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Pacta sunt..?

by afew Fri Jun 8th, 2012 at 05:09:22 AM EST

Yesterday, in a television interview, the German chancellor made clear:

BBC News - Germany's Chancellor Merkel urges EU political union

"budget consolidation and growth are two sides of the same coin. Without solid finances, there is no growth, but solid finances alone are not enough; there are other points - above all, questions of competitiveness," she said.

In other words, no change in the German neoliberal mantra: slash public services, increase labour market precarity in order to reduce wages -- which both mean increasing inequality and poverty in any country, including Germany, and far more so in countries straitjacketed into brutal deflation.

A month or so ago, just before François Hollande won the French presidential election, the German government in the person of its finance minister explained how "Europe works":

Schaeuble Says Germany Will Negotiate With Hollande - Bloomberg

“We’ve told Mister Hollande that the fiscal pact has been signed and that Europe works along the principle of pacta sunt servanda,” meaning agreements must be kept, Schaeuble said in a speech in the western German city of Cologne today.

Let's see: here are some excerpts from agreements Germany has signed and ratified:

From the statements of intent in the preamble to Treaty on European Union (my bold):

RECALLING the historic importance of the ending of the division of the European continent and the need to create firm bases for the construction of the future Europe
CONFIRMING their attachment to fundamental social rights as defined in the European Social Charter signed at Turin on 18 October 1961 and in the 1989 Community Charter of the Fundamental Social Rights of Workers
DESIRING to deepen the solidarity between their peoples
RESOLVED to achieve the strengthening and the convergence of their economies
DETERMINED to promote economic and social progress for their peoples

From the Treaty on the Functioning of the European Union:

RESOLVED to ensure the economic and social progress of their States by common action to eliminate the barriers which divide Europe
AFFIRMING as the essential objective of their efforts the constant improvements of the living and working conditions of their peoples
RECOGNISING that the removal of existing obstacles calls for concerted action in order to guarantee steady expansion, balanced trade and fair competition
ANXIOUS to strengthen the unity of their economies and to ensure their harmonious development by reducing the differences existing between the various regions and the backwardness of the less favoured regions

Since negotiating, signing, and ratifying those treaties, Germany has pursued self-aggrandising policies, via internal devaluation, at the expense of its European partners. Herr Schaüble: what is Germany's signature worth?


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I know. It's tough love: all for our own good.
by afew (afew(a in a circle)eurotrib_dot_com) on Fri Jun 8th, 2012 at 05:18:17 AM EST
Eurointelligence Daily Briefing: The implosion of Mario Monti (08.06.2012)
Handelsblatt worries about the cost of Europe to Germany

Under the headline "What does Europe cost" Handelsblatt worries about the huge cost Germany will have to shoulder to safe the euro and European integration. "The Americans say Germany has to supply money to Europe", the paper writes in its leading front page story. "The French request that Germany has to share the advantage it gets because of its low interest rate. Only Germany has the financial power to safe the euro, Brussels says." The paper goes on to add up the sums that Germany is already paying for the euro rescue: €280bn for the EFSF, €57bn as the share for the ECB's SMP, €79bn as Germany's net contribution to the European budget since the year 2000. But all of that was not enough, Handelsblatt writes. "Now the crisis managers develop new ideas on a daily basis: there is the banking union, an attempt to use the German savings for bankrupt banks in the South and there are Eurobonds in which the South would profit from the good German creditworthiness." In an editorial Gabor Steingart, the paper's editor in chief, notes: "It is not the European idea that has failed. It is the belief that one country can live on the expense of the other."

(my emphasis)

If you are not convinced, try it on someone who has not been entirely debauched by economics. — Piero Sraffa
by Migeru (migeru at eurotrib dot com) on Fri Jun 8th, 2012 at 05:47:43 AM EST
Steingart is right - Germany has freeloaded on the rest of Europe to build up the export machine while holding down the exchange rate and inflation.  Now the instability caused by German irresponsible mercantilism proves that the German economic attitude of living off the rest of Europe is not sustainable.
by Metatone (metatone [a|t] gmail (dot) com) on Fri Jun 8th, 2012 at 06:09:18 AM EST
[ Parent ]
Worth noting, as I haven't seen it noted elsewhere that the Euro allowed Germany to export inflation to Spain and elsewhere...
by Metatone (metatone [a|t] gmail (dot) com) on Fri Jun 8th, 2012 at 06:11:20 AM EST
[ Parent ]
But that's not what Steingart means, he means the rest cannot be living off Germany.

