The Euro Party's Over. What Now?

[Cees Binkhorst]

REPLY TO: D66 at nic.surfnet.nl

Het thema van 'eigen schuld, dikke bult' is zeker toepasselijk.
De problemen met Griekenland zijn al lang bekend, maar de EU-politici
wilden (en willen) elkaar niet de maat nemen.
Dit resulteert in halfslachtige maatregelen, die dan ook halfslachtige
resultaten voortbrengen.

Niemand wil er aan een orgaan in het leven te roepen, dat wél de macht
heeft om orde op zaken te stellen, want dat gaat van hun eigen macht af.

De onderstaande referentie aan een 'default' van Griekenland is
natuurlijk wél weer overdreven. Maar het zal harde maatregelen moeten
treffen om orde op zaken te stellen.

Kun je dat, als een minister blijkt een belastingschuld blijkt te hebben
van zo'n €5 miljoen?

Groet / Cees

The Euro Party's Over. What Now?
http://online.wsj.com/article/SB10001424052748703745904575247902544445326.html
By IRWIN STELZER

"The party's over. It's time to call it a day. They've burst your pretty
balloon, and taken the moon away."

So wrote Betty Comden and Adolph Green over fifty years ago, when they
couldn't possibly have realized they were creating a lyric that would
some day describe the euro zone.

No need retelling the well-reported slide of Greece into what will
likely be an eventual default. Or the trials and tribulations of the
euro zone's other periphery countries. What is worth noting is that it
is one thing for healthy nations to be the unfortunate victims of
"contagion," quite another for them to pick up the infection by
embracing the diseased country.

Which is what euro-zone countries have done.

They have in effect welcomed the disease-weakened balance sheets of
Greece and other countries onto their until-now healthy, stronger
balance sheets, wiping out decades of good, prudent living in the case
of Germany, and calling attention to thirty years of deficits, in the
case of France.

Worse still, the spread of the fiscal disease is not confined to the
euro zone, which it can be said by the querulous should have seen it
coming. Britain, with a fiscal deficit of Grecian proportions—12% of
GDP—and the U.S., in similar circumstances, find themselves not immune
to the disease.

The rating agencies are increasingly nervous about leaving unchanged the
triple-A ratings of the U.K. and the U.S. And the Obama administration
is sufficiently fearful of the effect on America's recovery of the euro
zone's problems, that the president called Spanish president José Luis
Rodriguez Zapatero to urge him to take "resolute action" to get Spain's
fiscal house in order—rather like the pot calling the kettle black,
since the president has shown no inclination to cut his own spending
programs, even thought the government's debt is headed to 110% of GRP by
2015, compared with 90% at the end of World War II.

The good news is that the message from the markets seems to have gotten
through. The eurocracy managed to cobble together a plan to prevent a
complete seizing up of the banking system by promising to inject
liquidity into the system. But nervousness about counterparty viability
already has returned, driving up measures of bank credit risks to
nine-month highs.

Better still, Spain's socialist government, reneging on its pledge not
to reduce public sector salaries, cut them by 5%, ended its €2,500
($3,100) childbirth allowance, cut foreign aid, and announced other
economies—with new taxes on the "rich" soon to follow. Portugal's
socialist government also has stepped up its austerity program,
combining spending cuts with a one-percentage-point VAT increase to 21%
on most goods, and a 2.5% tax increase on corporate profits in excess of
€2 million. Other governments across Europe are discovering the virtues
of prudence. But the markets remain skeptical, and the International
Monetary Fund is demanding still more spending cuts and tax increases,
even of wealthy countries.

The bad news is that the outburst of fiscal virtue is likely to strangle
in its infancy the anemic European recovery—the EU and euro zone grew at
an annual rate of only 0.2% in the first quarter, Spain's economy grew a
tiny 0.1%, and Portugal's growth rate of 1% was the highest in the EU.
Unlike Germany, with an export machine that will be helped by the
falling euro, the drop in the euro will provide no such stimulus to the
non-competitive economies on the euro zone periphery to offset fiscal
tightening.

So cuts in spending and increases in taxes are likely to throw those
economies back into recession. That will reduce tax receipts, further
widening the fiscal deficits. Even worse, prices have already begun to
fall in Ireland and Portugal, which might cause consumers, already hard
hit, to rein in spending even more in anticipation of further falls in
prices.

It is difficult to predict whether the euro can withstand the social
tensions created by this deleveraging of public sector finances. My
guess is that it will: the ruling classes have too big a stake in the
European "project" to allow the euro to pass into history as an
interesting experiment.

But the euro zone will be forever changed. France has scored a major
victory over Germany in its battle to push European integration further
by subjecting individual nation's fiscal policies to increased central
control, a move it might come to regret when its own budget, running a
deficit equal to 8% of GDP, is reviewed. The IMF is now a major player
in the euro zone, an area previously verboten to it. And the credibility
of the European Central Bank as an inflation fighter has been weakened
by its active participation in the bail-out.

As the Comden-Green opus concludes, "Now you must wake up, all dreams
must end. Take off your makeup. The party's over. It's all over, my friend."

Irwin Stelzer is a business adviser and director of economic-policy
studies at the Hudson Institute.

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