[D66] Merkel and Sarkozy plan a Europe of austerity

Antid Oto protocosmos66 at gmail.com
Wed Dec 7 08:55:24 CET 2011


Merkel and Sarkozy plan a Europe of austerity
By Peter Schwarz
7 December 2011

On Monday, German Chancellor Angela Merkel and French President Nicolas Sarkozy
presented a joint plan to restore the confidence of the financial markets in the
euro. It will be sent to all EU members today and is supposed to be decided on
Friday at a summit of the Heads of State and Government in Brussels. “We are
determined to bring about a decision at this summit,” Sarkozy insisted.

The plan has two components. First, it guarantees that international investors
will never again have to pick up the bill for an indebted euro-zone country. A
debt “haircut” as in Greece, where investors have given up 50 percent of their
claims, would not happen again, Merkel and Sarkozy assured.

Secondly, it forces euro zone states to introduce ironclad budget-cutting
measures. Countries with an annual budget deficit exceeding three percent of
gross domestic product would be punished automatically; the 17 euro countries
would be committed to imposing a constitutionally mandated balanced budget
(“golden rule”) along the lines of the German model, to be policed by the
European Court of Justice.

In addition, the enactment of a permanent European Stability Mechanism (ESM)
replacing the temporary European Financial Stability Facility (EFSF) will be
brought forward one year to late 2012.

To enforce stricter budgetary discipline, Merkel and Sarkozy intend to change
the European treaties by March 2012. If possible, they want to do this within
the framework of the European Union and its 27 members. If, however, countries
like Britain stand opposed, they do not exclude going it alone. “Then we will
make an agreement among the 17 countries, and anyone who wants to come later, do
as you please”, Sarkozy threatened.

The Franco-German proposal meets the demands of the international financial
markets. They have insisted that over-indebted euro-zone countries balance their
budgets at the expense of the public, and that private investors be exempted
from any risk—even if they previously benefited from high interest rates.

In the case of Greece, Chancellor Merkel has insisted that private investors
accept a debt “haircut”—not out of hostility for the banks, but because it will
be cheaper for Germany. When Merkel and Sarkozy met one year ago in the French
town of Deauville to agree an earlier plan to rescue the euro, Merkel prevailed
on this issue.

The financial markets reacted to this by driving up interest rates for European
government bonds to breath-taking heights, forcing one country after another to
make use of the euro rescue facility. A representative of the European Central
Bank (ECB) called the private participation in the haircut a “terrible mistake,”
because investors could no longer trust that they will get back money they have
lent to euro-area countries.

Merkel has now given way and has excluded private participation in a haircut in
other countries. She justified her reversal by saying: “euro loans should not be
less secure than bonds elsewhere in the world.”

Sarkozy in turn gave way on automatic penalties for states exceeding the deficit
limit. In Deauville, he had rejected such an approach, because it takes away
governments’ fiscal room for manoeuvre to respond to economic changes or social
pressures. Automatic penalties and a “golden rule” would force them to make
massive cuts in public spending, even if this caused a severe recession and
social unrest.

The financial markets reacted positively to the proposals of Merkel and Sarkozy
on Tuesday. Interest rates for Italian and Spanish government bonds fell
significantly, and stock markets rose. But the plan did not go far enough, as
far as top financial officials were concerned.

International Monetary Fund (IMF) chief Christine Lagarde referred to the plan
in a speech to the European Institute in Washington as “very important” but “not
sufficient.” She added, “It takes a lot more to bring the whole situation under
control and make market confidence return.”

On Tuesday, the rating agency Standard & Poor’s stepped up the pressure on the
upcoming EU summit, threatening to downgrade the credit rating of all the euro
countries, including Germany. If the economically strongest countries in Europe
lose the top rating “AAA,” this would raise the cost of the euro rescue fund,
placing a question mark over all previously agreed measures to deal with the
debt crisis.