If you are not convinced, try it on someone who has not been entirely debauched by economics. — Piero Sraffa
by Migeru (migeru at eurotrib dot com) on Fri Jun 8th, 2012 at 07:21:34 AM EST
[ Parent ]
Steingart counts a total of €416bn (including EU budget contributions as far back as 2000 -- shades of Maggie Thatcher!).

But, according to Bundesbank balance of payments statistics (pdf), the German current account surplus with the rest of the EU for just the past five years amounts to €564bn.

So, if we're going to get niggly about accounts, Germany is up by at least €146bn.

by afew (afew(a in a circle)eurotrib_dot_com) on Fri Jun 8th, 2012 at 09:58:26 AM EST
[ Parent ]
Or he could see this for the euro area, also from the BuBa (PDF):

by afew (afew(a in a circle)eurotrib_dot_com) on Fri Jun 8th, 2012 at 10:15:18 AM EST
[ Parent ]
Here is another estimate of the cost of the Euro crisis to Germany.

If you are not convinced, try it on someone who has not been entirely debauched by economics. — Piero Sraffa
by Migeru (migeru at eurotrib dot com) on Fri Jun 8th, 2012 at 10:15:21 AM EST
[ Parent ]
Those are projections, not established numbers.

Anyway, if Germany's stupid policy blows up in their face, they will have no one else to blame.

Though, of course, they will try...

by afew (afew(a in a circle)eurotrib_dot_com) on Fri Jun 8th, 2012 at 10:22:53 AM EST
[ Parent ]
Though this is interesting:

The whole problem being, of course, one of political will. In which it is clear that German power circles have no intention of respecting the essential stated principles of the treaties they signed.

by afew (afew(a in a circle)eurotrib_dot_com) on Fri Jun 8th, 2012 at 10:39:08 AM EST
[ Parent ]
That is what I was referring to.

The cost is, by now, several multiples of the maybe €50 billion it would have cost for the ECB to forcefully prop up Greek bond prices in February 2010.

But a small country had to be thrown against the wall to show that the Ecofin meant business, and here we are.

If you are not convinced, try it on someone who has not been entirely debauched by economics. — Piero Sraffa

by Migeru (migeru at eurotrib dot com) on Fri Jun 8th, 2012 at 11:20:54 AM EST
[ Parent ]
Right.

I don't think German governing and financial elites ever wanted Greece in the euro, and were happy to seize the wall-slamming opportunity. Yet there's a contradiction between their debt-sinner-needs-punishment attitude, and their manipulation of the single currency to their advantage -- both by using internal devaluation to gain a competitive advantage wrt euro area countries (and the "converging" countries whose currencies are euro-pegged), and in benefitting on world markets from improved terms of trade thanks to a softer currency than the DM would have been, as a result of the very presence of weaker economies in the euro-mix.

That contradiction is fundamentally Protestant: judgemental puritanism on the one hand, hard-nosed business attitudes on the other -- and some self-congratulatory bullshit about how you deserve your success because you are virtuous (not underhanded and greedy).

by afew (afew(a in a circle)eurotrib_dot_com) on Fri Jun 8th, 2012 at 12:16:13 PM EST
[ Parent ]
I think the inflation story (which I personally only just realised in this thread) is even more important. Without the Euro, all the hot money that inflated the Spanish real estate bubble (and others) would have needed to stay in Germany - and it's hard to see how it would not have caused inflation in Germany...
by Metatone (metatone [a|t] gmail (dot) com) on Fri Jun 8th, 2012 at 12:28:01 PM EST
[ Parent ]
I don't think German governing and financial elites ever wanted Greece in the euro, and were happy to seize the wall-slamming opportunity.

