End game for the euro

The plan to leverage the financial power of the crisis fund ESFS five fold is immensely hazardous – Published on Current Concerns no 26 (Source: Frankfurter Allgemeine Zeitung of 24.10.2011), by Holger Stelzner, November 2011.

Those who lament the “desastrous effect” of the EU summitt marathon should explain why they expected the current euro crisis meeting to turn into some sort of salvation summit. Just listing the chaos of topics involved in the euro decision mayhem illustrates that one summit alone will never be able to slice the Gordian knot: payment of the next loan tranche and the increase of the second aid package for Greece, cumulation of the capital requirement in Hellas from 109 to 252 or 444 billion euro, 

re-capitalization of the European banks as a precondition for the so-called hair cut” of Greece, leverage of the euro crisis fund in order to mobilize the rescue billions. And on top of that the preparation of EU treaty amendments to improve governance of the budget policies and to communalize the debts (key word “fiscal union”).

Uneasiness grows both in the federal government and the Bundestag. Obviously the present rescue concept of fighting high old debts with new ones doesn’t work any longer. Still Berlin resists wishes from Paris and Brussels to use monetary politics to brush up the failure of the fiscal politicians. The European Central Bank must not finance a life on tick, that would be desastrous for the union … //

… The plan to leverage the financial power of the crisis fund ESFS five fold is immensely hazardous. It was with these very credit leverages how the banks manoeuvred world economy into dire straits, to start with. Secondly, liability risk for the taxpayer will quintuple, too. Thirdly, it is an illusion to believe the markets would be impressed by this increased financial fire power. On the contrary, states and markets will be more likely to withdraw those billions while at the same time all efforts to save money by the debt states will be futilized.

Moreover, the planned establishment of an unlimited crisis fund under the misnomer “European stability mechanism” also sends disastrous messages. That way bailout is made the principle of the euro zone. It has never been in the same United States rescue Europeans are so fond of appealing to. Just once, in 1790, did Washington bail the states out, in order to consolidate the costs of the War of Independence. Only because the federal government will not help the states out of their financial dilemmas debt referendums and budget balancing will enforce financial discipline to this day. Neither did that break the dollar zone, nor did it degrade the dollar to a soft currency.

The state debt crisis is neither solvable by a “hair cut” of Greece in the euro zone nor by delegating the problem to the European Central bank. Fiscal politicians trying to escape from solid budget policies by means of the helicopter drop will seed inflation and harvest distrust towards the euro. Whoever believes he could help the euro and the Greeks with this hair-cut inside the euro zone does in fact reckon without Italy. Why should Berlusconi or any other Italian government bother the Italians and themselves with austerity measures when Greece can just forget half of her debt and remain within the euro zone? Rome is not Athens. The Italian economy is strong, but politics is weak. Italy could easily regain international competitiveness and economic growth if she just wanted to. The future of the common currency will not be decided in Athens. The end-game for the euro will take place in Rome. (full text).

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