European Issues

GERMANY SUGGESTS POLICY OF FISCAL

DISCIPLINE AND RESPECT FOR THE LEGAL

FRAMEWORK IN THE MEANTIME, AT RISK OF

DISINTEGRATION OF THE ECONOMIC

PRINCIPLES OF THE EUROPEAN UNION

 

By Rolando Arturo Leiva

22 november 2011

 

Heidelberg, (Germany) - Facing the risk of sovereign debt crisis of the States

-with the potencial of a crisis of the Euro as a whole and thus affecting the

economic and monetary policy of the European Union in itself, and leading possibily

to legal collapse in trying to handle a general crisis-, so far Germany still

maintained the policy that the country's fiscal deficit, for the time, is a matter of a

country in itself, and any change in that sense, should entail the amendment of

collective agreements signed by countries through the Treaty of Lisbon which is

precisely to which Germany itself is tilted.

 

In practice, the German position, sustains the principle that the agreements signed by

the other member countries of the Euro Zone, if not respected, will make the crisis

indeed worse, and that is for the moment what is to avoid, waiting in the mean time

for a new collective framework agreement.

 

Accordingly, Minister Wolfgang Schäuble, German Finance Minister, declared to

the NEW YORK TIMES last week that at the next European summit to be held in

Brussels on 9 December next, Germany will propose changes to the Treaties in order

to define a common fiscal policy, mainly between group of the 17 countries belonging

the Euro Zone, being, in his opinion, the lack a common fiscal policy, the point that

has been absent in the current crisis, and in achieving this the current crisis will be

definitely over.

 

The leading exponent of German economic policy adds that with achieving this goal,

a political union between the Member States of the European Union must follow,

and if the Commission President is subsequently elected by universal suffrage, a

new world political entity will for sure be born.

 

The additional sense of the German position, seems to be evident when looking at

the paradox that, on the one hand, he European Central Bank has been asked to

intervene in order to buy the debt of the States, but also criticized if the later is

done using a new legal framework required to do that, because such a thing would

mean, as critics of the measure say, the emergence of a supra-state or

supranational framework that will invade the jurisdiction of each country.

At the level of the European Central Bank, ECB, this problem is reflected when this

institution has been lending money to borrowers banks of countries that need cash to

pay its tax liability, such as Greece, Italy, Spain and Portugal. But the ECB has not

given money directly to countries with high tax debt and liquidity risks, by noting that

it is alien to its mandate.

 

Many critics say that in doing so there is a real danger that some countries may

actually lose the ability to liquidity.

 

Similarly, the new Director of the ECB Mario Draghi, has also pointed out that

according to the principles of the European Union it is illegal to lend money directly

to most indebted banks, because this would multiply the debt and will now

extending it to all countries that make up the EuroZone.

 

Indeed, the ECB Regulation does not allow directly to purchase bonds issued by

each State debt for liquidity, as for example, was made the U.S. Federal Reserve

making use of the so-called principle of quantitative easing to ensure market liquidity

that is, to have money to pay.

 

But somehow the ECB has been conducting that at a time, but buying the bonds of

government debt on the open market and not making loans directly to the most

committed banks.

 

Also, according to what the NEW YORK TIMES reported in its edition of November

14 last, Jens Weidman President of the Bundesbank (German Federal Bank) and

ECB council member, added that it is "illegal to use the ECB to resolve budgetary

problems of each country. "

 

"The increasing pressure that is on monetary policy is dangerous," also says

Weidman. "The common monetary policy can not and should not solve the solvency

problems of banks and governments of each country."

 

The situation was aggravated last week when the Italian government reached the

point of having to pay more than the 7% interest to sell their bonds of debt and raise

cash, reaching a level where it is considered that a government can declare

bankruptcy , which would bring a chain effect on the creditor banks, and loosing their

capacity to liquidity.

 

In the short term the German government plans as an immediate step to overcome

the legal obstacles that currently exist, and in a broader context, as expressed

Schäuble to the NEW YORK TIMES- begin the work of “reaching a political union of

all Member States. "

 

For a limited period of time, Schäuble added, "we must try to handle the nervousness

of the markets .... But if by the end of 2012 or mid 2013 we already have all the

components of a new, strengthened and deepened common political structures at the

level of the European Union and the Eurozone, I think that's going to work ".-

 

Rolando Arturo Leiva

Heidelberg, Germany

22 november 2011

 

(Una versión de este artículo fue publicada en la News Letter - “InterEuropa Reporte”

- “La Crisis del Euro” noviembre 2011)