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Monday, June 25, 2012 4:06 PM


Germany's Finance Minister Lectures Obama On Debt, Defends Euro, says German Referendum Needed Soon


President Barack Obama should focus on cutting America's own budget deficit before advising Europe on how to tackle its debt problems says German finance minister Wolfgang Schäuble in the Spiegel article in Germany Rejects Obama's Criticism in Euro Crisis

German Finance Minister Wolfgang Schäuble rebuffed recent criticism of Germany's handling of the euro crisis from Barack Obama, telling the US president to get his own house in order before giving advice.

"Herr Obama should above all deal with the reduction of the American deficit. That is higher than that in the euro zone," he told German public broadcaster ZDF on Sunday night.

Obama, worried about the impact of the debt crisis on the global economy and financial markets -- and on his own prospects for re-election --has been urging Europe to step up its efforts to tackle the problem.

In the interview, Schäuble also reiterated his opposition to euro bonds, saying countries must remain individually liable for their public debt as long as they were taking sovereign decisions on how the money was being spent.

"If you spend the money from my account, you won't be frugal with the money," said the finance minister. He added that he was against devoting large sums of money -- for example from the European Central Bank -- to fight the crisis. The roots of the crisis needed to be fought credibly, he said, adding that that was succeeding in Ireland and Portugal, which have both received international bailouts. "It's not succeeding so well in Greece,"he added.

"I don't know when that will happen, and I doubt anyone does," he told SPIEGEL. "But I assume that it'll happen sooner than I would have thought a few months ago."
Wolfgang Schäuble Defends Euro and Jean-Claude Juncker

In an interview with Spiegel published on Monday, Schäuble said he could imagine that Germany will soon have to hold a referendum on a new constitution enshrining greater EU sovereignty.

Please consider these snips from Der Spiegel interview 'We Certainly Don't Want to Divide Europe'
SPIEGEL: Minister Schäuble, the European Union is mired the worst crisis in its history with the euro threatening to break apart. What is at stake?

Schäuble: Our prosperity. The world, with its globalized economy, is changing at a rapid pace. Those who want to keep up cannot go it alone. It only works in collaboration with other European countries and with a European currency. Otherwise we would fall far behind, and that would lead to a substantial loss of prosperity and societal security.

SPIEGEL: Was it a mistake to introduce the euro?

Schäuble: No. The monetary union was the logical consequence of the advancing economic integration of Europe.

SPIEGEL: Nevertheless, the euro is a miscarriage. The necessary political union was absent.

Schäuble: To call it a miscarriage is nonsense. But it's clear that we wanted a political union at the time, but it wasn't possible. Germany would have been prepared to relinquish powers to Brussels, because it was only through Europe that we received a new chance after World War II. But other countries had trouble with the concept, because of special traditions, for example, or because they had only recently regained their national autonomy after the fall of the Iron Curtain. As such, we faced a fundamental question: Do we introduce the euro without having the necessary political union, and do we assume that the euro will bring us closer together, or do we abandon the idea?

SPIEGEL: And in that situation you preferred to take the risk.

Schäuble: If we had always said we would only take steps toward integration if they would immediately work 100 percent, we would never have advanced by so much as a meter. That's why we wanted to introduce the euro first and then quickly make the decisions needed for a political union. Luxembourg Prime Minister Jean-Claude Juncker was right when he said, at the time, that the euro would prove to be the father of future European developments.

SPIEGEL: In the meantime, however, the common currency has, above all, powers of destruction.

Schäuble: Now you're exaggerating. ...

SPIEGEL: You want nothing less than a United States of Europe.

Schäuble: Even though the term is used repeatedly, it doesn't make it any better. No, the Europe of the future will not be a federal state based on the model of the United States of America or the Federal Republic of Germany. It will have its own structure. It's an extremely exciting venture.

SPIEGEL: It sounds more like a new experiment, not unlike the introduction of the euro. And yet you want to transfer as much power as possible to Europe?

