There is no agreement in the EU on a common debt union.
(Photo: dpa)
Credit cycles always follow the same pattern. After an adjustment through inflation, currency reform or haircut, the debt rises from a low level.
Shaped by the experiences of the debt crisis, the states that want to borrow money are initially cautious. As memory fades, debt mounts faster, returning to problematic levels over the years. Since saving is unpopular, politicians rely on financing from the central bank and the search for other sources of money.
It is normal for debtors to take this path. It is less normal that the countries whose financial power the debtors want to mobilize for their own benefit agree to the procedure. This only buys time, but does not solve the fundamental problem.
The unusual German willingness to expand the EU debt union created with the so-called “Reconstruction Fund” results on the one hand from the fact that supporters hope to achieve political union through joint action. The example of the founding of the USA teaches us that it works the other way around: first the union, then the common fiscal policy. The political union will remain an illusion for the foreseeable future, as important states such as France are opposed to it.
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Other proponents of the debt union hope to be able to circumvent the debt brake more easily via European debt. Instead of borrowing money itself, the German state would be liable for part of the European debt. No wonder advocates of a debt union in Germany are also demanding higher taxes.
Prominent example is Achim Truger, Member of the Advisory Council for the assessment of overall economic development. At first glance, such demands seem quite logically consistent when it comes to procuring additional funds for the state. However, the question remains whether, in view of the tax and contribution ratio that has been rising for years, we do not have a problem with the use of funds rather than the procurement of funds.
Daniel Stelter is the founder of the discussion forum beyond the obvious, which specializes in strategy and macroeconomics, as well as a management consultant and author. Every Sunday his podcast goes online at www.think-bto.com.
(Photo: Robert Recker/ Berlin)
Taking a detour via Brussels would be bad business. We are liable for more than we get, for states like Italy, whose citizens have significantly more assets than we do.
It would be better according to the recommendation of the German Council of Experts in 2011to set up a debt redemption fund at EU level. Instead of a blank check, that would be a one-time action and a reorganization based on the US model.
>>Read here: Debt rules: EU Commissioner Gentiloni: “We are still a long way from normality”
All countries, including Germany, should shift government debt up to a level of 80 percent of gross domestic product to such a fund at EU level, combined with a regulation that excludes future bailouts. Not only would we help our partners, we would also gain the leeway to catch up on what has been neglected over the past decades in terms of ensuring the future viability of the German economy. Without tax increases.
More: In fact, Brussels’ “exception rule” has long been a license to incur debt