Home US & World News NEWS & COMMENT: Undemocratic German 'debt brakes' pushing EU's 'outer limits of good will'

NEWS & COMMENT: Undemocratic German 'debt brakes' pushing EU's 'outer limits of good will'

E-mail Print

The development of the euro crisis is turning the 2012 French presidential election into a referendum on an undemocratic fiscal union pact that would impose austerity "debt brakes" on the constitutions of euro zone countries and which would, German Chancellor Angela Merkel was good enough to point out, "be binding and valid forever.  Never will you be able to change them through a parliamentary majority," the London Telegraph reported Monday.[1]  --  "But while signed by President Sarkozy, the new treaty, signed by all E.U. countries except Britain and the Czechs, will not be ratified by French MPs before presidential elections in April."  --  And the candidate now favored to win the French presidency, Socialist François Hollande, has "declared his intention to tear up the agreement" because "the new treaty will outlaw Socialist plans for higher spending."  --  If France were to fail to ratify the fiscal pact, it would certainly break down, "because the country is the euro's second-largest economy and has a track record of high public spending.  'Without France changing its constitution in the name of fiscal discipline, why would any else in the euro?' said an E.U. diplomat."  --  As Honor Mahony pointed out on an E.U. Observer blog, for Angela Merkel "The debt brake is the major domestic hook" that enables the German leader to maintain political support for her controversial policies at home.[2]  --  But the undemocratic diktat imposed on other countries by Berlin is inevitably "alienating her E.U. allies."  --  "She appears to be reaching the outer limits of good will," Mahony said after Monday's E.U. summit in Brussels.  --  Even the Financial Times of London, which is generally supportive, took umbrage at the "political crassness" of a German proposal to empower an E.U. commissioner to overrule Greek decisions on taxation and public spending:  "There is truth in the German view of fiscal discipline. But it is not the whole truth, nor nothing but the truth. . . . [Athens's] warning against forcing a choice between help and national dignity is one all should heed."[3]  --  The clearest statement we've seen of what is going on was posted on the WSWS website:  The E.U. fiscal treaty means that "Governments will essentially be denied the possibility of ameliorating the deepening social crisis through fiscal measures.  Instead, in order to ensure the repayment of their debts to the banks, they will be forced to take draconian deficit reduction measures, primarily by slashing spending on welfare provisions, education, housing, infrastructure, public sector employment, pensions, and health care."[4]  --  "The summit had been preceded by a propaganda campaign by European leaders who promised substantial financing for economic stimulus and job creation," Stefan Steinberg noted.  --  "On Monday, it was announced that unemployment across the continent had reached its highest level since the introduction of the euro." ...


1.

FRENCH ELECTION POISED TO BECOME REFERENDUM ON FISCAL UNION PACT

By Bruno Waterfield

Telegraph (London)
January 31, 2012

http://www.telegraph.co.uk/finance/financialcrisis/9053028/French-election-poised-to-become-referendum-on-fiscal-union-pact.html

PARIS and BRUSSELS -- The French President will sign a eurozone "stability, co-ordination, and governance" treaty next month, a "compact" regarded by the German Chancellor as vital for saving the euro from its debt crisis.

But while signed by President Sarkozy, the new treaty, signed by all E.U. countries except Britain and the Czechs, will not be ratified by French MPs before presidential elections in April.

The deal is now under threat after François Hollande, the Socialist favorite to win the vote, declared his intention to tear up the agreement.

He is opposed to it because the new treaty will outlaw Socialist plans for higher spending by writing an austerity "debt brake," limiting the size of national budgets for euro members, into international and E.U. law.

"This treaty will not have been ratified and an unratified treaty carries no legal weight, thus the new French president will have full legitimacy to renegotiate it, said Pierre Moscovici, the Socialist campaign manager yesterday.

"We cannot enter a spiral of austerity with a pact geared only toward austerity."

Mr. Hollande has also refused to rule out holding a popular vote, saying that he would make that decision "at the appropriate time."

The latest IFOP/Fiducial poling yesterday had extended his lead to 31 per cent support against 24.5 per cent for Mr Sarkozy.

A Socialist victory and collapse of the euro pact would fuel market turmoil that could further hit France after it lost its AAA credit rating last month.

Current measures to raise VAT are deeply unpopular in France, a country where austerity measures are fiercely resisted and that rejected the E.U. constitution in 2005.

France's agreement to the new euro austerity pact is critical because the country is the euro's second largest economy and has a track record of high public spending.

"Without France changing its constitution in the name of fiscal discipline, why would any else in the euro?" said an E.U. diplomat.

Speaking at a Brussels summit on Monday night, Chancellor Merkel made it clear that the new fiskalpakt is aimed at making all euro members enshrine Germanic austerity targets in their constitutions

"The debt brakes will be binding and valid forever.  Never will you be able to change them through a parliamentary majority," she said.

Ms. Merkel has announced her intention to join Mr. Sarkozy on the campaign trail in order to help rescue him, and the euro pact.

The intervention by Germany into domestic politics might backfire.