SPIEGEL: What would a fiscal union have to look like so that Germany could accept euro bonds?

Schäuble: In an optimal scenario, there would be a European finance minister, who would have a veto against national budgets and would have to approve levels of new borrowing. It would be up the individual countries to decide how to spend the approved funds, that is, how to answer the question: "Should we spend more money on families or on road construction?"

SPIEGEL: And you seriously believe that this could work?

Schäuble: It's been working for a long time in competition policy. When the current Italian prime minister, Mario Monti, was the EU competition commissioner, he successfully tangled with major international corporations like Microsoft. A European finance minister would, should it become necessary, be forced to take on Italy, for example.

SPIEGEL: Or with Germany. Let's assume the finance minister in Brussels rejected your budget. People here would be incredibly outraged.

Schäuble: There is certainly the risk that there would be national reactions, and that's why all of this requires intensive discussion.

SPIEGEL: With all due respect to your vision, is there truly more willingness today among EU member states to give up sovereignty than there was in the 1990s?

Schäuble: The recognition that this is necessary, and the willingness to do so, has certainly grown due to the crisis, and not just in Germany.
Hypocrisy

The interview reviews a set of arrogant statements, foolish actions, lies, and hypocrisy. Let's start with the hypocrisy.

In response to a comment on "powers of destruction", Schäuble responded "Now you're exaggerating.".

Yet, in response to the opening question "What's at stake?" he responded "Our prosperity. .... Otherwise we would fall far behind, and that would lead to a substantial loss of prosperity and societal security."

A "substantial loss of prosperity and societal security" sounds pretty destructive to me.

Arrogance and Foolish Actions

Defending the introduction of the Euro while admitting these problems were known in advance is arrogant foolishness.

Anyone care to ask how Spain, Greece, or Ireland feels about this position?

Calling for a strengthening of European parliament complete with all their nannyzone ideas, tariffs, and regulations is beyond foolish.

For a prime example, please see EU Takes Great Britain to Court over Garlic; Nannyzone Nonsense; Time for UK to Kiss EU Goodbye

Yet, without a fiscal and political union, the euro cannot function at all. Indeed it certainly hasn't.

Of course Germany expects to be in control of the parliament, but that may not happen, especially if France, Spain, and Italy all agree to do some foolish thing (exactly as they propose right now I might point out!).

The very first thing to go in a political union would be austerity if those countries had their way. Of course, the proposal would contain "strict" budget limitations. Think those would matter when politicians would have the chance to vote on them?

Why should German citizens (or any citizens for that matter) subject themselves to such nonsense?

Outright Lies or Disingenuous Bullsheet?

Schäuble claimed "In the most recent election in Greece, more citizens voted for parties that support the course that was agreed to with Europe than in the first election."

That is a gross distortion of reality at best. There is near unanimous sentiment in Greece against more austerity. Pasok, the only pro-austerity party received a mere 12% of the vote.

Political and Cultural Differences Are Immense

Political and cultural difference make agreements on a new treaty impossible. If anything, odds of hammering these things out in a crisis is all the more difficult, as repeated disagreements about Greece (a very minor player) have shown.

A timing sequence issue also suggests It's Just Impossible.

  1. The Bundesbank said there should be no banking union until there is a fiscal union.
  2. Angela Merkel said that there should be no fiscal union until there is political union.
  3. François Hollande said that there should be no political union until there is a banking union.
  4. The German supreme court will not allow a political union nor a fiscal union, nor a banking union without a German referendum.

Schäuble believes a German referendum will happen soon. How can that be given there is no agreement on eurobonds, the order and timing of events, or anything else substantial?

Recall that French president Francois Hollande even wants to rework the last agreement! Yet, until a treaty is hammered out, no referendum is possible.

Even if by some miracle a treaty is hammered out, how long will the ratification process take? Would German citizens vote for it?  Finally, will the bond markets wait that long?

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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