As some of you may know, member countries of the Euro currency union have to abide to the rules of the Maastricht Treaty and the Stability And Growth Pact. As you also may know, most countries do not do so, but violate almost every rule that was ever set. And they happily continue to do so, because they see that it did not stop the Euro from becoming one of the strongest and most trusted currencies in the world since its foundation in 1999.
However, some of the rules of the Euro are very important in the long run and the negative consequences of the national financial policies will only be seen when it is too late. For instance, there is a rule called the “no-bailout clause”, which effectively says that the other Euro members will not help a single country in case of defaulting on its debt. By helping an indebted country, like Greece for example, they would make it very clear to the financial markets that the indebted country can free-ride on the fiscal abilities of other member states. This would lead to lower interest rates on Greece debt, say, which would increase the incentive and the ability of that country to accumulate even more debt. Simply speaking, it would make Keynesian policies (pumping debt-financed government expenses into the economy in order to stimulate growth) attractive.
The founders of the Euro currency union wanted to prevent this from happening, because they knew that such behaviour would make other members pay for the debt of Greece, say. Further, if Keynesian fiscal stimuli would work, they would increase growth of the indebted economy and concomitantly hurt other Euro economies.
So, what direction are the policies of the Euro currency union going? Instead of reinforcing support for the above mentioned rules, they have silently given up on them. Chancellor Angela Merkel recently said (text is in German) that the currency union has to find out ways to interfere with national law-making in order to impose necessary reforms, like cutting social expenditure in Greece.
Wait a minute! This means that certain indebted countries have to hand over control over their national policies to countries, who haven’t been able to control their debt, either. Wow, how ingenious! And the Greece will be very happy to have their country run by Germans, like it was in 1941.
But that’s the way modern societies running. Instead of getting to the core of problems, we implement fascist rules that will inevitably only make everything worse. Look at health care, for example, where it was governments that created universal insurance, leading to rising costs and even more government intervention. Now, we are not far away from getting told what to eat by a personal governmental health supervisor, who can fine us if we do not conform.
I’m getting sick of this stupidity.