“The Euro Will Blow Up Europe Instead Of Bringing It Together”
“I cannot be disillusioned because I no longer have any illusions about Europe,” muttered Euro Group President Jean-Claude Juncker last week after the horse trading over Greece’s bailout had failed once again. But he wasn’t the only one who lost his illusions. “There are better alternatives to the bailout policies of Chancellor Merkel,” declares the man who’ll run against her in 2013; alternatives that “protect taxpayers and don’t only benefit the banks.”
After 40 years in the CDU, Merkel’s own party, that man, Stephan Werhahn left it earlier this year in protest over her bailout policies and joined the Free Voters (Freie Wähler). In 2008, they’d decided to get into the Bavarian parliament and won 11.2% of the seats. Out of nowhere. Now they’re going for the federal elections in 2013. And Werhahn—grandson of Konrad Adenauer, the legendary first Chancellor of the Federal Republic and one of the founders of the CDU—heads their list.
In the interview, he reviles the violations of the Maastricht Treaty, the founding document of the EU. One of its fundamental principles is that each country is responsible for its own debts and that no country can be held liable for the debts of other countries. The principle, he says, was first broken with Greece’s initial bailout in 2010. The preliminary bailout fund, the €480-billion EFSF, was “the next violation.” The third violation was the permanent bailout fund, the €700-billion ESM, which can be leveraged “so that the liabilities for Germany and German taxpayers will be greater still.”
The German Constitutional Court, in its review of the ESM, mandated two safeguards—a maximum liability for Germany of €190 billion and parliamentary approval before each disbursement. But that limit, he says, “is being leveraged by ECB President Mario Draghi” with his promise to buy “unlimited” amounts of debt as long as crisis countries submit to reform and austerity requirements. When the ECB buys debt, Germany is liable for 27% of any losses, blowing the lid off the Court-stipulated limit, and “without approval by Parliament.” These ECB policies as well as Germany’s Target-2 balances at the ECB of more than €700 billion “obscure the magnitude of the bailout financing.”
The government’s emphasis that aid is paid only if reform requirements are met might not work, he says, as it’s trying “to make something out of the southern European countries that they’re not.” Now there’s unrest in Europe: in the North, citizens don’t want to pay into a “bottomless barrel”; in the South, citizens, who’re suffering under austerity pressures, say that the only ones getting bailed out are “rich tax dodgers and investors who bought that government debt.”
What about the warning by financial experts that stopping the bailouts would produce enormous turbulence? “Exaggerated and pure banking lobbyism,” Werhahn retorts.
Granted, many private and public investors would suffer losses. And the fact that there’s no procedure for the bankruptcy of a country would be a problem. But Greece and possibly Spain are “broke.” They can’t restore their competitiveness while tied to the euro. Not even the entire second bailout package will be enough, he says; and ever more money will have to flow “to keep these countries in the Eurozone.”
Instead, the EU should carry out an orderly bankruptcy of these countries. Then it can step in with “a sort of a Marshall plan” to fund a fresh start. Devaluation will help them raise their exports and reduce imports. After they get their house in order, they can rejoin the Eurozone. But if they can’t become competitive, they won’t be “suitable for the monetary union.” Otherwise, Werhahn says, “The euro will blow up Europe, instead of bringing it together.”
Wait.... Many European politicians nurture the idea that the euro is more than a currency, that it’s an “icon of unity and peace.” Indeed, but the Free Voters are against “over-elevating” the euro to a “romantic symbol.” He warned: “We have a lot to lose if the euro becomes soft.”
And he wants more democracy. The Free Voters are proponents of referendums at the federal level on important issues—however unlikely that may be in Germany. For a referendum to work there needs to be a “fair discussion,” he says, and the questions can’t be manipulative. It will force the political world to clarify alternatives and encourage the population to get informed. He lamented the current resignation among citizens who are seeing complex problems and large amounts, but are not even being asked about them—because in Europe, “crucial democratic legitimacy is lacking.”
After Moody’s downgraded France, the next major sovereign will suffer the same fate. The UK has a phenomenal 436% of GDP in foreign debt, which is not considered a problem because the country holds “high-value assets.” Alas, they include €489 billion in Greek, Irish, Portuguese, Italian, Spanish, and French debt. Read.... Who’s the Next Downgrade Domino?…The UK?
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