WILL DESPERATE EURO STATES SWAP SOVEREIGNTY FOR ‘COLLECTIVE DEBT’ AGREEMENT?
Imagine a nice cul-de-sac in a nice neighborhood anywhere in the country. As you drive down the street, you notice that most of the homes are similar – well kept lawns and landscaping, etc. Most have three- or four-car garages – all filled with expensive cars. Some homes have an additional late-model car or two sitting in their driveways. As you look closer, you notice that most of the homes also have large swimming pools with all the options – cabanas, waterfalls and elaborate landscaping included. Several homes even have lighted tennis courts.
As you approach the end of the cul-de-sac, you see one particular home that seems to stand out from the rest. In its driveway are two cars – one of them obviously more than a few years old – but very well maintained. Around back, you see that while this home also has a pool – it’s somewhat modest – sans the cabana and waterfall landscaping.
As you’re about to turn around at the end of the street, you notice the owner of the home walking down the driveway toward his mailbox, so you slow down to say hello. Following your obligatory “nice neighborhood” comment, the man smiles and shakes his head slightly while offering a halfhearted “Thanks.”
Upon seeing the puzzled look on your face, he says: “I’m sure you noticed all the new cars in the garages of my neighbors?” to which you reply, “Yes.”
“And the large pools, cabanas and fancy landscaping in their backyards?”, he asks. Again, you say: “Yes.”
He continues: “Most of them also belong to country clubs, take expensive vacations at least twice a year, and shop at the most exclusive stores in town.”
“Wow,” you say: “They must all have high-paying jobs, huh?” Again – the wry smile and somewhat disgusted head shake: “Actually, they all have high-limit credit cards. In fact, most of their credit cards have no spending limits at all.”
As you watch the man – with an obvious quizzical look on your face – you wonder why he seems so personally affected by the reckless spending habits of his neighbors.
Sensing your curiousness, he says:
“I’ve warned many of neighbors for years that they have been spending beyond their means; that if they continued to borrow – sometimes just using one credit card to pay off another – it would catch up with them someday. That day has come.”
Apparently aware that you don’t understand why the irresponsibility of his neighbors should bother him so much, he continues: “And the worst part?” The very neighbors I’ve been warning for years? Now desperate, they approached me for help at last night’s association meeting.”
“So that’s a good thing, right?” you ask: “They’re finally willing to listen to your advice, then?”
“It wasn’t my advice they were after,” the man says – now visibly irritated: “They want me to bail them out.”
“Are you serious?” you ask: “They just want you to give them money?”
“Not exactly,” he says: “They presented me with a plan – a plan they call the ‘neighborhood debt solution.’ They want me to assume responsibility for their debts.”
“That’s crazy talk!” you tell the man.
“Yes it is,” he replies: “And even worse?”
“What could be worse?”, you ask in disbelief.
“They have no intent to stop spending. In fact – if I were to agree to their plan – they have every intention of borrowing even more money – at reduced interest rates due to my excellent credit rating – and ‘growing’ their way out their respective financial messes.”
“That’s the most ridiculous thing I’ve ever heard!”, you say.
“Yes it is,” the man says quietly, as he turns and walks slowly back up the driveway.
Poor guy. Anyway,
one of his neighbors France’s new socialist president, Francois Hollande, recently introduced the idea of an EU-wide “collective debt” agreement, which would use euro bonds to reduce troubled member-countries’ borrowing costs. As one might expect, Germany’s chancellor, Angela Merkel – a long-time austerity advocate, has resisted the proposal – for all the obvious reasons.
Austria’s finance minister, Maria Fekter, has also rejected the proposal – saying that the idea of “running up new debts to finance ‘growth’ is nonsense.” She explained:
“Euro bonds are only attractive for those ailing countries that pay very high interest rates – who go to the neighbor who has good creditworthiness and say, ‘Dear neighbor, please pay my debts.’ I don‘t want to pay the neighbors’ credits.”
Now, Germany is reconsidering Hollande’s proposal – with (proper) strings attached, of course.
Chancellor Angela Merkel is pressing the failed states of the EU to accept much more ambitious measures than simply “going Dutch” on debt. Her counter-proposal includes a central authority to manage EU finances, and major new powers for the European Commission, European Parliament and European Court of Justice, according to Reuters.
Merkel is demanding that those who have not kept their financial houses in order by choice must do so by demand – if they are to receive aid from Europe’s richest and most stable country. In effect, the failed socialist experiments of Europe must trade a large part of their sovereignty for supervised financial stability.
One of those failed experiments – Spain – admitted as much, with Prime Minister Mariano Rajoy saying that Europe “needs to support those that are in difficulty.” He added:
“It needs fiscal integration with a fiscal authority and banking integration, a banking union with euro bonds, a banking supervisor and a European-guaranteed deposit fund.”
The Spanish Prime Minister is right. It is only a shame that Germany – who has kept its financial house in order – must get dragged into the socialists’ financial cesspool if Europe as a whole is to survive.
Here’s a question for O and the rest of you who scoff at austerity in favor of “borrow and grow”:
Why is the lone EU country committed to austerity being asked by its “borrow and grow” neighbors to bail them out of financial crisis? If austerity isn’t the answer – and borrow and grow is – why isn’t it Germany who needs the help?
Remember, America; liberalism is never about results – it’s always the intent that matters.