By Bill Wilson — Today in Brussels, European leaders are again convening for the umpteenth time to attempt to bring resolution to the sovereign debt crisis that is plaguing the continent — and the global economy at large.
Call it the Politeuro.
There, German Chancellor Angela Merkel will likely find a cool reception. Even before the meeting, in a speech to Germany’s Bundestag on June 27, she had rejected out of hand the establishment of Eurobonds or any fiscal union between weaker southern states and the economically powerful north.
“I fear that at the summit we will talk too much about all these ideas for joint liability and too little about improved controls and structural measures,” Merkel said in her speech, adding, “Euro bonds, euro bills, debt redemption funds are not only unconstitutional in Germany but also economically wrong and counterproductive.”
Unelected Italian Prime Minister Mario Monti has promised to resign his post if Eurobonds are not adopted.
Without debt sharing or any political will to use the firepower of the European Central Bank (ECB) to monetize member states’ debts, a break-up of the Eurozone appears imminent.
Billionaire investor George Soros says the Euro has run out of time, telling CNBC that if not “resolved in the next three days, then I am afraid the summit could turn out to be a fiasco. That could actually be fatal.”
To be clear, the crisis that now threatens the world financial system has been entirely caused — not from an unwillingness to print money — but because nations like Spain, Greece, and others never followed the Maastricht Treaty that established the Euro. That treaty had set criteria so member states would not run deficits larger than 3 percent of their respective economies.
Wary of its own Weimar experience with hyperinflation after World War I, when Germany attempted to print money to pay its debts, Berlin has been and remains opposed to monetizing the debts of its southern neighbors who flouted the rules.
So let’s be clear on where the blame lies for any ensuing Euro break-up. It lies with the government of Greece. And Spain. And Portugal. And Ireland. And Italy.
Meanwhile France, in response to the crisis, is now increasing its minimum wage, decreasing its retirement age, and hysterically crying of “austerity” when it has increased spending in Paris every year for the past decade. The newly elected President Francois Hollande must be psychotic.
These countries bailed out their banks, ran up gargantuan public pension and health care liabilities, imposed unworkable labor rules, implemented byzantine environmental regulations, and otherwise strangled their economies until now they can no longer grow.
And then when financial markets could no longer sustain Europe’s utopian pipe dreams, these beggar states have come, hat in hand — to Germany, to the U.S., and to International Monetary Fund — for bailouts.
Already, U.S. lending through the IMF to Europe has topped $24 billion. That’s about 30 percent of the approximate $80 billion of IMF bailouts that have gone to Greece, Ireland, and Portgual, well above the nation’s 17.72 percent quota obligation to the Fund. And Spain and Italy have not even come in yet for their bailouts.
Nobody believes the IMF even has enough firepower to prop up all of Europe anyway, not even its managing director Christine Lagarde. In January she proposed boosting the $1 trillion Fund by another $500 billion, saying, “I am convinced that we must step up the Fund’s lending capacity.” She warned if Italy and Spain were to enter the equation, a “larger firewall” would be needed.
So, if the IMF can’t bail out Europe, if the ECB won’t, if Eurobonds would violate Germany’s constitution, and if Portugal, Italy, Ireland, Greece, and Spain (PIIGS) refuse to get their fiscal houses in order, then the outcome of this Brussels summit is already set.
The only other solution then is a break-up of the Eurozone. Should the worst occur, you will read much in the media how it was the “austerity” that caused the collapse. Pish posh. These Politeuro socialists spent themselves into the grave. Good riddance.
Bill Wilson is the President of Americans for Limited Government. You can follow Bill on Twitter at @BillWilsonALG.
