EU summit in Brussels

By Jesse Wieten

The “fiscal compact” announced at last week’s EU summit in Brussels was not enough for the troubled eurozone to exit the escalating debt crisis, two renowned Dutch economists told Xinhua here on Thursday.

Although 26 out of 27 EU member states had signalled their willingness to join the compact which would enshrine tougher budget discipline, Lans Bovenberg, professor of economics at the Tilburg University, and Ivo Arnold, professor of economics at Nyenrode Business University and the Erasmus School of Economics, both believed more actions were needed to chart a course out of the two-year-old crisis.

“I am satisfied that there is stricter budget control of government and that more money from Europe will go to the IMF (International Monetary Fund),” Bovenberg told Xinhua in an interview, “but it is not enough.”

“The core of the problem is the health of the financial sector, which is very strongly linked to the government. The southern European economies have to become competitive again,” Bovenberg said.

He added that banks in southern Europe also needed confidence, which would require a capital injection from the healthier part of Europe.

Commenting on the intergovernmental fiscal compact, Bovenberg said he was not sure “whether the new budget rules work well.”

“Ultimately it is a political decision. I doubt the European Commission is strong enough to enforce measures and I doubt automatic punishments will work. Economy is too complex for simple rules,” he said.

Arnold, at the same time, said the too much emphasis had been put on budget discipline.

“The discipline of Spain, Portugal, Ireland and even Italy was not the problem. There is too little attention to the role of banking supervision and capital. Just looking at budget discipline is too simple.” Arnold said.

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