Luxembourg's Foreign Minister Makes A Point
Sometimes the truth slips out of the mouth of a politician, either by mistake or because he thinks he can afford to be truthful. In the case we're discussing here, it seems to be the latter. Luxembourg's foreign minister Jean Asselborn has just given an interview to the German news magazine 'Der Spiegel' and was rather frank in his assessment of the so-called 'fiscal compact'. A pertinent snippet from the interview follows below:
"SPIEGEL ONLINE: The latest example of this was the so-called fiscal pact. For
months German Chancellor Angela Merkel and French President Nicolas Sarkozy have been trying to implement a rigid fiscal austerity regime complete with legal "debt brakes" and threats of punishment for those who would transgress budgetary rules. Will this help Europe?
Asselborn: No. One could have just saved the big waste of time and energy it took to negotiate this international contract. Most of what they want to regulate could have easily been done in the existing system, the so-called EU secondary law.
SPIEGEL ONLINE: And on top of that, the idea that the European Commission would take legal action against member countries that take on too many debts also wouldn't work?
Asselborn: No, I don't think so. The desired pact is just an international contract between EU members, but it's not a part of the EU treaties. Outside of these treaties, the European Commission can only bring infringement proceedings, in concert with all EU member nations, in front of the European Court of Justice.
SPIEGEL ONLINE: That means that all 27 EU members must agree?
Asselborn: Yes.
SPIEGEL ONLINE: Some have already said clearly that they don't think much of it. Does that mean that, despite months of debate, nothing will come of the proposal?
Asselborn: The way things look today, it's hard to imagine. Like I said, a lot of energy and time wasted for nothing.
SPIEGEL ONLINE: What could have moved Chancellor Merkel to so massively invest in a project with a highly questionable outcome?
Asselborn: I think the German chancellor was led by two very different motivations with this proposal. On the one hand it is certainly about more stability in the crisis-stricken currency union. On the other hand, questions that have more to do with Germany than Europe could have played an important role. But the foreign minister of little Luxembourg shouldn't get mixed up in German domestic politics.
SPIEGEL ONLINE: Many countries have for years spent far more money than they brought in, amassing huge mountains of debt. Now they need to save. But are the radical austerity measures that Berlin suggests the right recipe?
Asselborn: Both are needed. Saving and living off less credit is important. But Europe can't starve itself to death. Right now we need growth above all. One shouldn't forget that the EU has 27 million unemployed.
SPIEGEL ONLINE: But not all EU members see it this way?
Asselborn: Obviously not.
(emphasis added)
Of course Asselborn is perfectly correct: it is all a giant waste of time. As we have noted several times before, it proved impossible to enforce the comparatively less onerous Maastricht treaty. The new 'fiscal compact' will be riddled with exemptions, as no government will be prepared to face the need to achieve a 0.5% primary deficit during times of recession – not even Germany's, which currently sports a 4.3% deficit. Germany's cumulative public debt is likewise in violation of the Maastricht limit. It is a bit odd that it wants to dictate terms of fiscal probity to others in the euro area while it remains in violation of the treaty itself. This goes doubly for France.
Aside from representing a first step toward 'fiscal union', the main aim of the compact appears to be an attempt to avoid that another Greece is sprung on 'unsuspecting' euro area members. However, the political class has only itself to blame for that: they were appraised of Greece's budget and debt tricks before the accession of Greece to the euro. The Goldman Sachs derivatives swaps that helped Greece to camouflage the size of its debt were presented to the European parliament by an economist prior to Greece's adoption of the euro. The matter was discussed and promptly dismissed as irrelevant.
Moreover, Greece has a colorful history: it has been in default in approximately 90 of the past 180 years. It should have been obvious that one can not trust the Greek government blindly, and as it turned out, the predecessor government to Papandreou's simply falsified its book-keeping and lied about the size of its debts and deficits.
Lastly, economists warned from the very beginning that the Greek economy was not compatible with the rest of the euro area, in the sense that it would be unlikely to be able to adapt to a common currency administered according to Bundesbank principles. No-one can claim in hindsight that any of the developments were truly a 'surprise'. Rather, they are the end result of politicians pursuing what is essentially a political project without considering the potential economic ramifications and costs.
Asselborn also had a few words about the emergency summit inflation:
“Asselborn: At the summit of EU leaders at the end of the month, there should finally be an effort to search for ways to spur economic growth and create jobs. This is more essential than holding never-ending treaty debates.
SPIEGEL ONLINE: How Europe functions and how it should move forward is decided today almost exclusively by government leaders at the so-called EU summits. Is that actually a good thing?
Asselborn: I don't think it's good at all for Europe. All the summits cancel out something that we celebrated as a great advance: The introduction of majority decisions.
SPIEGEL ONLINE: How so?
Asselborn: At the summit meetings of chancellors, presidents and prime ministers there is no vote. They must all agree.
Spiegel-Online: How does this affect the quality of the decisions?
Asselborn: Anywhere a consensus is necessary there will be solutions of the lowest level, the lowest common denominator. That is neither good for the substance of the EU, nor for the people who are affected by the compromises forced through in this way.”
(emphasis added)
We have been saying it for a long time: the summits have done more harm than good. The only group in all of Europe happy about this useless summit inflation are the catering companies. And who can argue that Asselborn is not right when he says that the outcome of these deliberations are 'solutions of the lowest level, the lowest common denominator'? This is precisely what we have seen. In fact, it is way too generous to call the agreements 'solutions' – they have solved absolutely nothing. Instead they have so far done nothing but making the crisis worse.
Source: Acting Man
