Europe’s Dog in the Nighttime

BRUSSELS – The new European Commission headed by Jean-Claude Juncker is off to a rocky start. But one would not know it from reading the news headlines. As Sherlock Holmes understood, a dog that does not bark in the nighttime usually goes unnoticed. In Europe’s case, the European Union’s fiscal rules are at issue, and the Commission – in principle the EU’s watchdog – should bark loudly when they are flouted.

Last month, howls seemed inevitable after two large EU countries, Italy and France, submitted budget plans for 2015 that clearly violated their governments’ vows of continued austerity. At first, the Commission dutifully rejected the two budgets as incompatible with the rules of the EU’s Stability and Growth Pact (SGP). But then something happened that was as “curious” as in Arthur Conan Doyle’s story. Within days, both countries offered mini-adjustments to their budgets, worth about 0.2% of GDP, and their finance ministers wrote to the Commission that their budgets should now be approved. The Commission did not react, leaving French and Italian leaders to claim that they, not Brussels bureaucrats, had the last word.

In fact, the latest forecast reflects an even worse outcome for France and Italy this year than originally promised, with France’s deficit set to increase slightly for 2015 and Italy’s cyclically adjusted deficit expected to deteriorate. The Stability and Growth Pact prescribes an annual improvement of at least 0.5 % of GDP.

The new Commission thus risks losing its authority from the very start of its mandate. Whether it does is a crucial question, because maintaining a high degree of credibility is essential to economic policymaking in the eurozone.