The Brussels summit of December 2011 intended to solve a huge fiscal and budget (and in reality an economic) problem in the Euro-zone. It let to a political split within the EU-27 and risks to unleash a constitutional disaster.
What happened in Brussels? Superficially, the German chancellor Angela Merkel convinced almost all of her partners in the European Union to conclude a monetaristic policy in form of a restrictive fiscal pact as a protective shield against speculating capital. She thereby succeeded to reject French plans that asked for sharing the risks by issuing Euro-bonds instead of bonds issued by each state. Merkel’s policy was and is driven by the strong export-oriented German capital. The German export industry is threatened by two major problems: the weak demand on the European markets and the pressure of speculating capital on several states within the EU, leading to the rise of interest rates for state-bonds and as a consequence to higher indebtedness again weakening demand in the southern and eastern Member States of the Union. To break this vicious circle was not possible in Brussels, if it was intended at all.
The means to implement such a restrictive fiscal policy are well known since 20 years, when in December 1991 the then members of the European Community met in Maastricht in the Netherlands to formulate the so-called convergence criteria. They include restrictions to annual government deficits that must not exceed 3% and government debts that must not exceed 60% of the GDP. The Brussels summit of December 2011 repeated the Maastricht fiscal regime and tries to make it more restrictive. Merkel and Sarkozy agreed to bind the debt ceiling and the state deficit. Any member-state of the EU will automatically face penalties in case, that monetaristic guidelines are exceeded. By the way: Currently only 4 (out of 16) Euro-countries fulfil the criteria. To impose the new regime of automatic fines, a control ratio must be established. This can be done in form of an empowered European Court of Justice or as a direct instrument given to the European Commission. Commission’s Vice President Olli Rehn argues, that such an empowerment would require a contract amendment. To change the Lisbon Treaty would be a risky project, because some states could be forced by their constitutions to hold referendums. And it is well known that people are more and more critical towards the European Union considering it as an administrative body of the banking capital.
Looking behind the possible outcome of what was decided in Brussels, we can see a number of problems approaching Europe. Lets try to look at them in economic, (geo)political, and democratic terms.
Economically, the renewal of Maastricht and the intensification of the consequences in case that criteria are missed means to continue with an austerity policy dominating the whole construction of the European Union. Monetary policy thereby plays the key role.Keynesian interventions to stimulate demands on regional, national, or supranational markets never worked on the level of European Union, but in some cases they were implemented on national levels. With the new restrictive fiscal regime such political interventions in form of state demand and investments will hardly be possible any more. And without economic stimulation, weak economies will not be able to recover. The engagement of governments will be restricted to fiscal policy, which is counterproductive to overcome the economic crisis.
The banking sector is not satisfied either. US-based rating agencies like Standard & Poors and Moody’s did not appreciate the results of the Brussels summit. Both constantly threaten to downgrade credit ratings of – in the meanwhile – 15 Euro-states and numerous banks and insurance companies. Although every economist is aware of the fact, that rating agencies never create good or bad conditions for investments but only aggravate atmospheres of growths (before 2008) or decline (after 2008), the governments in the EU are not able or willing to get rid of their influence. No political standpoint is facing or opposing the forces of the market. Till now there is only one example of political intervention to the so-called free market, when the Hungarian government recently fixed a currency rate by law to avoid the insolvency of millions of private debtors who borrowed money in Swiss currency within the last 15 years. All the other governments remain in a state of shock in front of the market forces; for example Italy, where state-bonds are still issued at an interest rate of 7,2 % without any political attempt to oppose.
The summit of Brussels also showed a deep split in form of different approaches towards the capital market. It points at a geopolitical dividing line within the European Union. There seems to be a conflict between banks based on credit business and hedge funds.Although a clear division cannot be made by nature of capital always seeking for the best way to accumulate, it turned out that continental EU-Europe is more willing to cut or control speculating hedge funds than London, where the head-quarters of speculative money are situated mostly in offshore-regions like the Channel islands or the isle of Man. Hedge funds with their short-selling and leverage effects play a very risky game and therefore were not admitted for example in Germany till 2004. Ideas of taxing every financial transaction would hit hedge funds more than “normal” banks, because they operate with much more capital and therefore would have to contribute more. David Cameron’s No to fiscal restrictions reflects this British position within Western markets. He thereby stands firm beside his Atlantic ally and behaves like an American Trojan horse in a European surrounding. His No is also backed by the Republicans in the United States and their rejection of possible new bail-outs for deficit sinners with the help of IMF-credit lines. And US-president Barack Obama is likely to follow this transatlantic rationality because the US and Great Britain have their own financial and fiscal troubles.
A new problem can be seen on the horizon after the EU-European leaders met in Brussels and decided on new fiscal restrictions for the Euro-zone. It could be called a constitutional one. The new fiscal plan forces each Member State of the EU to follow Germany in introducing debt limits on a constitutional level. Berlin was the first to implement such a debt limit in 2009. Beside negative economic and social impacts, this sort of politics abuses a state’s constitution for a certain (political or economic) intention or interest. Constitutions provide basic procedures and standards how to regulate possible conflicts in a specific state. They are not made for regulating the contents of conflicts. If they incorporate contents by codifying a certain debt limit, the next debt crisis will not only cause a new economic and political problem, but also a constitutional one. This will not only happen on national levels, but on the EU-level too.
The fiscal pact of Brussels, which pretends to stabilise the economy by automatically fining deficit sinners can only be nullified unless a qualified majority of Euro-Zone members is willing to do so. This differs from the old “Maastricht” criteria, when it was the opposite. Sanctions against deficit sinners were only possible if a qualified majority voted for their imposition. In case debts cannot be repaid and debt ceilings again exceed the concluded limits, EU-Europe could easily face not only a deepening of the economic crisis but also a constitutional disaster. In front of such possible turbulence, the week after the Brussels summit was full of doubts and disbelieves and the whole procedure was questioned on parliamentary levels especially in Finland, Ireland, the Czech Republic, Hungary and Sweden.