I wouldn't concentrate on Germany in this instance. It's clear from the record that it's the EU-wide economic policy establishment, irrespective of nationality, that has been responsible for the wall-slamming. The Ecofin and the Commission in particular.

The critique by Daniel Cohn Bendit in May 2010 is forceful and on point.



If you are not convinced, try it on someone who has not been entirely debauched by economics. — Piero Sraffa

by Migeru (migeru at eurotrib dot com) on Sat Jun 9th, 2012 at 01:33:32 AM EST
[ Parent ]
"It is not the European idea that has failed. It is the belief that one country can live on the expense of the other."

That two opposite interpretations of the implications of this statement can coexist irreconcilably vividly indicates the limits of our culture in providing for the common good. The cultural power of denial, a tradition of respect for authority  and the imperative to think well of one's self and country, combined with leaders who instinctively play to those traits have, in Germany, led to the majority of the population self righteously assuming that policies that were pursued, in no small part, for the benefit of a few powerful interest groups represented virtuous sacrifices by all for the common good. It is both easy and powerful to frame an issue in terms of common prejudices and traits.

Thus it is scarcely surprising that most Germans react with anger at those in the periphery when lying leaders tell them that the problem is the result of lazy southerners and their corrupt governments and societies not honoring their obligations. This, of course, omits any mention of the fact that the real problem is with corrupt German elites collaborating with corrupt peripheral elites for mutual profit at the expense of the people of both countries. Unfortunately, the citizenry of peripheral countries has also been subjected to comparably idiotic framing, carefully tailored to the history and circumstances of their country, but incorporating the same wealth serving biases that underlie all 'capitalist' cultures.    

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Jun 8th, 2012 at 09:37:10 AM EST
[ Parent ]
Spiegel: Playing Until the Germans Lose Their Nerve (06/08/2012)
We've now reached a phase in the euro crisis when everyone is trying to feather their own nest at someone else's expense.
Except for Germany, it's understood.
Hollande is campaigning to have the European Union help the Spanish rehabilitate their banks without involving itself in their business dealings. But, in doing so, he's much less focused on Spain's well-being than on France's. Once the principle stating that countries can only receive financial assistance in return for allowing external oversight has been contravened, one is left with nothing more than a pretty piece of paper to insure against the vicissitudes of economic life. And, of course, the next banks that will then be able to (and presumably also will) get a fresh injection of cash straight from Brussels are the ones in Paris.

...

The next stage in the crisis will be blatant blackmail. With their refusal to accept money from the bailout fund to recapitalize their banks, the Spanish are not far from causing the entire system to explode. They clearly figure that the Germans will lose their nerve and agree to rehabilitate their banks for them without demanding any guarantee in return that things will take a lasting turn for the better.

...

Germans have always expected that being part of a united Europe meant that national interests would recede into the background until they eventually lost all significance. One recognizes in this hope the legacy of political romanticism. Indeed, only political simpletons assume that when people in Madrid, Rome or Paris talk about Europe, they really mean the European Union.

...

Jan Fleischhauer is the author of "Der Schwarze Kanal," or "The Black Channel," SPIEGEL ONLINE's weekly conservative political column. Black is a reference to the political color of Chancellor Angela Merkel's political party, the center-right Christian Democratic Union.



If you are not convinced, try it on someone who has not been entirely debauched by economics. — Piero Sraffa
by Migeru (migeru at eurotrib dot com) on Fri Jun 8th, 2012 at 11:37:36 PM EST
[ Parent ]


If you are not convinced, try it on someone who has not been entirely debauched by economics. — Piero Sraffa
by Migeru (migeru at eurotrib dot com) on Sat Jun 9th, 2012 at 04:22:34 AM EST
[ Parent ]
Yanis Varoufakis: Solidarity Euro-Style: Finnish loans, ECB bond purchases, EFSF tough love and assorted horror stories from the postmodern Euro-Workhouse (7 June 2012)
The first criticism, about the EFSF-ESM's size, is true but irrelevant. As I have argued from day one of the EFSF's creation, its problem is not its size but its CDO-like structure. Turning to the second criticism, that it resembles a Dickensian Workhouse, Spain's current predicament is instructive: To get money to give to its decrepit banks, the nation must be humiliated and undergo further fiscal waterboarding so that Italy and others are deterred from turning to the EFSF for help. In this sense, when Europe's functionaries say that there is no need for further action on Spain since the EFSF is available to help, they are inviting the Spanish to enter the Workhouse for a life of undeserved misery on behalf of their bankers. And they have the audacity to call this `solidarity' with the Spanish people.