In December, Mr. Hollande warned against Germany dominance of eurozone policy.  "We cannot let the Germans alone appoint themselves experts and judges," he said.

Alain Juppé, the French foreign minister, warned that the Socialist plan to tear up a treaty after it had been signed by the country's president threatened to trigger a new euro crisis.

"The President's signature naturally commits France.  If ever there were a change of government, we would have to see France going back on this signature.  I think it would be very, very damaging for the interests of our country and for Europe itself," he said.  [NOTE:  This is a very poor translation.  What Juppé actually said was:  "Mais la signature du président de la République engage naturellement la France.  Si jamais il y avait une alternance politique, c'est une hypothèse, ce n'est pas tout à fait une certitude contrairement à ce que pense le candidat socialiste, si jamais il y avait une alternance, on verrait si la France reviendrait sur cette signature.  Je pense que ce serait très très dommageable pour les intérêts de notre pays et pour l'Europe elle-même."  --J.R.]

2.

THE POLITICAL TIGHTROPE

By Honor Mahony

E.U. Observer
January 31, 2012

http://blogs.euobserver.com/mahony/2012/01/31/the-political-tightrope/


I wonder how long German Chancellor Angela Merkel can maintain this political balancing act of keeping her backbenchers happy while not alienating her E.U. allies too much.

She appears to be reaching the outer limits of good will, at least as far as her E.U. counterparts are concerned.

The proposal for an E.U. budget tsar specifically for Greece -- revealed by the Financial Times -- appeared to be a step too far.  Sent to eurozone finance ministries on Friday afternoon, the proposal said the new budget commissioner “will have broad surveillance competences over public expenditure and a veto right against budget decisions not in line with the set budgetary targets and the rule giving priority to debt service.”

It goes on:  "Greece has to ensure that the new surveillance mechanism is fully enshrined in national law, preferably through constitutional amendment."

The language is reminiscent a school head reprimanding a wayward child.  It was always going to be leaked at some stage over the weekend.  Greek politicians reacted with fury.

The idea did not find fertile ground elsewhere either.  Sweden gave it the most fulsome backing ahead of Monday’s summit, but even then the prime minister, Fredrik Reinfeldt, limited himself to saying he understood Germany’s “frustration.”

French President Nicolas Sarkozy defended Merkel in the first half of his response to a journalist’s question on the issue, noting ”it is not a position that was expressed, or still less defended by Chancellor Merkel,”  but he went on to add that the idea not democratic, reasonable, or effective.  Austria and Finland, traditional allies in the belt-tightening camp, were also dismissive of the proposal.

Merkel herself tackled the issue during the summit’s press conference with both Berlin and Brussels in mind.

She took refuge in conclusions by eurozone leaders in October which called for continued on-the-ground surveillance in Greece.  “Therefore, in terms of quality it is nothing new.”  She made it clear she wants increased surveillance of Greece’s reform pace -- but did not mention the budget overseer idea in particular.  The tightrope again.

The fiscal compact -- agreed by 25 member states on Monday -- is the tightrope in black and white.  It enshrines German thinking into its short 16 articles.  The debt brake is the major domestic hook.  Here is what Merkel said on it yesterday:  “The debt brakes will be binding and valid forever.  Never will you be able to change them through a parliamentary majority.”

Most of the rest is either already in E.U. law or on its way in.  Still, for all its slightness, it could raise difficulties.  Dublin will be under tremendous political pressure to hold a referendum -- even if the legalities say otherwise.  A poll for the Sunday Business Post found that 72 percent want to have a say on this issue.  A referendum on a treaty that was written largely for German domestic consumption and which will not solve the crisis at hand:  that is a big political ask.

It was Merkel’s summit on Monday.  She got her treaty.  But her E.U. partners are going to be looking for something in return.  The question is -- will she be able to deliver?

3.

[Excerpts]

Editorial

THE DILEMMA OF GERMAN LEADERSHIP


Financial Times

January 30, 2012

http://www.ft.com/intl/cms/s/0/636b1c86-4b60-11e1-a325-00144feabdc0.html#axzz1l6xoxpZq
(subscribers only)

. . .

At the Brussels summit on Monday, Chancellor Angela Merkel secured her crowning triumph:  a new fiscal compact agreed by 25 members to enforce German-style budget discipline throughout the eurozone.  Yet German leadership comes at a price.  The risk is that Berlin’s leadership will, willy-nilly, feed perceptions of German dominance.

The latest spark to anti-German tinders is a Berlin policy document, which contemplates giving an E.U. commissioner the authority to overrule Athens’ taxation and public spending decisions.  It is far from clear that this would differ much from the power that Greece’s official creditor “troika” already enjoys. . . .

None of this diminishes the damage done by the political crassness of the proposal. The reaction in the Greek press has been predictably furious. And this is only the last of several unfortunate instances that can easily stoke anti-German sentiment. . . .

Now we learn that Ms Merkel has agreed to campaign for Mr Sarkozy in this year’s French presidential election.  How exactly Mr. Sarkozy came to this bizarre idea is unclear since their relationship is notoriously prickly. . . .

. . .

