Austerity versus spending (a bomb)

EU crisis has to absorb YPF expropriation plus terrorist attack

By Michael Soltys

Herald staff

Amid all the metaphorical bombshells of these uncertain times, the European Union’s offices here had to face a real-life bomb last week (on May Day to be exact).

For Schuman Day today (i.e. the anniversary of the 1950 speech by then French foreign minister Robert Schuman clearly outlining a vision of European integration for the first time) EU Ambassador Alfonso Diez Torres proposes to leave aside both the bombshells and the bomb to concentrate on the “indestructible” cultural affinities between Europe and a Eurocentric Argentina in the form of launching the European film festival running from today until May 18.

Yet such momentous issues as the European crisis in all its aspects (including last Sunday’s elections in France and Greece) and the YPF expropriation left no room for the cultural or any other routine interaction between EU and Argentina in the Herald’s annual interview to mark Europe’s big day.

But before the important, the immediate — that bomb in the small hours of May Day. Contained in a bag dropped off outside the door and triggered by remote control a few minutes later, the bomb was powerful enough to shatter the office’s special anti-explosive glass and would thus have probably killed anybody passing by — a huge risk which the assailants did not remove by not striking during the day.

The police are investigating the attack and Diez Torres is satisfied with the local reaction. The last such bomb was at the expense of the Greek Embassy two years ago — there thus seems to be a vague link with the European crisis which the anti-capitalistic mentality of some anarchist group (perhaps not even the level of a group, according to Diez Torres) somehow sees as today’s focus of class struggle.

Asked if he feels personally afraid to be in Argentina after the attack, Diez Torres replied that he did not see the incident as anything beyond the usual hazards of life and and that it was not be overdramatized.

Turning to Europe’s financial crisis, this has been the big question for the last four years although this year might just prove a turning-point with firewalls now in place to preserve liquidity, Diez Torres said. He feels frustrated that this issue has been widely reduced to a simplistic debate of consolidation versus stimulation when the question should be rather which comes first, growth or consolidation — even this is too narrow. The EU envoy sees the United States as closer to consensus on a twin strategy from which Europe could learn. Of course, sustainable economic growth and jobs are needed, as the expansionists insist, but stimulus is not so easy — there is not much fiscal space for Keynesianism and not many funds to throw at crisis. To obtain these funds, the state is obliged to go the markets beyond its immediate resources and these markets have become very impatient and demanding, already downgrading various previously model creditors. More insistence on structural reform for growth is needed while consolidating fiscally in the view of Diez Torres — not a simplistic either/or proposition but the right combo. It is a question of the governments somehow sticking to these guns against both the markets and their voters.

The main reason for all the turbulence is a lack of confidence and this must be restored. The EU’s problem is not a single currency, as so often claimed — the real issues are competitive difficulties and the adverse demography of an aging population and these problems need to be tackled by structural reform for smart, sustainable growth. No miracles are possible — just deep, painful reform. But the euro is here to stay and will emerge stronger from these reforms, Diez Torres forecasts.

The Herald asked the former Spanish diplomat how much his national and regional loyalties overlapped in the case of the YPF expropriation if Spain was currently the weakest link in the EU with any move against Spain thus jeopardizing the whole bloc. Diez Torres replied that the issue was not whether YPF had a greater or lesser effect on Europe’s problems but quite simply the EU’s duty to defend the investments of all its members. The YPF expropriation might have hurt legal security. but it was a sovereign decision to declare all energy resources of public interest which had been approved by an overwhelming majority of Congress — expropriation formed part of the Argentine Constitution. Now that the law had been passed, it was a question of looking to the future to restore confidence.

While drawing solace from the assurances of Lower House Energy Committee chair Rosana Bertone (Victory Front-Tierra del Fuego) as to fair compensation and no discrimination, Diez Torres admitted that the EU’s many investors in Latin America were watching the situation with concern and it was a question of waiting to see what would be done to boost investor confidence by respecting legality and the Argentine Constitution itself.

The Herald then asked about the prospects for an EU-Mercosur agreement or if the question was too ridiculous to deserve an answer in the current circumstances. The EU envoy came as close as a diplomat could to agreeing with the second part of the question — negotiations between the Mercosur and the EU were already difficult enough but “these actions are not conducive.” Real commitment was needed for a free trade agreement and the open market economy must be recognized first. As for the difficulties within Mercosur itself, this was up to them — the EU could only support their integration and seek to remove all obstacles to integration with and within Mercosur. The EU’s own history included difficult periods and crises (extending into the present), which have led to positive developments, new advances and higher stages. The EU was keen to woo Mercosur but South America could show some interest in the EU too as still the world’s biggest gross product and trader.