♠ Posted by Emmanuel in Credit Crisis,Europe
at 3/17/2010 04:28:00 PM
I honestly love refreshing German candour. Unlike deficit-loving Americans and Brits, Germans do not hesitate to call free-spending nonsense the nonsense that it is. Call it the truth about deficits and the stability and growth pact, German style. As Thomas Oatley keeps reminding us in his see-I-told-you-so manner, the Germans were always wary that using the Deutsche mark as the foundation of the euro would eventually lead to free-riding of the sort PIIGS economies are doing which can undermine the, er, growth and stability of the entire European integration project.So, Chancellor Merkel--a great, great, woman I do admire a lot--has taken the bull by the horns by suggesting that mechanisms for kicking our repeat offenders out of the Eurozone should be put in place. After the generally warm reception of calls to establish a European Monetary Fund monitoring other Eurozone countries, this was the logical next step. However, the PIIGS countries may now abhor the putative EMF. As I see it, the EMF was never about "protecting" Eurozone member countries from market forces as some saw it but of Germany acting as big brother. From the WSJ:
Countries that threaten euro-zone stability should face expulsion, German Chancellor Angela Merkel said Wednesday, and while Greece won't face such harsh consequences, European nations shouldn't make a "rash decision" to help Athens out of its debt crisis.Then again, it may just be for show to domestic audiences given the difficulties involved in shepherding new legislation in Brussels:
"We need an agreement that as an ultima ratio [the last resort] it's possible to exclude a country from the euro zone if again and again it doesn't fulfill the requirements," Ms. Merkel said in an address to Germany's lower house of parliament. Ms. Merkel's remarks were a clear reinforcement of German reluctance to prepare a detailed financial rescue package for Greece. Euro-zone finance ministers discussed a contingency plan this week, and it could be approved by government leaders in Brussels next week, though German officials have said they don't expect a final agreement at that meeting...
The European Central Bank released a paper in December that said kicking a profligate member out of the euro zone would be nearly impossible under European Union law, and that a country leaving the currency bloc voluntarily would probably also have to quit the EU altogether. Ms. Merkel has said that an expulsion mechanism—first mentioned as a power of the European Monetary Fund her finance minister, Wolfgang Schäuble, wants euro-zone members to establish—would require a treaty change for the currency bloc and the approval of all 27 EU members, not just the 16 countries that use the euro. But winning such approval would be extremely difficult, if not impossible.
Ms. Merkel, aiming her remarks Wednesday at German voters who are deeply skeptical about their responsibility to help solve another country's budget problems, said steps to shore up market confidence in Greece must begin in Athens. "We don't want a rash decision on aid that has no effect over the long term and continues to weaken the euro," Ms. Merkel said. "We can't forget that the Greek situation wasn't caused by speculators; it was aggravated by speculators."Good stuff. Somewhat unlikely to come true mayhaps, but good to hear nonetheless in a deficit-crazy global political economy.
Ms. Merkel called the crisis in Greece, where a budget deficit above 12% of gross domestic product has prompted fears about the government's ability to pay its debts and the currency bloc's power to stabilize a struggling member, "the greatest challenge yet to face the euro" and said it exposed a need for broad new regulations. "Today we don't have the right instruments," Ms. Merkel said. "We need to reach agreements that will help us avoid such a situation." She called for action against "excesses on the financial markets," including an EU ban on so-called naked credit default swaps.
