Europe would do well to follow these tips

The release of the G20 calls for fiscal measures to stimulate domestic demand to rapid results and stresses the need for a framework of economic policy leading to fiscal sustainability. Europe would do well to follow these tips. Without a fiscal stimulus, the recession may lead to a worsening of the credit crisis. However, as the structural deficits in many Member States of the European Union were already too high before the crisis, sustainability is also a legitimate concern.

But is Europe capable of such an initiative The magnitude of the obstacles is indisputable. The budgetary margin of manoeuvre varies greatly from one country to another. The political commitment to budgetary balances is for the less heterogeneous between, for example, the France and the Germany. In addition, the strong economic interdependence reinforces the non-cooperative games and encouraged to rely on the revival of the other. Reach agreement on recommendations differentiated according to the circumstances of each country could take months or even years. But the emergency command to act now. That is why we propose to immediately implement a relaunching tripartite European programme.

First, we propose that all European Governments to boost the economy of 1 of GDP in 2009 a proportion that the budgetary burden of recovery be equitably distributed. This corresponds to the upper limit of the range recently proposed by the Council of the German wise. Although this is not ideal for all countries, each will benefit from the fact that Europe is on board. To send a clear signal of coordination and to ensure that the fiscal stimulus is quickly and effectively implemented, we propose to take part as a low uniform rate of VAT to 1 from January 1, 2009. VAT is not the ideal instrument for growth, but it is the only one on which European countries can act together. For the rest, the stimulus could be applied through specific measures in each country, such as targeted transfers, including to low income workers, and incentives to improve energy and environmental efficiency.

Secondly, this stimulus initiative should be accompanied by an agreement to strengthen the framework of budgetary discipline of the Union. The decline in tax revenues and the increase in expenses caused by the recession, which will complement the stimulus that we propose, will lead some countries to exceed the 3 deficit limit set by the stability and Growth Pact as soon as 2009. "Excessive deficit procedures" will be initiated but the delays they allow recession are that they will not lead before 2012. In the meantime, countries that were already running deficits higher risk of becoming very serious budgetary situations. Interest rates on Government securities, which diverged strongly in recent weeks, could reach alarming levels in some countries.

To avoid such a scenario and reassure countries such as the Germany who refused to take part without guarantee concerted action, we propose that States that will exceed the limit of 3 in 2009 are committed in consideration to implement without delay the reforms that improve the fiscal sustainability in the medium term. Although that without effect on the immediate deficit, these measures should be adopted in 2009 and their impact should be certified by the European Commission. For example, there could be reforms of pensions. In the event that some countries would be to implement such measures, they would be subject to a procedure for excessive deficit accelerated, forcing them to implement the corrective measures as soon as 2010.

Third, to ensure the budgetary sustainability, Member States should commit to not borrow from abnormally high interest rates. We propose that all the countries of the euro zone are committed to not borrow at a rate that exceeds by more than 2 the lowest rates on Government securities in the area. Beyond this limit, an emergency procedure would be initiated, involving the budget of the Member State concerned under the authority of the Council of the Union.

We propose that these ideas are part of the action plan the Commission will present on November 26. The European Council should then return to its account at the Summit of December 11, with immediate effect. We are well aware that such a proposal reverses the traditional logic of the European Union. But if the Union made the mistake to follow his instincts and merely measures without scope, it might pay an economic price and policy very high.