Via Gawain’s twitter, we get an interesting article written by Hans-Werner Sinn is Professor of Economics and Public Finance, University of Munich on the atrocious manner in which the eurozone has been managed this last decade: Europe’s Instability Mechanism.
By 2010, Europe was to be “the most competitive and dynamic knowledge-based society in the world.” This was the official proclamation in 2000 of the European Commission in the so-called Lisbon Agenda. Now a decade has passed since that bold pledge, and it is official: Europe is the world’s growth laggard rather than its champion. While current EU members grew by 14% over the last ten years, North America grew by 18%, Latin America by 39%, Africa by 63%, the Middle East by 60%, Russia by 59%, Singapore, South Korea, Indonesia, and Taiwan by 52%, India by 104%, and China by 171%.
The Europeans wanted to achieve their goal through, among other means, further environmental protection and more social cohesion – desirable aims, but certainly not growth strategies. The Lisbon Agenda turned out to be a joke.
The European Stability and Growth Pact also has delivered not what is promised, according to prof. Sinn. Since it’s inception the 3% fiscal deficit limit has been breeched 97 times.
In 29 of these cases, the breaches were permissible, because the countries were in recession. In the remaining 68 cases, however, deficits above 3% of GDP were clear violations of the Pact, and the European Council of Finance Ministers (Ecofin) should have imposed sanctions. Yet not a single country was ever penalized.
The vow to never have other member states pay for the debt of another was also forgotten. Ireland and Greece were bailed out in direct violation of Article 125 of the
Lisbon Treaty Turnip.
That doctrine of hard discipline was abolished in a coup in May 2010, when it was claimed that the world would collapse unless Germany opened its purse.
In the case of Greece it is now clear that the supreme Greek supervisory authority had “deliberately falsified” the data. But Greece was already in, and able to take its fellow EU members hostage, as prof. Sinn calls it.
Then the temporary bail-out pot became permanent. But the participation of creditor banks, which had long been the conditio sine qua non for the German government, was downgraded to optional status.
Lastly, the European Central Bank vowed a year ago, it would not accept BBB- rated government bonds. That, too, went out the window in May, when the ECB started buying Greek junk bonds.
All this may lead to not a very happy end, as prof Sinn argues that the first step toward a potential chain of government insolvencies in Europe has been taken. The risk may be limited today, but it will become larger should the new ESM become full-coverage insurance against insolvency with no burden-sharing by creditors. In view of the foreseeable demographic risks from pension entitlements, a time bomb may now have been set ticking.
Promises have been broken, solemn vows forgotten. All to keep the EUnion and the euro together. All at the cost of very limited, even anaemic economic growth. In a very real sense the EUnion is thus impoverishing us. And yet they demand even more money from our purses. Can we leave now?
[UPDATE001] And as if to hammer the point home, the Wall Street Journal: ECB Set to Become World’s Largest Junk Bond Fund. The conclusion is becoming inevitable: The EUnion isn’t going to throw us into poverty. It has already done so. That knocking you hear is the debt collector at your door.