'Every rescue umbrella has its limits'
7 Dec, 2011 09:23
As Europe's leaders roll up their sleeves and prepare to slug it out for the euro's very survival, German parliamentarian Frank Schaeffler explains to RT why piling new debts on top of old ones can only lead to collapse.
RT: How would you grade the efforts by Merkel and Sarkozy to save the eurozone, and are they heading in the right direction?German parliamentarian Frank Schaeffler: No, it’s a project that has been designed by those at the top. The European Union needs the steps that would bolster the market economy and that would be adjusted so that they could fit into the market economy. According to the rules of the market economy, if you decide to take on the risks, you have to bear responsibility for these risks. The projects that are enforced from the top will not be able to operate under such conditions. Such projects should work from bottom up.RT: European bureaucrats and their allies in national governments want to see more fiscal control over national governments, more control over their budgets also. How much centralization does the European Union need, in your opinion?FS: The European Union does not need more centralization. Excessive centralization has actually been the key problem and the reason why we are facing the current crisis. The euro has been a project of the planned economy developed and enforced from the top. The members that have become part of the eurozone project are very much different from each other and cannot provide for a common homogeneous currency space. That’s what has become so obvious under the present situation. Now they want to resolve the problem by introducing more centralization while centralization is the root cause of the problem.RT: The economy speaks for itself: capital fight is enormous and some analysts say that the situation resembles that in the US before the crash of Lehman Brothers. How real is the threat of a eurozone collapse?FS: The threat of a complete collapse of the eurozone is a means that is used by the European states and the banks to blackmail European taxpayers. If this pressure is not resisted, then the so-called rescue umbrella will have to be extended over and over. But every umbrella has its limits. Of course, if Greece had announced a default on its debts, it would have also had negative consequences for other European states. But no country in the European Union will be able to go on without tough reforms. There must be pressure on the states to conduct these reforms. But it can only be possible when risks and responsibility come together, so that the countries living beyond their means realize it and do something about it.RT: Issuing European bonds means that those countries in a stronger economic position have to pay for the troubled ones. Is this the correct way to solve the problem? FS: No, I don't consider this to be a reasonable way to solve the problem. I'd like to emphasize once again: risks and responsibilities should be indivisible; and no additional loans or additional investments can solve the problem. It is not possible to repay old debts while making more new debts. The crucial moment here is for every country to do their homework – in other words, for every country to take full responsibility for its economy. It was captured in the agreement framework of both the European Union and the eurozone, but the currently pursued policy is such that it is at odds with these agreements, it destroys the European Union, it erodes its common values, as well as it destroys the common monetary and economic space. This leads to the domino effect as we see more and more countries trying to hide from solving their own problems under the umbrella of bailout measures. RT:Would you think it is fair to say that this Eurobond mechanism can actually create more financial problems for the healthiest European economies?FS: Yes, these are dangerous measures, and they are quite dangerous for stable economies as well. It is especially clear today if we consider the example of France which is paying off dangerously high interest on its national debt and runs the risk of losing its AAA status. And Austria is facing the same prospect. And if France were to lose its AAA status, the entire bailout package for the eurozone would be placed at risk as it would become inexecutable. It is a well-known fact that the eurozone's bailout package, or umbrella, relies on the economies of six states: Finland, the Netherlands, Luxembourg, Austria, Germany, and France; and since Austria's and France's economies are now at risk we can say that the currently implemented measures are not working. RT:Eurobonds are based on the principle of mutual guarantees, which can actually create a system similar to the one when the global economic crisis started in 2008. Do you think it is fair to say that putting off the crash of the system through Eurobonds and other financial stabilization mechanisms can actually make the situation even worse in the end?FS: Yes, that's exactly what I think. All these bailout measures only add fuel to the flames and only make the situation in Europe worse. Such countries as Greece, Portugal and possibly even Ireland will not be able to emerge victorious out of the current crisis; they won't be able to recover. The only measure that can help now is cutting heavily down on the expenditure. Any other measures are only an attempt to delay the disaster with time, whereas time is the luxury we do not have.RT:Mr Schaeffler, you yourself have proposed that failing banks should not receive any bailout at all. But what could be the consequences of the collapse of the eurozone when we look at the global economy in general?FS: It has its repercussions, no doubt, but let me say again that piling new debts on top of old ones will only make matters worse and ultimately lead to the eurozone’s collapse. I do not think that the eurozone is going to survive in its current form. It will very likely have to change somehow. If we look at the way EU economies are currently developing, we can see that they are going very different ways. Greece’s economy is shrinking, it has shrunk by five per cent. On the other hand, Germany and a number of other countries are growing, albeit at a slow rate. This gap is only going to grow. What we need now are mechanisms for quick and organized secession from the euro zone, to enable countries like Greece to pull out of the union, sort out their economy and their numerous debts, cut government spending and improve their economic standing.It is very hard for me to predict how the situation would develop, even more so the consequences of those developments. As I said, I do not think the eurozone will collapse completely. It is much more likely that we will see some of its members – perhaps a large number of its members – secede from the EU. I cannot see those secessions causing any repercussions on the global scale. Perhaps they will put pressure on other countries with bad economies and force their governments to start reforms. I think the problem we see in the eurozone – one of excessive government debt – has affected all of the world’s economies today. Look at Russia, the US, Japan – they are all worried about their colossal debt.RT:What is your forecast for the Italian crisis? Do you think that Italy should also consider moving back to its national currency?FS: I do not think Italy would pull out of the eurozone. Italy needs efficient reform to revitalize its economy and allow us to maintain a strong Italian economy in the eurozone. What the country needs most now is the trust of its own people. Over 50 per cent of the bonds issued by the Italian government are in the hands of the people. The government will have to prove to its people that it is capable of paying its debts.RT:And finally, how come saving the European Union has become some sort of a religion among the European elite?FS: Like I have already said, “saving the euro” is a project imposed from the top down, based on overrating the notion of European unity. After all, Europe is not merely the 17 states that form the eurozone, and it is not even the 27 member states of the European Union. In fact, Europe comprises some 50 nations – and by the way, that includes Russia, which is also part of Europe. With that in mind, I believe it was the elites headquartered in Brussels that promoted this project from the top, aiming to drive Europe into a new form of centralism. And I think it is wrong. In my mind, Europe’s advantage is exactly its inclusiveness and its diversity in terms of all the different cultures, languages, mentalities and people it comprises. And imposing uniformity looks like a mistake to me. This notion probably stems from the so-called “Brussels centralism” mindset, which has been put into practice by the French. It is very dangerous and completely unnecessary.