I read a story in the German media – Euro on the test bench (“The Euro on the Test Bed”, published January 7, 2022) – This reinforces my view that the harsh austerity bias of the Economic and Monetary Union (EMU) has come to pass with the invocation of the General Exception Clause Disappearing progressives’ Article 126 TEU provisions are out of place when the pandemic arrives. As the same commentators/thinkers welcomed the end of the Merkel era and the arrival of a new German government, their assessment reflected that they were trapped in TINA’s thinking process about the euro. Well, influential economists in Germany certainly don’t think so. A boss of the German research institute Kiel Instituts für Weltwirtschaft (IfW) (Kiel Institute for World Economics) raised the topic of Germany. Withdrawing from the EMU is subject to discussion. He believes this will force other member states (especially the so-called “Achse Paris-Rom” (Paris-Rom axis)) to abandon any idea of loosening economic and monetary rules, forcing the ECB to tighten monetary policy again. The iron glove of the ‘schwarze Null’ still clings to the debate in Europe.
When the so-called “Ampel-Koalition” (“Ampel-Koalition”) was formed between the SPD, Bündnis 90/Die Grünen and the FDP, I read absurd assessments that the political situation in Germany had changed irreversibly, which would Leading to major revisions to fiscal rules that undermine the common currency.
I will go back to that.
But what also happened was that German Eurosceptics, still outraged by the decision to join the European Monetary Union, were also released for fear that the new German government would fall into a populist cause aimed at loosening “fiscal discipline”.
The cited article is based on an interview with Stefan Kooths from IfW, who called for disciplinary action against “highly indebted countries” in the euro area (“Disziplinierung hochverschuldeter Staaten”).
He claims that with inflation a threat (his view is not mine), other EMU countries must be firmly reminded that Germany has other options – including exit.
He also asked the ECB to quickly abandon its “ultraexpansive direction” (“ultraexpansiven Kurs”), namely various bond-buying programs and maintaining low interest rates.
He claimed that the ECB ensured the survival of the monetary union by printing money (“den Währungsraum über die Notenpresse zusammenzuhalten”), which allowed member states to build unsustainable debt levels in response to the pandemic.
Member states must now enforce fiscal discipline and return to the rules of the Stability and Growth Pact, he said.
The ECB’s alternative is to allow some states to go bankrupt (“Insolvenzordnung für Staaten”).
Back in June 2015, the ECB, as part of a harmful troika (the European Commission, the IMF and the ECB), used its monetary power to politically blackmail the Greek government.
In my opinion, unless the Greek government abandons its plan to oppose austerity programs, the ECB’s threat to Greek banks has broken down, violating the central bank’s main charter – ensuring financial stability.
But it was one of several things that brought the Greek government to its knees, after the people voted against austerity and condemned the country’s near-permanent troubles.
Stefan Kooth’s request has these implications.
The southern states (especially Italy) either capitulate or the ECB and European institutions send them into bankruptcy.
Even more so with his suggestion that Germany would withdraw from the threat.
The article concludes that it should be understood as a power play in the upcoming discussion of EMU (“ein Machtmittel”) monetary policy.
In other words, if the southern states don’t play, the Germans will take the bat home and the countries will be on their own.
I’m surprised that Germans would think other countries (like France or Italy) would think this is a bad thing.
They were so used to believing in the euro as TINA that they could not see how this move by Germany would liberate their country from the tyranny of the “Frugal Four” and the German-Dutch Axis.
This is the extent to which the dysfunctional nature of the euro area has penetrated into the ability of policymakers to make sound judgments.
Before we think these views are widely shared by German economists, it should be noted that Kuss is the chairman of the Freidrich von Hayek Gesellschaft (Hayek Society) and a member of the Mont Pèlerin Society.
His views are staunchly neoliberal.
But much more than that.
Germany’s new finance minister, Christian Lindner, is the leader of the Free Democratic Party (FDP). That’s the spoils of being a small party leader, and it’s important to ensure the SPD can win the government.
Lindner—among others—was a major critic of former finance minister Wolfgang Schaeuble—for being lenient with Greece during the global financial crisis.
