December 21st, 2011
“There is no politician who wants to ignore the laws of physics when building a bridge. But there is a tendency in politics in every country to suppose that the laws of economics are flexible and can be adjusted to political necessity. “€ has its future behind him. In the present constitution, he has no chance.Hectic political act helpless. The financial rescue packages are larger, the half-lives of the summit decisions shorter. The risk of infection increases risk of domino effects. Yesterday, the PIGS were economically in the balance, it is now Italy, France tomorrow. The debt crisis eats inexorably through to the core of EMU. The concept of reserve parachutes failed. The number of rescuers will continue to shrink. Germany alone can not save the EMU.
Not surprising that therapies are socially acceptable, which had been absolutely taboo. Euro bonds are seen by many as a wonder weapon. With all the common euro bonds represent the debt of all in the EMU. The good credit rating gives economically footsore German EMU cheap loans. Above all, Germany is the loser. The poorer credit ratings of the other German interest rate increases the cost considerably. At the current funding structure, a premium of about 2.3% would be expected. The German taxpayer would have to shell out 2.1 billion euros of debt annually up to € 47 billion more.
€ Bonds would definitively from the EMU community liability. That would be another blatant breach of EMU contracts. There is a clear exclusion of liability. The countries are solely responsible for their debts, not for others. But even in the reserve chutes an unprincipled politics has broken without much ado existing contracts. With Euro Bonds is a cornerstone of the EMU would be torn down. The trust of skeptical German population in the euro would further undermine unloved.
Bonds would be €
Another nail in the coffin for the euro. The incentives for EMU shaky candidates would decline to economic and fiscal policy to pull the strap. Cheaper loans reduced the pressure to painful reforms to the head and members of the State to perform. So this would really tackled, it would require more stringent conditions imposed by the issuer of the Bonds €. The vigorous resistance of the recipient countries to a “fiscal protectorate” would be mapped out. The IMF can sing a song about it. The conflicts in the EMU would exacerbate dangerous.
The European Union is not a nation and it will not be for the foreseeable future. As before, the national parliaments have the say fiscally, not the Eurocrats in Brussels. And that's good. A centralized fiscal policy is not only bad economics, it also deprives the national policy and its citizens. Remains perhaps the opportunistic German policy, which gives up its regulatory principles again and again, this time at least steady. Thus the way would be built on Euro Bonds.
The debt problem in the euro area remain unresolved. The rescue does not provide effective protection. Also an increase does not help. Will spread the infection, other countries are as guarantor. The screen will be bigger, but gets more and more holes. Germany, Finland, the Netherlands and Austria can not save the EMU. It is a dangerous illusion to believe that governments could guarantee the government bonds in EMU. The reason is that the states into debt in a currency that they can not do themselves. That alone can the ECB.
Only the ECB may guarantee bonds in the euro area. She has the ability to print money without limit. But this is a game with fire. With the purchase of government bonds of the PIIGS the ECB has crossed the Rubicon and sustained damage to its reputation. Does it continue this way, it is financing the national debt by printing money. That would be a blatant breach of contract which would lead to an inflationary conflagration in Europe. The incentives of states would be unbroken, to continue with their unsound policy. Such policies led to runaway inflation, always and everywhere.
Back to the roots