In a definite shift of political direction and inspiration European Union leaders have signalled a new set of concerns in their weekend summit meeting at Portschach. Growth, lower interest rates and job creation top the agenda as the impact of world economic turbulence comes home to this group of overwhelmingly social democratic leaders. Deflation rather than inflation preoccupies them. Following the German elections which put the SPD-Green coalition in power, and now a former communist becoming prime minister in Italy, there can be no mistaking the move to the left.
At Portschach the change was symbolised by the departure of Dr Helmut Kohl. By welcoming Mr Gerhard Schroder, who will today be elected chancellor in his place by the German parliament, the leaders are recognising a change of direction, as well as a new national leader. At the press conference to announce his new government's programme last week Mr Schroder concluded with the following words: "What we are planning is indeed a change in Germany. It is not one that you should call a revolution. But it is one that will change the structure of society, that will combine modernity with social justice and one that is more humane."
Given the interaction and inter-penetration that now characterises EU politics, this statement of policy and intent can justifiably be said to apply to the wider EU setting as well as to the German one - within the constraints of competences and continuity of policy. These include the basic framework set out in the detailed plans for introducing the euro from next January. But a renewed emphasis on the economic dimension of that project is signalled, in addition to the monetary one. Shifting the concern from inflation to heading off deflation is indeed a classic sign of
changing economic management from centre-right to centre-left; but, given the genuine dangers facing the world economy and the real responsibility of European governments to ensure they can sustain growth and employment creation, it would be surprising if the new emphasis on investment, fiscal stimulus and lower interest rates was not shared across the political spectrum.
All eyes will now be on the French and German governments as they co-ordinate their economic plans in the coming weeks and months. We can expect to hear more on growth and employment creation at the European Council in Vienna next December. There are also several indications that Mr Tony Blair's government is determined to play a central part in this new political constellation. Hence his announcement that Britain supports more co-operation on security and defence. He is clearly concerned to compensate for Britain being outside the euro and keen to strike up a positive relationship with Mr Schroder.
It now seems clear that the euro's introduction will be accompanied by a more expansionary fiscal stance, in recognition of the need to head off deflation. This is a welcome development, appropriate to the dangers involved. It is also clear that political pressure is on for a reduction in interest rates. This tussle will test the resolve of the European Central Bank, which is mandated to address inflation rather than employment. It will also tax the skills of the Government, still sitting astride economic growth the like of which is seen nowhere else in the EU.