Leading EU representatives were visibly angered by S&P’s move, which they regard
as the voice of US financial interests. Euro group chief Jean-Claude Juncker
described the decision by Standard & Poor’s as a “knock-out punch for all states
that are seeking to reduce their budget deficits.” It was “unfair” and
“completely excessive,” Luxembourg’s prime minister said. He was “astonished”
that this came just before a crucial EU summit.

Merkel and Sarkozy reacted to the announcement by the rating agency by pledging
their complete loyalty to the financial markets. “France and Germany, in full
solidarity, confirm their determination to take all the necessary measures, in
liaison with their partners and the European institutions, to ensure the
stability of the euro area,” they wrote in a joint statement.

But the financial markets will not rest until all social gains have been
destroyed, which the European working class won after World War II. In their
view, benefits and pensions in Europe are still far too plentiful; wages are too
high and working conditions too inflexible; health and education too expensive,
and the public sector too bloated. Anything that does not satisfy their
insatiable hunger for profit must be cut and eliminated.

They are not satisfied by declarations of intent, they want action. The
technocrat-led governments in Greece and Italy have now started this. Earlier
this month, the Greek government sacked the first 16,000 public sector employees
and drastically cut salaries in state-owned companies. In the coming days, a new
austerity budget will be submitted to parliament. The Italian government has
fast-tracked pension cuts, which their predecessors tried to implement
unsuccessfully for 20 years.

Europe is becoming increasingly reminiscent of the 1930s, when similar drastic
austerity measures resulted in mass poverty, dictatorship and war. Even some
bourgeois politicians and commentators now make such parallels.

Under the title “The long shadows of the 1930s,” Financial Times columnist
Gideon Rachman wrote on November 28: “The risk of a grave economic crisis in
Europe is severe. The threats of sovereign-debt defaults and the break-up of the
European single currency are rising—and with it, the attendant threats of
collapsing banks, popular panic, deep recessions and mass unemployment.... The
lesson of the 1930s is that a global depression weakens democracies, leads to
the rise of radical new political forces—and, in the process, raises the risk of
international conflict.”

The 92-year-old former German Chancellor Helmut Schmidt warned, in a
much-publicized speech at the SPD party congress, against Europe relapsing into
armed conflicts. He railed against the “globalized banking lobby” and “a few
thousand financial traders in the US and Europe, plus some rating agencies that
took politically accountable governments in Europe hostage.”

But the answers offered by the critics of Merkel and Sarkozy—regulation of the
financial markets, Euro Bonds, unlimited ECB loans, etc.—either contribute to
exacerbating the crisis or fail to take economic and political reality into account.

The German Social Democrats and Greens—as well as the British and US
governments—call for relieving pressure on the euro by flooding the financial
markets with new money from the ECB and the issuing of Euro-bonds.

But this is the very course that the governments had already taken during the
2008 financial collapse, bringing about the current crisis. The transfer of
trillions from the state coffers into the banks has contributed significantly to
the current debt crisis. And most of this money went into speculative
transactions, now directed against the euro and the EU.

Without bringing the financial markets under control and seizing the tremendous
assets that have accumulated at the top of society, there can be no solution to
the crisis. But none of the establishment parties in Europe is willing or able
to take this course. They are all too closely linked with capitalist property
relations and their associated privileges.

Conservatives, Social Democrats, Greens and “left” parties agree that there is
no alternative to austerity. Even public works and economic stimulus programmes,
like those implemented in the 1930s under Franklin D. Roosevelt in the US, are
no longer discussed.

International capitalism is in a desperate crisis, which can only be resolved
through the mobilization of the European working class on the basis of a
socialist programme. The major financial and industrial concerns must be
expropriated and placed under democratic control, their enormous resources used
to meet social needs rather than to enrich the top one percent. This requires
the establishment of workers governments and the United Socialist States of Europe.

http://wsws.org/articles/2011/dec2011/euro-d07.shtml


More information about the D66 mailing list