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Fiscal Pact

The decision of 31st January 2012 in Brussels, which Angela Merkel lauded as a masterstroke for the promotion of the future European Community, is primarily a press policy lie and a masterstroke in this sense only.
After the 17th meeting of the financial representatives of Europe, the talk must instead be of the selling out of Europe and the end of previous democracy. The fiscal pact negotiated at this summit is a political concoction based on incorrect economic principles, incidentally on the same false principles which led to the Euro crisis: the cover-up of the actual national debt and the political error of judgement of being able to combat this with loans.

In summer 2012, 25 of the 27 EU countries (Great Britain and the Czech Republic will not be there) will meet to sign the pact. The signatories undertake in future:

1. to submit almost balanced budgets;
2. the respective national deficit must be no more than 0.5 % of the economic power and
3. the signatories acknowledge a debt brake according to the German example, and will introduce it. The signatory countries may bring an action before the European Court of Justice in case of infringements against the debt brake.

The Fiscal Pact applies from 2013, if ratified by 12 Euro countries.

A balanced budget is the only basis for economic viability of every country. Countries that suffer from a high national debt (and this currently includes all Euro countries) can achieve no growth and also no balance of the national budget, because there is no money to invest in development and expansion. The fact that this point is addressed at all in the negotiations of the saver countries, worse still had to be specified, is clear proof of how little money remains in any of the national coffers. It requires a hedge of the countries against each other, so that this point does not lead to inequalities or dispute, because if all countries had enough money and did not need to rely on loans, things could have been negotiated very differently.

A national or budget deficit occurs when government expenditure exceeds revenue. A balanced budget balance arises if the expenditure and revenue are equal. Another possible form is the budget or national surplus, if revenues exceed expenditure. The terms can be used for the overall national balance, but also for individual public corporations at the state or local level. National deficits are countered politically with loans, as during the entire Euro crisis - in Germany borrowing is limited under the basic law to government expenditure for investments. The term national deficit includes new borrowing. This term refers to the part of the national budget which is financed by loans. New debt can be measured in absolute terms or as a deficit quota in relation to the gross domestic product.

If the fiscal pact comes into effect, it will cause the borrowing needs of the member states to rise and rise, because the federal budget is not covered. And also there are - fortunately - statements in the press on this subject: In the FAZ of 19.1.2012, p. 29, a Mr. Kaletsky advises in his article "Throw the Germans out, not the Greeks, in order to save the Euro.": "The peripherals should unite against the centre and suggest that Germany withdraw from the Euro zone." And he also acknowledges the basis of the political lie about the Euro crisis and the understanding that many Germans seem to lack: "The fundamental problem for some is simply German economic strength." And yet Kaletsky's argument is not unreasonable, seeing how mistakenly the concept of economy is used.

Economy stands for itself; Economic strength, however, needs buyers. There is no getting away from this, and it is incomprehensible why politics uses these terms for re-election purposes and at the same time destroys the livelihood of the people. Prof. Dr. Wilhelm Hankel sees in the journal EURO (Issue 3/2012) how there will be more inflation in the supporting countries, and deflation in the supported countries. This dilemma cannot be solved in a currency union, not even by a pact. The only consequence can be the uncontrolled dissolution of the Euro zone, or Chancellor Merkel reconciles herself to the previously excluded alternative of the amendment of the European Treaty (constitutional amendments in the national states), so that Euro bonds are permissible. The effect of this would be the European community of liability, which could act without consequence until the Euro crashes.

The debt brake provision enshrined in the German constitution states: Expenditure must not exceed government revenues. If he talk is now that the respective national deficit may not amount to more than 0.5 % of the economy, this is another piece of window-dressing. Merkel's band can draw a joker here to circumvent the debt brake: Subsidiary liabilities and guarantees via securities granted by supporting countries (such as Germany for example) do not appear statistically as current liabilities. They are deferred as future debt, and realised only when supported countries actually become insolvent. In this respect, the debt brake, considered economically if not strictly legally, is circumvented.

The debt brake applicable to the fiscal pact, which is to be applied by all Euro countries after the German model, was initially rejected by the Euro countries. On 31st January 2012 however, they surprisingly agreed. This took place via a Euro vote. The fiscal pact even makes provision for penalties for countries in deficit.

This sounds good, but will have no consequences. The fiscal pact will remain a paper tiger.

The establishment of sanctions can take place only if a contracting state sues before the European Court of Justice. This provision is contrary to what else applies in Europe. In many ways, the European Commission is the motor of European unification. It repeatedly brings infringement proceedings before the European Court of Justice when member states infringe European law. Here the European Commission takes little account and attacks sensitive privileges. But the Commission cannot bring action on the basis of the fiscal pact! Only the contracting states have a right of action.

They will not however bring any action, because if these actions are intended by supporting countries, these have to note that they will have to provide even greater support in the way of the rescue package for the supported country if sanctions are imposed. Because this supporting country has demonstrably no resources of its own, other than those from rescue packages, in order to remain solvent. Actions brought by supporting countries against supported countries burden the supporting countries with regard to the fines, which will correspond to 0.1 % of their gross domestic product. A supporting country would only be shooting itself in the foot by bringing such an action.

Supported countries will therefore not consider bringing action against supporting countries - even if the prerequisites exist – since they are dependent on the supporting countries and under no circumstances want their financial backers to be burdened with penalties on such a scale.

Supporting countries will also hardly want to bring actions against each other if the debt brake is exceeded - this is happening anyway in economic terms in Germany by means of rescue packages etc. - especially since these penalties will not be able to be settled with guarantees, but it will have to be a matter of cash payments - which of course can also again be financed through loans, for which guarantees are given. But then everything would be stood completely on its head.

On the other hand, it is inconceivable that supporting countries working closely together at the European level, such as Germany and France, would bring actions against each other. This would be impossible anyway.

Even if it comes to an action before the ECJ in an exceptional case, the court will only come to a verdict years later. The verdict is then rather of theoretical interest, but it cannot change anything about the wrong debt policy.

In addition, the fiscal pact - other than originally planned - no longer has to be incorporated into the national constitutions. This eliminates another potential control mechanism. It could be for example that planned debt relating to the debt brake could be regarded by the opposition as a breach of law, and the opposition then calls for proceedings before the respective constitutional court. If the fiscal pact is but not enshrined in the constitution, then this cannot happen.

The question therefore remains as to why such an agreement was made at all if it will never be implemented?

In any case we cannot hope for the good will of the governments. They will always find loopholes if they think they need money. Experts will justify the creation of new debt and construct emergencies to conceal the failed debt policy. And courts will shy away from courageous decisions and refer to the priority discretion of politics.

And whether the sanctions, if they are ever imposed, make economic sense, is more than questionable. None of the considerations take into account that the tasks with all dictated austerity measures and savings reforms for the supported countries, even if observed, do not need to lead to the desired result. If it is considered that in some supported countries, especially in southern Europe, in terms of their revamped savings reforms, recessions will occur, and that in the supporting countries a similar situation will arise due to savings measures, but is overlaid and delayed by the enormous glut of money, only inflation can follow. This will result in the increasing impoverishment of the people of Europe.
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