EU emergency anti-crisis summits

The EU has scheduled two emergency anti-recession summits ahead of the London G20 and G7 in an effort to suppress protectionism, sustain employment and prevent the bloc’s political fragmentation into old and new member states. EU heads of state and government will convene in Brussels on March 1 to discuss their latest steps to counter the financial sector crisis. They will meet again in Prague in May after the G20 to consider the recession’s impact on the 27-nation bloc’s labour market. This is in addition to a previously scheduled summit of EU leaders on March 19-20 in Brussels that will also deal mainly with economic issues from the G20 agenda for which the Commission has a large number of high priority tasks to progress.
“Only by co-ordinated and united action will we overcome the crisis. The internal market is the vehicle that will drive us out of it,” said Mirek Topolanek, the Czech PM, after talks with José Manuel Barroso, EU Commission President. The two announced the summits to limit the fall-out from a clash between French (outgoing 6 month Presidency) and Czech leaders (incoming 6 month presidency) that exposed cracks in EU unity just as the EU has to find a common united voice for the G7 and G20 about how to usher in a new financial world order and the most serious global economic difficulties in EU history.
The not at all plain fact is that while financial flows in most of history followed trade flows, and then were decoupled when major currencies all freely floated post end of Bretton Woods, there followed the fast growth but severely unbalanced trade patterns of the past 20 years requiring financial flows to be provided as packaged up financial assets (commercial bank securitisations etc.). Half of US structured products were bought by its foreign trade counterparty surplius countries such as China, Japan, Korea, and the EU, about $1.2 trillions.
The collapse of these securities, dramatic changes in exchange rates and energy prices over the past year, recessions etc. all have caused a massive re-orientation of world trade patterns. Most countries are totally lost in knowing what their extrnal accounts are going to be. We see this for example recently in Russia where a large fiscal stimulus was abandoned as the Government could see its foreign exhcnage reserves rapidly falling and the necessity to support its banking sectors external obligations with the necessity of buying in toxic debts!
The Czech views reflect to some extent that of central Europe where trade and investment flows with the EU have dramatically worsened. “My feeling is that this is something that’s very damaging to both of us,” Mr Topolanek said of his row with Nicolas Sarkozy. “We haven’t dealt with it in person because, frankly, it wasn’t worth it. Now I’ve learnt a lesson. It’s better to call each other up.” The dispute broke out last week when Mr Sarkozy suggested that French car manufacturers operating in new EU member-states, such as the Czech Republic and Slovakia, should switch production to France and protect French jobs. Tensions rose on Tuesday when Mr Topolanek accused unnamed eurozone governments of “deforming” the project of European monetary union with misguided responses to the financial crisis. The quarrel will become a broader conflict between the EU’s older, western European countries, most of which use the euro, and the newly admitted states of central and eastern Europe. This is a problem with a long history. The EC/EU has been traditionally weak or less effective than it should and could have been in addressing economies across its borders compared to the USA and Mexico for example, though mjatters can be strained there too. In the past this was explicable given that across EC/EU borders were either Soviet states or Muslim states which each had obstacles to capitalist development. Aid was more effective in sub-sahara Africa and in trade with OPEC and further afield.
Now within the EU there is a large group of central European states, most outside the eurozone and more vulnerable to severe financial disruption the longer the crisis persists. “Already we can see small countries entering into problems with liquidity, as the price of their bonds decreases and they are not able to sell them,” said Mr Topolanek, whose Czech Republic took over the EU’s rotating presidency from France on January 1. The Czech Republic is also angry and frustrated at the disapproving noises heard in certain western capitals about its weak leadership in the financial crisis. France's €6bn aid plan for the French car industry with attaching non-communitaire conditions is in breach of the free market, and Mr Topolanek's presidency has a right to reprimand France for this - hence the row - saying the real division in the EU was between “those who think it’s possible to violate the rules right now, and those who think it’s not, and I’m one of the latter”. Mr Barroso, striking a balance between support for France and defence of the EU single market’s integrity, said: “We must not let our industries perish because of a temporary downturn ... But we will need to scrutinise very carefully the details of the [French] subsidies.” He added: “All over the world there’s a real threat to the global economy from economic nationalism and narrow protectionism. We must resist this temptation. If one country decided to go it alone and take unilateral measures, others might decide to do likewise. But I reject the idea that it is a specifically European problem.”