuit-run centres of education.
But the famed Jesuitical diplomatic talent deserts him – momentarily – when a study by Eurochambres, the association of European chambers of commerce, that shows a widening gap in the past three years between the EU’s and the US’s economic development, is cited. The study showed EU economic development is 20 years behind that of the US.
Playing catch-up with the US
Mr Almunia dismisses it in no uncertain terms. He then goes into more detail, insisting the picture is more mixed. The question now, he believes, is whether Europe will see a productivity boost like the US. But for this to be measured accurately, there is a need for a qualitative improvement in statistics for the service industry.
As mozzarella with parma ham vanishes from his plate, Mr Almunia denies that the EU’s ambitious initiative to cut greenhouse gas emissions 20% by 2020, agreed in March, would harm EU industry by saddling it with costs which competitors could avoid.
“First, the climate change bet opens up opportunities for our industry in terms of new technology, becoming more efficient, developing new sectors. It will put them at the vanguard on a global level,” he says. “Second, I think the rest of the world is joining in. Compare the US attitude now to when [US president Bill] Clinton’s administration signed the Kyoto Protocol before [president George] Bush took over, knowing it would not be ratified.”
He takes issue with the argument that the EU does not need a new constitutional treaty because its rejection has not led to paralysis in decision making, despite scaremongering before various referenda at which it was rejected a few years ago.
“It is true, Europe has not been paralysed. Europe has taken big decisions – climate change, the second Lisbon phase,” he says, referring to a re-launch of the EU’s agenda on competitiveness. “But Europe is working with low voltage electricity.”
Mr Almunia expects a new treaty to be agreed and approved by mid-2009.
On the personal front, he admits the lowest point in his life was when he lost the Spanish Socialist Workers’ Party primary elections to a rival in 1998, but he disagrees with the assertion by a friend of his, who asked not to be quoted, that he joined the party many years ago because he felt an “outsider” – on the one hand he belonged to a well-known Basque family, on the other his family had no money.
“We weren’t millionaires but I never wanted for anything. We were haute bourgeoisie. The reason I joined was because for my generation which fought against [dictator Francisco] Franco in the 1960s at university it was the natural choice,” he says.
Someone who once worked closely with him says that as a boss he was quick to blame others for failures and quick to ascribe successes to himself alone.
“No. I am not good at massaging my image,” he says. And as he heads out of the restaurant into the rain and back to Brussels, he pleads with me not to mention his Catalan comment. On my refusal, he good-humouredly tells me to mention that he likes Catalonia a lot and that his daughter is there.
