Dombrovskis: impact of Russian crisis on EU remains rather limited

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According to initial analysis, effects of Russian crisis on EU economy are limited, European Commission vice president Valdis Dombrovskis (Latvia) tells Postimees. Meanwhile, further developments of the situation are unpredictable.  

Yesterday morning, while live on Estonian TV you said in EU the economic crisis is as good as over. How would you explain that to the millions of Europeans who continue to be jobless, or those who simply have very little money? 

When viewing the financial and economic crisis the EU was facing just some years ago, one may definitely say the crisis is over. Next year, all 28 member states will return to economic growth, for the first time since the crisis broke out.

Nevertheless, it is equally true that we are continually faced with the social consequences of the crisis. That includes unemployment, which remains high – at about 11.5 percent. As well as increased inequality and poverty. These consequences surely need to be dealt with.

In social policy, several things can be done. Indisputably, the weightiest fresh initiative is youth guarantee against youth unemployment. At the European Commission, we are currently dealing with ways to speed its implementation. Also, there’s the need to better harmonise labour market needs and our educational system.

A lot, however, depends on how fast the recovery will be. At the moment, the risk seems to be that in an environment of slow recovery of economic growth, of high unemployment and low inflation, the recovery will be feeble or stagnation will hit. Our task is avoiding such a scenario, ensuring sustainable economic development and jobs creation.

European Commission has set it as its goal to boost investments, including the €300m investments plan which includes structural reforms to enhance the competitiveness in EU and its members. Also, we will have to think about financial stability.

How great a risk is posed to said recovery by the current crisis with Russia?

Naturally, it is not too clear as yet how the Russian issue will develop in the economic sense, how the situation in Ukraine will develop. This is quite unpredictable.

Even so, since the rouble collapsed, initial analysis by our experts show its impact on EU economy are rather limited.

Meanwhile, it is clear the impact is not the same on all member states. The Baltics, for instance, are suffering the hardest, as well as being the most affected by Russia’s retaliation against the EU. And we will have to see how to help the states most affected by the crisis.

You also mentioned fiscal discipline. One of your primary tasks as commissioner was reprimanding three states concerning this: Belgium, Italy and France. You sent them a letter. What did they reply? 

Perhaps, it would be better here to start with the broader context. We prepared our yearly growth research, explaining the commission’s general approach towards fiscal responsibility. During that, we passed assessment to member states’ budget plans.

While doing that, we found that seven eurozone states were in danger of contradicting the stability and growth pact. In that regard, we separately underlined France, Italy and Belgium. France, because they are not doing their duty to cut the budget deficit. Italy, and in a measure Belgium as well, have problems with public debt.

All three have sent letters to the European Commission, explaining their reform plans as well as readiness to make all necessary financial efforts for conformity with stability and growth pact. 

Based on that, the commission gave them time till March so we might, on basis of more precise data, to see how they implement next year’s budget. And then, seeing all the information and the progress the states have made implementing the reforms, we will be able to reassess these states, keeping all procedural options open.

One of your personal strengths, obviously, is your unblemished success in pulling a country out of crisis. At times, the representatives of larger countries try to justify themselves by saying the smaller states like Latvia or Estonia are easier to reform – while the bigger ones gave greater inertia. What do you think about that?

There is some truth to the inertia-argument, but I still would not agree with the argument that in large states large structural reforms are impossible. In that sense, the EU’s largest member Germany is quite a good example: at the beginning of the 2000ies, they executed major structural reforms, which still serve them well.

During the crisis, especially, they complained about the vast East-West and North-South gaps. How true is that? And if true, which gap would be wider?

I have had to answer that question for two years already. I always say these lines of separation are somewhat artificial.

At the moment, we are talking about the South and the North, but when looking back to the period over ten years ago, Germany was the sick man of Europe. Looking back five years, we were not talking about a crisis in the Southern, but rather in the Eastern Europe. At the moment, we are talking about crisis in Southern Europe; who knows who we will be talking about five or ten years from now.

With Jean-Claude Juncker’s commission, it was advertised long in advance that it would be strong, containing several former prime ministers and other key ministers. Will it not be difficult together for such numbers of leaders?

At the moment, we have really good working relations between vice presidents and commissioners. Hopefully, that’s the way it will continue to be.

When it comes to the strength of the commission, we might be able to judge in a couple of years, when we will begin to see the kind of results that are achieved.

Finally, I’d like to ask about the event that led to your resignation as Prime Minister at the end of last year. The Maxima tragedy. Are you satisfied with what has been done, regarding that, up to now?

The investigations are underway, soon nearing the finish line. During the first few days after the accident, as government we vowed to provide all necessary resources for the investigation. The evidence has been collected and documented very carefully, ensuring that all those responsible will be punished by court.

The other aspect is scrutiny of building sector regulations, generally. During this past year, a string of amendments have been passed, and minor laws, to ensure stronger supervision of players in construction sector.