There is truth in the German view of fiscal discipline. But it is not the whole truth, nor nothing but the truth. Most of Europe has opted to learn from Berlin; it could now usefully consider whether others have something to offer in return.  In the Greek case, the disappointing 2011 deficit figures are in large part due to the programme’s contractionary effect: refusing to ask whether spending cuts can worsen debt burdens is not consistency but stubbornness.

Athens has much to answer for.  But its warning against forcing a choice between help and national dignity is one all should heed.

4.

E.U. SUMMIT AGREES TO GERMAN PLAN FOR AUSTERITY STRAITJACKET

By Stefan Steinberg

WSWS
February 1, 2012

http://www.wsws.org/articles/2012/feb2012/euro-f01.shtml


The European Union summit that ended in Brussels Monday evening agreed to a plan drawn up by the German government for a series of measures that will force governments across the continent to implement harsh austerity measures.

According to the plan, all 17 euro zone states will be required to insert a so-called “debt brake” into their constitutions laying down strict limits to government borrowing.  The ten E.U. member states that do not use the common European currency will have the option to adopt the debt brake measure.

Governments will essentially be denied the possibility of ameliorating the deepening social crisis through fiscal measures.  Instead, in order to ensure the repayment of their debts to the banks, they will be forced to take draconian deficit reduction measures, primarily by slashing spending on welfare provisions, education, housing, infrastructure, public sector employment, pensions, and health care.

Underlining the undemocratic nature of the plan, German Chancellor Angela Merkel declared, "The debt brakes will be binding and valid forever.  Never will you be able to change them through a parliamentary majority."

The debt brake was first introduced at a national level in 2009 by the German grand coalition government consisting of the Christian Democratic Union (CDU) and the Social Democratic Party (SPD).  The German Bundesbank praised the measure at the time as "a very welcome development."

In addition to the debt brake, the E.U. summit agreed to a German proposal that countries failing to pay their debts on time be subject to punitive sanctions to be imposed by the European Court of Justice.  Such a mechanism is prominent among the demands of the international banks and financial institutions.

Two countries, the United Kingdom and the Czech Republic, declared they would not sign up to the agreement.  At the same time, the leaders of the two countries made clear they had no disagreement with the principle of universal austerity.

David Cameron, the British prime minister, backed down from his initial opposition in December to the use of the European Court of Justice to punish countries unable to pay their debts.  The Czech prime minister said he was voting against the measure because he feared European policy would increasingly be determined by the core of 17 euro zone countries rather than all 27 E.U. members.

The summit had been preceded by a propaganda campaign by European leaders who promised substantial financing for economic stimulus and job creation.  On Monday, it was announced that unemployment across the continent had reached its highest level since the introduction of the euro.

In the event summit participants agreed to a vague proposal for the distribution of a mere 82 billion euros in previously unspent funds, in exchange for which national governments are expected to implement a raft of measures to deregulate their labor markets.

The run-up to the summit had been dominated by heated discussion over a German proposal leaked last Friday for the appointment of an external "budget commissioner" for Greece with the power to dictate the terms of the country’s monetary and budget policy.  Greek newspapers and politicians denounced the proposal, harking back to the Nazi occupation during World War II and describing it as tantamount to installing a German Gauleiter to run the affairs of Greece.

In an editorial on Tuesday, the Financial Times played down the significance of the German proposal by stressing the powers to dictate policy already in the hands of the E.U., the International Monetary Fund (IMF) and European Central Bank (ECB).  "It is far from clear" the newspaper wrote, that the Berlin policy "of an E.U. commissioner with the authority to overrule Athens’ taxation and public spending decisions . . . would differ much from the power that Greece’s official creditor 'troika' already enjoys."

In the event this proposal was not taken up at the summit meeting.  E.U. leaders made clear, however, that rejection of an external budget commissioner did not mean Greece was off the hook.  On the same day as the summit, the Wall Street Journal published an interview with German Finance Minister Wolfgang Schäuble in which he warned that the E.U. would withhold a fresh bailout package for Greece unless it concluded a debt repayment deal with the banks and stepped up its austerity measures.

The same message was delivered to Greek Prime Minister Lucas Papademos by a group of E.U. and ECB officials at a separate meeting following the close of the official proceedings in Brussels.

Following the E.U. summit, the banks and financial institutions stepped up their pressure on Europe to pump more cheap credit into the financial markets and allocate more money to guarantee their sovereign debt holdings.  It is expected that the European Central Bank, which handed out nearly half a trillion euros in low-cost loans to the banks in December, will enlarge the windfall next month with at least 1 trillion euros in additional loans.

 

Last Updated on Wednesday, 01 February 2012 08:08  

Upcoming

2014 PEACE PICNIC! -- Sun., Aug. 31, 2pm-dusk @ Gig Harbor viewpoint on 5 Mile Drive in Point Defiance Park. -- Potluck; UFPPC provides charcoal fire, hot dogs, & hamburgers (meat or veg). -- Games (bring some!), Peaceful Pie Contest w/ ribbons to winners. -- Free door prizes and raffle tickets sold for prizes. -- See you there!

Search