Comments on: Ever closer union

By: Robert Schwartz

Robert Schwartz — Fri, 22 Aug 2003 01:05:40 +0000

The Wall Street Journal ran a story about, France’s $3×10^9 bailout of the conglomerate Alstom. It seems that under EU rules, governments are not supposed to bailout private companies. The Alstom bailout is just the latest French violation of this rule. I am short on the EU. I think the EU constitution is DoA. The Euro is 50/50.

By: Doug

Doug — Thu, 21 Aug 2003 14:36:43 +0000

Of course there isn´t anything magic about 3 percent, or the other conditions in and around Article 109(j) in the Maastricht Treaty. Nevertheless, the problems that the Growth and Stability Pact was created to address still need to be addressed. In a currency union of sovereign states, free riding needs to be discouraged. Otherwise, one country could borrow profligately, weakening the currency, which also belongs to states that are not so spendthrift. Even the possibility that one or more states might get away with loose spending, with the costs carried by the others, increases the likelihood that someone will try it. Martin´s post above proves this point. Differential bond spreads should introduce some discipline (as they do to some extent among US states), but spreads narrowed so much in the run-up to EMU that, coupled with the loss of currency risk, that they may not be a deterrent to a country determined to borrow. The Pact was originally designed to keep Italy in line; the Italian government was seen as the likeliest among the big economies to spend money it didn´t have. (And we have to be honest, it´s the big economies that matter; Portuguese or Dutch borrowing is not likely to provoke a run on the Euro.) The Pact also had a chance of keeping French spending in line. It was not designed to deal with a weak German economy and a government determined to spend. And given that there´s now a Franco-German tandem tendency to flout the rules, it´s likely to be a dead letter soon. Maybe that means the Ecofins get together and say, well it´s not really appropriate to have a 3 percent threshold; we´re better off with 3.5 percent or 4 percent. Maybe that means more finger-wagging from the Commission and some penance from governments that promise to do better and not piss away the next boom. Hard to say what the outcome is, but likely that the current strength of the Euro will wane by 10 percent or so over the fall, as the market assesses these developments.

By: pathos

pathos — Thu, 21 Aug 2003 03:20:37 +0000

Ooo. I bet we could come up with some good Euro-punishments for Germany. How about: “Must be the first to sign on to Bush’s next international endevour—whatever it may be—and agree provide full financial backing.” Or maybe, “Go to Turkey and don’t leave until their ready to be admitted to the EU.”

By: markus

markus — Wed, 20 Aug 2003 22:36:56 +0000

as a German I actually like the stability pact and am ready to pay whatever price necessary. Sure, it has it’s flaws, but it also keeps us in line and it puts some pressure behind the need for reform. We didn’t do our homework and we rightly have to take some heath. FWIW, I predict there will be “punishment” of some form or other, not as severe as possible, but hard enough to hurt.

By: Martin Wisse

Martin Wisse — Wed, 20 Aug 2003 22:28:51 +0000

What I find annoying is that The Netherlands as usual have to play teacher’s pet and actually try to keep to those rules, which is fucking up our economy something fierce. It seems self evidently obvious to me that in times of recession, trying to balance the budget is a stupid thing to do.

By: Jason McCullough

Jason McCullough — Wed, 20 Aug 2003 21:48:32 +0000

“making noises about keelhauling the Germans for their bad behavior” What would keelhauling an entire country look like? You’d need a huge friggin’ ship…..

By: Erik

Erik — Wed, 20 Aug 2003 21:26:24 +0000

“Why not? Simply, put, the Growth and Stability Pact is a botch.” Sure, but wouldn’t an intergovernmentalist simply say: “aha, but I have an explanation for why it’s a botch.” Anyway, I have always thought that these theories talk past eachother. It strikes me as pretty obvious that there are important supranationalist elements to the EU (e.g. ECJ), but also clear that there are very important limitations to these (e.g. foreign policy, expansion by treaty, etcetera).

By: Neel Krishnaswami

Neel Krishnaswami — Wed, 20 Aug 2003 20:40:01 +0000

It works now. I must have caught you right between the time the front page and full article went up.

By: Neel Krishnaswami

Neel Krishnaswami — Wed, 20 Aug 2003 20:38:31 +0000

The link to the full article doesn’t work as of 15:36 EST (20:36 BST) 20 August 2003. Fix! Fix!