By Kirill Bezverkhy
A summit of EU leaders – the highlight of the outgoing week – has suffered a fiasco. The EU leadership has failed to approve a new budget. A congress of the so-called Eurogroup ended in failure too as the EU finance ministers couldn’t come to agreement on the next loan tranche for Greece.
EU leaders were supposed to strike a deal on the 2014-2020 budget. As predicted by observers, they failed to find common ground. According to a draft prepared by the European Commission, the EU’s total expenditure should amount to nearly €1 trillion. Germany insists on cutting it to €960 billion, while Britain says it should be reduced to €900 billion. London’s major concern is the price it has to pay for its membership in the EU. Dr Richard Wellings of the British Institute of Economic Affairs, comments.
EU leaders will gather to discuss the budget again at the beginning of next year. No matter how irreconcilable the differences might seem, the EU countries will eventually come to a compromise, Igor Burakovsky of the Institute of Economic Research and Political Consulting, says.
“Europe has never faced such difficulties before. The current problems are testing it for strength and endurance and are checking the efficiency of the EU. A mutually acceptable solution will be found sooner or later because everyone understands the need to preserve the eurozone and pursue a coordinated economic policy that would be effective in times of crisis.”
However, agreements are hard to reach for now. The eurozone finance ministers have failed to come to agreement on granting an extra €10 billion tranche for Greece and have postponed the discussions until Monday. Univer Capital’s analyst Dmitry Alexandrov says there is no reason to overdramatize the situation.
“Many countries are tired of issuing loans in a hassle and at short notice. They are willing to attend to every detail, even if it is of minor importance. However, since all participants in the talks have agreed on the need to provide Greece with another tranche of financial aid, a decision to this effect will be passed.”
In an attempt to add more fuel to the fire, Moody’s stripped France of its top triple- A credit rating. Many analysts now say that this will entail downgrades in other countries’ ratings and will destabilize the already shaky situation on the European stock markets. According to Dmitry Alexandrov, Germany and Finland will retain their high ratings if the macroeconomic situation in the region doesn’t become worse.
“Germany and Finland will retain their top credit ratings on condition the GDP doesn’t take a sharp plunge in the fourth Quarter and the outlook for the first Quarter is more or less favorable. Countries with AAA ratings will likely keep them until mid-spring at the very least if things remain at the level they are now.”
Some experts warn, however, that stock markets are in for a setback and that many countries will lose their AAA ratings.