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Walker's World: EU's bad crisis deal

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by Martin Walker
Washington (UPI) Dec 15, 2008
As usual, the leaders of the 27 EU countries resolved the insults and arguments of the preceding weeks and reached what looked like a reasonable compromise at their summit in Brussels. On examination, however, Europe is paying a steep price for a poor and somewhat squalid deal.

Despite German objections to "crass Keynesianism," there will now be a coordinated EU economic stimulus package of $270 billion. And despite the way the recession is convincing more and more European voters that jobs are more important than carbon emissions, the EU stuck to its commitment to cut its carbon dioxide emissions by 20 percent, have 20 percent of its energy coming from renewables, and have a 20 percent improvement in energy efficiency by 2020.

The headlines, therefore, looked gratifying. Accord was reached. Fiscal expansion is on the way. Europe still leads on renewable energy. The 20-20-20 plan is intact. The Europeans felt they could look across the Atlantic to President-elect Barack Obama (who is by far the most popular politician in European opinion polls) with a positive message and as equals.

"Let us now build a trans-Atlantic recovery plan and trans-Atlantic climate and energy partnership," said European Commission President Jose Manuel Barroso. "Our message to our global partners is: Yes, you can. Yes, you can do what we are doing ... especially to our American partners. We are asking him (Obama) to join Europe and with us lead the world (in climate)."

But, as so often with the headlines about European summits, the small print was considerably less impressive. More than $150 billion of the $270 billion in the stimulus package already had been announced by individual nations. In short, they are counting it twice.

The real contribution of the EU will be to relax, for the duration of the crisis, the fiscal rules of the European Monetary Union pact, which requires budget deficits to be no more than 3 percent of GDP, and to keep the level of national debt below 60 percent of GDP. The European Central Bank won't like that at all and may even try to block it.

But this is a pretty empty gesture. In their slowdowns in the early years of this decade, the French and German governments routinely broke those limits and shrugged off the verbal chiding from the Commission. The rules say offending countries can be heavily fined, but so far the EU has not dared to risk humiliation by trying it.

The EU member states and the Commission have yet to agree how the money will be spent. Tax cuts, scrapping of regulations, support for small business and interest rate cuts are all envisaged, along with some infrastructure projects. But there is a side agreement that allows individual countries to opt out of specific measures that they disagree with.

The real significance of the summit was that once again, as so often before, the Germans felt the need to genuflect to the totem of European unity. They had tried to hold out against what Finance Minister Peer Steinbrueck called "a lemming-like" rush to crisis measures to tackle the recession.

After being triumphantly re-elected as leader at her Christian Democrats party conference last month, Chancellor Angela Merkel vowed she would not "take part in a competition to outdo one another with an endless list of new proposals." She went on to pledge that Germany did not intend to "participate in this senseless race for billions." Germans and her government should display "the courage to swim against the tide."

But that was then; this is now. At her closing summit news conference, Merkel said: "We support the view of the (European) Commission that we need to provide 1.5 percent of GDP for the stimulus package to strengthen the economy. Germany is aware of its responsibility as Europe's biggest economy, and Germany will also look at what we may have to do."

What happened was that the French and British rounded up the support of all the small and medium-sized countries and made Germany feel isolated. And then they offered the deal. If Germany went along with the EU stimulus package, which British Prime Minister Gordon Brown and French President Nicolas Sarkozy wanted for domestic reasons, they would be prepared to compromise on the EU climate-change system.

So it proved. While the EU has maintained its targets on carbon dioxide reductions and renewables, it has emasculated the system meant to ensure they were met. The EU Commission wanted to auction all carbon emissions permits. Now, to the great relief of German heavy industry and Poland's coal-fired power plants, only two-thirds of the permits will be auctioned. The rest will be distributed free to industries "that face particular challenges," as a Commission official put it.

There also will be a special fund to help poorer member states invest in new carbon-saving technologies, financed with 10 percent of auction revenues, estimated to be $10 billion a year.

All this means a severe weakening of the EU scheme, since free emissions permits will cut the incentive for firms to invest in clean technology. Europe's non-government organizations were outraged.

"This could have been one of the EU's finest moments, but once again short-sighted national self-interest has been put ahead of the long-term safety of the planet," said Friends of the Earth.

Greenpeace said: "If Europe's leaders can't even bring themselves to rule out new coal plants and accept the emissions targets science is demanding, you have to say they shouldn't have bothered going to Brussels."

"EU leaders bowed to business lobby pressure and faltered at an historic moment," said Oxfam, who said the final package was "business-as-usual tied up in a green ribbon."

In short, it was a political fudge that will not produce much new money to tackle the recession, and even that was achieved by severely weakening the climate-change rules of which Europe is so proud.

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UN talks set programme to landmark climate pact in '09
Poznan, Poland (AFP) Dec 12, 2008
The world's forum for tackling climate change on Friday agreed a programme designed to culminate in a treaty that would expunge the darkening threat to mankind from greenhouse gases.

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