...

As I wrote in a Le Monde article recently, the bankrupt Greek state was recently forced, by the troika, to borrow  4.2 billion from the EFSF so as immediately to pass it on to the European Central Bank (ECB) so as to redeem Greek government bonds that the ECB had previously purchased in a failed attempt to shore up their price. This new loan boosted Greece's debt substantially but netted the ECB a profit of around 840 million (courtesy of the 20% discount at which the ECB had purchased these bonds). Is this `solidarity with the fallen', even of a Victorian Workhouse type?

...

When the 2nd Greek `bailout' was agreed, you may recall that the Finnish government asked for guarantees, for collateral, that would reduce its exposure to Greece. The Greek government conceded, promising collateral of  925 million in value. One might have expected that the said collateral would come in the form of some assets (e.g. Greek government owned real estate). But no! Helsinki would have none of that. Instead, they demanded... cash! And cash they received. Last month, in May 2012, Athens wired  311 million to the Helsinki government, as a first installment. My sources here in the United States tell me that the Finnish government is now seeking to invest this money in joint ventures with US and other European firms. Now that is what I call solidarity with Greece...



If you are not convinced, try it on someone who has not been entirely debauched by economics. — Piero Sraffa
by Migeru (migeru at eurotrib dot com) on Fri Jun 8th, 2012 at 09:05:59 AM EST
...Europe works along the principle of pacta sunt servanda...

There are several layers of meaning to this statement. It is true that, for a pact to work, the terms of the pact must be observed, at least in part and by most of the signatories. But that does not give such a statement, in Latin, any divine authority. The countries of Europe could make a pact that, henceforth, the sun shall rise in the west, and all could dutifully look to the west in the morning, but that would not make the sun rise in the west.

In order for a pact to work it must be workable. In order for that pact to be honored by its signatories, it must be honorable. This is manifestly not possible with with the treaties that have given form to the EMU and no amount of rhetoric from the core or compliance from the periphery will able to make those treaties work. This basic fact must be acknowledged and the appropriate changes must be made before this situation can be resolved.

Acknowledgement of the flaws and their consequences seems unlikely to happen in a timely and orderly manner. Germany has clearly benefited from the current arrangement and the price Germany will pay for this remains largely in the future and uncertain in nature. Perhaps the citizens of the periphery will submit to being, effectively, badly used and abused domestic servants of wealthy Germans, but that will still not make them able to pay unpayable debts. Nor will German control of their societies and economies make such payment possible. But such an outcome might make the costs to Germans of writing down these debts more palatable.  

 

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Jun 8th, 2012 at 11:23:24 AM EST
Martin Wolf's exchange: The German response (June 7, 2012)
Last week I wrote a column entitled The riddle of German self-interest. To my surprise, it received a lengthy response from a senior and highly respected official of the German finance ministry. I am very grateful for this reply, because it clarifies the German finance ministry's position and raises a number of profound issues.

...

I fear that austerity without end will bring about a return to the unstable populist politics the European Union was designed to prevent. That could shatter the eurozone and, with it, the EU, thereby ending the most successful attempt to build peace and prosperity in Europe since the fall of the Roman Empire.
Moreover, it is clear - and has long been so - that the responsibility for preventing that outcome rests on Germany, Europe's central power, in every sense. As Charles Kindleberger argued, in a panic, the creditworthy country has to lend freely if a fixed exchange rate system (or in this case a currency union) is to survive.

...

Fiat justitia, et pereat mundus (let justice be done, even if the world perishes) is a dangerous motto.

(h/t kcurie)

If you are not convinced, try it on someone who has not been entirely debauched by economics. — Piero Sraffa
by Migeru (migeru at eurotrib dot com) on Sat Jun 9th, 2012 at 05:15:47 PM EST


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