Back in 2017, when Angela Merkel faced the possibility of having to form a coalition with the LDP, Lindner, who had just assumed leadership, demanded stricter fiscal discipline at the EMU and said Germany should not use debt to cut taxes Or coping with it would require upgrading its appalling digital infrastructure.
He said the third aid package for Greece agreed to by Schaeuble was a mistake and that Greece should be sent to bankruptcy.
Recently (December 2021) Lindner told the press that Germany would not fall into a “fiscal dominance” regime (“Situation fiskaler Dominanz”), which would allow the ECB to dominate its plans.
His views are becoming more common in Germany, where the European Central Bank president (Mrs Lagarde) is known as the “Mrs. Inflation”.
As the new Finance Minister, Lindner will have an influence on shaping the direction of the EMU. Like the Kooths, Lindner is a member of the Hayek Society, which promotes inflation anxiety in Germany and calls for further deregulation.
Lindner loathes fiscal dominance of any kind and is willing to impose the harshest austerity policies on what he sees as stubborn member states, a German view of the old.
It hasn’t changed a bit.
There are no nuances here.
These Austrian economic organisations have become the cover for the alt-right in Europe, so they are not just pure Austrian schools.
The rest of Europe doesn’t seem to like Lindner — not surprising given his outrageous calls for more punitive austerity during the global financial crisis.
This Capital article (November 5, 2021) – Why Finance Minister Lindner is questioned in Europe – Details how Lindner is undervalued in other European countries.
He is seen as a proponent of a now outdated austerity mentality.
Politico Europe raised this question in an article last year (November 3, 2021) – Christian Lindner as German finance minister: does he add up? – Question Lindner’s qualifications for the job and ask the following questions:
Finance Minister Still “Fuck”?
Oh how free we have become in the media.
Politico believes that, aside from the question of his eligibility for the job, Lindner’s “hawkish fiscal views pose a mortal threat to the euro”.
He has made his career as a media guy driving a “black Porsche” and charging huge speaking fees.
But his political stance is thrifty – calling for the brakes on Germany’s debt to be re-installed and slashed spending across the European Monetary Union to fund tax cuts.
He is also one of a growing number of influential figures who want to block the ECB’s bond-buying program.
Appointment of Joachim Nagel as new Bundesbank president, Lindner et al. call on ECB to reaffirm stability-oriented monetary policy (“stabilitätsorientierten Geldpolitik”), which is a result of raising interest rates and abandoning bond-buying programs guidelines.
Tagesschau Article (December 20, 2021) – Nagel to be Bundesbank head – To quote an economist at Zentrum für Europäische Wirtschaftsforschung (ZEW) (Centre for European Economic Research):
Hopes in southern Europe that the Bundesbank can now uncritically advocate unlimited bond purchases have now been dashed.
(“Southern Europe’s hopes for the Bundesbank to uncritically advocate unlimited bond purchases are now over”).
Nagel needs to be the ECB’s “Christian Lindner amplifier” against “French and Italian desires”.
The current situation is interesting.
France and Italy have formed an axis of power, while the political situation in Germany will take some time to resolve, and they are now trying to shift their policy focus away from a harsh thrifty mentality.
But I bet they won’t get very far.
in conclusion
Bullying seems to be a hallmark of European politics.
Germany knows it is the most powerful influence in EMU design, although France thinks it will be the stronger country within Europe.
But, in part, Germany’s strength rests on citizens of member states being tricked into believing TINA’s mantra – the euro is a success and nothing else is possible.
Thus, the threat of Germany’s withdrawal is a power play to exploit fears that the world will collapse in other member states if the euro is abandoned.
Progressives who oppose austerity policies support this power play by constantly playing the “European” card.
They better educate the public (after they educate themselves) that there is life after the euro, and if the EMU disbands, the room for progressive policy will open up.
Then, the threat of Germany’s withdrawal will fall on deaf ears and their extortion tactics will be in vain.
Enough for today!
(c) Copyright 2022 William Mitchell. all rights reserved.
