On the topic of design flaws in the European Monetary Union (EMU)...
Bernd Lucke (BL): The root of all evil is, in my assessment, the fact that the European Treaties did not provide, and do not provide until today, for the possibility to withdraw from the eurozone...Since leaving [the euro] as a last resort was excluded from the outset, the possibility of exerting political pressure on member states was also limited.
[…]
Despite non-sustainable economic development in some countries, the financial markets obviously did not pick up on the large differences [between eurozone countries], which affected the risk of credit default. In turn, the low interest rates 'funded' these developments. Actually, the alarm bells should have been ringing in view of the different developments in country-specific inflation rates, unit labour costs and trade balances. Also, the housing bubbles in Ireland or Spain should have been recognised and counteracted upon by politicians. However, warning systems were not available. It was revealed how ill-conceived the introduction of the euro was, under all aspects.
On the role of the ECB in the crisis...
BL: The ECB is not directly to blame because it was simply a part of the poorly constructed euro system...In the time before the crisis, the ECB could have been blamed at most for not pointing out the dangers associated with different inflation rates in the euro countries...Just a note: an independent central bank is good. But a central bank – like the ECB – that is no longer subject to state or democratic control and has switched to self-preservation mode is extremely dangerous.
On using tools such as the ESM and OMT to stabilise the eurozone...
BL: The ESM is ultimately a giant institutionalised eurobond, and therefore a form of debt mutualisation...What we want as AfD is...the return to the Maastricht criteria, and in particular the re-introduction and strict compliance with the no-bailout clause. No country shall be liable for the debts of other countries...Countries should and would go bankrupt, which would reduce the partly unbearable debt levels.
On how AfD sees a eurozone break-up...
BL: As an ‘immediate measure’, we demand the consequent compliance with the [existing] rules of the European Treaties as well as adding a euro-exit clause to the rules. If necessary, we want to force this right to exit by blocking future ESM loans with a German veto. Without further assistance loans, the crisis countries would decide that it is in their own interests to exit the monetary union. This should happen in an orderly and gradual [manner]. On the legal side, the European treaties need to be changed. We have parliaments and governments for that. And Germany has enough weight to push this through.
They are a bit funny, in that they argue for the abolishing of the Euro - but then ask for donations in Euro: http://mosereien.wordpress.com/2013/05/13/afd-euro/
ReplyDeleteThe guy simply looks not able to pull the audience that might lateron vote for him.
ReplyDeleteBeing attractive/having something to say for organisations like OE doesnot bring you in the German parliament.
We have the NSA scandal and AfD comes with a programm (very similar as that of main stream parties) iso using that. It puts the focus mainly on being found respectable creditable. Logical for a professor but it won't get you the votes that put you on the map.
You need to be a political outsider. Farage; Grillo; Wilders; Fortuyn; LePen, for often different reasons are political outsiders and they combine that with bringing 'pub-ideas' to the masses; being attractive for standard media; and being able to stand your man against traditional politicians or better.
Interviews with OE give some exposure but that is directed at the wrong audience and nearly totally indirect and therefor inefficient. At least in the stage AfD is in. Now it needs to put itself on the map. Not create a platform for its ideas to make them official policies. That is a later stage (one you will never get at when you do not pass the first test: the ballotbox).
Hard to see these people change their strategy before the election. They might have a second chance but a 'smaller' one with EP elections. To have real influence they would have to be North of 5% and in a relatively structural way (not just one peak) in this election. This should have been their moment and they simply look to fail.
Hopefully for them there will be some nasty EU and/or Euro scandal the coming 2 months, otherwise I do not see it happening.
I have no idea what the electoral chances of AfD might be, but I suspect that like the UKIP, they can have an influence on general public opinion which is greater than actual voting numbers, simply from their skill at explaining the issues.
ReplyDeleteWhat I read in the interview is someone who clearly understands the structural problems of the euro while other politicians continue to talk as if they don't exist.
The market behaviour he mentions reflects the perception, post 1999, that in an energency there would be debt mutualization, no matter what the no-bailout clause said, and that therefore peripheral debt was as sound as core debt.
If you think about it, that perception was a cause of the crisis. Had the markets not believed that peripheral debt would be mutualised in an emergency then they would not have lent so much or so cheaply, and so the periphery would have not had the opportunity to get in so deeply.
And of course this perception was partly based on the no-exit provision. How can you say peripheral countries can't leave the euro, but also say they can't be bailed out?
Something has to give. Either peripheral countries have to be able to leave the euro and default, or mutualization has to become a recognized policy, and one which will cost the core a lot of money.
AfD is just bring out into the open a basic conflict that other politicians would rather leave unexamined, because it is electoral poison.
La Merkel, for example, would prefer to tra-la-la through the next election, and then say "Oh, by the way, we need some small tax rises for euro solidarity purposes". Let's hope AfD can keep her honest.
@Jon
ReplyDeleteIn Germany there are a lot of voices that explain the structural problems in the EZ also before AfD.
And big parts of the German population would go for a much tougher approach. The problem is that main stream politics is not representative for what the German population thinks about this issue and not by a few miles.
Quality of the news and technical level on this issue is much higher than what we see in the UK.
In that respect AfD seems to have little value. It is simply one of several voices.
Their main value should have been in their electoral position. Either:
- get into parliament (you need >5% of the vote for that); or
- 'steal' voters from other parties (like UKip); or
- mobilise non-voters (like Wilders); or
- make certain coalitions impossible (like we have seen in Holland and Italy).
AfD is doing a bad job on that. It simply doesnot seem to tick any of these boxes.
On no bail out. As such it is possible even if countries cannot leave (moronic but possible). They should only be allowed to go bust within the EZ. It is because the ECB effectively makes that impossible as it will not accept as collateral bust country bonds, that you get the problem you describe. A country goes bust now simply means that the whole banking sector will go bust as well.
Perception only was a small part of the issue. Except Italy all PIIGS seem to have acceptable sov. debt. And Italy always had a high level 120%ish and seem to manage that before the EZ. Imho the problems were in skeletons (like the GS set up in Greece, Spainish regions) and in not having an idea what a bubble burst would mean for the debt levels. Investors simply didnot properly do their homework.
It had its influence of course, but politics both North and South have done very little to tackle this as well. North thought mistakenly that it could not harm them. And the South found it pretty convenient.
Simply after the crisis the whole conception the market has what would be an aceptable debtlevel changed as well. Structural growth potential was seen as considerably lower than pre-crisis. Ability to react and make structural reforms when necessary was overestimated before.
Agree with your conclusion either mutulization or exit. But we are not there yet. At this stage the whole rescue hasnot shown up as expenditure in the North. If that will be required and we are not far from that the party will get really started. Now still everything is done off-BS.
You cannot tell the average German, Hol or Finn that their government services will have to be cut for transfers to the South (and to meet EZ Fiscal Compact rules). You are a goner politically the moment you do that. Even for left parties as also their voters realize that it means cuts at home.
In other words the rescue has been done and the bill will be coming but at this moment still nothing is paid for it. Simply a bookkeeping trick.
Watch things when that (paying) happens, as said then things will get really interesting.