NEGOTIATIONS on the new fiscal treaty makes one wonder if Germany has a death wish for the euro, or at least for some of the eurozone countries.
It has just planted a thinly disguised bomb in the latest draft by insisting that if a country fails to ratify the new treaty by a specific date, that country would not receive money from the new bailout fund, the European Stability Mechanism.
This means Ireland would be cut off from further support irrespective of how well they have observed the rules, met the targets or are on track to be one of the best performers in the new austerity union.
It also means other euro countries would be left without a lifeline if they need funds — presumably even short-term money under the provisions of the ESM. Their options will be to turn to the IMF for support, leave the currency or become part of a second-rate euro.
This element of the treaty introduced during the negotiations last week is contained in the recitals — the introduction — setting out the desired goals of the treaty to be achieved by the articles following.
Here it clearly states that putting the debt brake into national legislation, preferably constitutional, "shall be considered as a condition for the granting of assistance under the European Stability Mechanism as soon as the transposition period ....has expired".
Under the existing draft countries must have the treaty ratified by January 2013. Other provisions say that nothing in the treaty can interfere with the conditions attached to a current bailout, but even this was put in some doubt by German negotiators last week.
They made it clear that if there was a considerable delay in ratification there should be a question mark over them continuing to receive aid from the bailout fund.
Ireland raised its concerns and Italy and France both asked for clarification. There will be a new draft prepared by the Council legal services later this week but the unresolved issues will be left to be solved politically.
Eurozone finance ministers will discuss it thoroughly next Monday and one week later the heads of EU countries meet to finalise it. Ireland won’t be in a strong position to fight its corner looking, as it is, for new funding to replace the expensive money it borrowed to fund the now defunct Anglo Irish bank before the bailout.
Daniel Gros, economist with the Centre for European Policy Studies, made the point that empires rarely succumb to outside attacks. "But they often crumble under the weight of internal dissent. This vulnerability seems to apply to the eurozone as well".
He said in his latest commentary that the macroeconomic indicators do not suggest the eurozone as a whole has a problem since its current account is balanced, meaning it has enough resources to solve its own public-finance problems. Unlike the US or Britain. The same is true of fiscal policy with a deficit of 4% compared to 10% for the US.
Inflation is low, the ECB will have little pressure to finance deficits which are low and projected to disappear over the next few years. Even growth is not so bad, being the same per capita as the US over the last decade. The problem is the refusal of northern Europe’s savers to invest in the euro periphery.
"If the euro fails, it will not be because no solution was possible, but because policymakers would not do what was necessary," he concludes. The treaty draft suggests it goes even further and that some of the policymakers are malevolent.
a d v e r t i s e m e n t
This appeared in the printed version of the Irish Examiner Monday, January 16, 2012
