Following in the footsteps of its neighbours, France has now presented an austerity budget with cuts of 37 billion euros to bring the public spending deficit under the ceiling of 3%, the target set by the countries of the Eurozone. With a serious economic slowdown already underway, the additional brake of the French, Italian, Spanish and Portuguese austerity programmes will inevitably make 2013 an even more difficult year than 2012, which was marked by record unemployment.

Reabsorbing unemployment should be the absolute priority. With the recent demonstrations in Spain, the emergence of a fully fledged neo-Nazi party in Greece, and the growth of anti-European sentiment in public opinion across the continent, nothing is working. More and more economists, including Nobel laureate and New York Times columnist Paul Krugman, insist that heaping austerity upon austerity will not lead to a recovery in Europe, but to impoverishment and the possibility that the continent will enter a cycle that, this time around, will closely resemble the great depression of the 1930s.

To find the right path, the right dosage needed to free states of crippling debt, while setting them back on the road to growth and hope, is today the most difficult task. French Prime Minister Jean-Marc Ayrault has explained that this difficulty is largely dictated by the markets. To resolve the problem of its debt, the French Prime Minister has pointed out that France, like Spain, needs to borrow from the markets at the lowest possible rate of interest. This is indeed the case for France today, since the election of François Hollande.

A lack of competitiveness

However, if France fails to convince the markets that it will do what it takes to return to a deficit of less than 3%, it will soon be sanctioned and obliged to pay rates of interest that will make the burden of its debt unsustainable. With this in mind, the Eurozone should take action to do what single countries are unable to do: that is to adopt a more flexible approach to the 3% constraint, so that individual countries can benefit from tailor made timeframes in which to return to budgetary equilibrium.

Clearly, the malaise we all suffer from, with the exception of Germany, is a lack of competitiveness. It is this alone that justifies most of the efforts and sacrifices demanded. But we must nevertheless consider, in order to avoid a prolonged recession in Europe, a means to returning flexibility to the system. This is a matter of the utmost urgency. As for the rest, the new treaty, now being submitted for ratification, offers an opportunity inasmuch as it distinguishes between structural and cyclical deficits.

Firstly, steps must be taken to ensure that structural deficits are reabsorbed and made to tend towards zero, while cyclical deficits, which are determined by conjunctural phenomena, should be managed over the course of cycles. This distinction has opened up a breach, let’s take advantage of it.

More lenient timeframes

We might recall the previous stages of the crisis. Which began in the United States. This American crisis was perceived as a serious threat to global finance and the global economy. G20 countries responded by coordinating their analyses and coordinated action. We are now faced with a situation in which US exports to Europe have declined by 10 %, Chinese exports to Europe are down by 5%, and other countries like Brazil have been negatively affected by economic weakness in Europe.

Surely this is a problem that should be addressed by further collective action in the G20. After all, it is logical and fair to point out that measures that were taken for the benefit the United States should now be implemented for the benefit of the European Union. Unfortunately, however, the bid to recover from what was a major American crisis, was also marked by resurgence of national interests and a growing trend towards protectionism. Now we must take steps to reverse this momentum, and to ensure that the G20 takes the necessary coordinated action.

At the same time, Europe must accept that individual countries do not have the same capacity to fight deficits, and that we should have the wisdom to allow some of them more lenient timeframes. Finally, it is also time apply a number of decisions that have already been taken. François Hollande prides himself on the fact that he was able to complement the Fiscal Compact with a “growth pact” to be backed by a budget of at least 120 billion euros. Why are governments not already deploying these funds to boost economic growth?