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The real costs of eurozone membership

The article below from the Financial Times points to the lack of public debate across the EU on the real implications of the 1992 Maastricht Treaty’s proposal to abolish national currencies and replace them with the euro.

In Ireland’s 1992 referendum on the Maastricht Treaty the main thrust of public debate was on the Abortion Protocol attached to that Treaty.

There was virtually no discussion of the economics involved, apart from the fact that it would make it easier for Irish tourists to go on holiday on the continent and that it would give us permanently low German-level interest rates! The latter in due course helped impel our early-2000s borrowing binge.

The article mentions Professor Albrecht Schachtschneider and his colleagues, who launched a constitutional challenge to Germany’s ratification of the Maastricht Treaty at the time. This led to the Court’s well-known Brunner judgement, which laid down the constitutional principles governing Germany’s adherence to Economic and Monetary Union.

My colleagues and I had the pleasure of welcoming Professor Schachtschneider when he came to Ireland last September to show solidarity with those urging a No vote to the Lisbon Treaty.

We wish him and his colleagues every success if they now take action in the German Constitutional Court against the breach of the EU Treaties which a financial bail-out of Greece or any other EU State in face of the current bond-market crisis would constitute.

Greek crisis begets a German backlash
David Marsh
Financial Times
Wednesday 28 April 2010
(The writer is senior adviser to Soditic-CBIP LLP, chairman of SCCO International and author of “The Euro – The Politics of the New Global Currency”)

When Josef Joffe, then foreign editor of the German daily Süddeutsche Zeitung, wrote a 4,000-word essay in December 1997 attacking the planned formation of the European single currency, he published it first in English, in the New York Review of Books. “Never in the history of democracy have so few debated so little about so momentous a transformation in the lives of men and women,” noted Mr Joffe. As if to confirm his point, the article appeared in an abridged German translation in the Süddeutsche Zeitung more than a month later, unobtrusively buried in a weekend supplement.

The episode illustrates past barriers to plain speaking about economic and monetary union (EMU). Many ordinary Germans always feared the euro would be less stable than the D-Mark. Yet, reflecting postwar belief that German interests ineluctably overlapped with Europe’s, there was little discussion of the risks. This went beyond Germany. One senior Dutch central banker, now retired, says most European governments – including his own – agreed the Maastricht treaty 20 years ago without understanding what they had signed into law.

In April 1998, Germany’s parliament voted through the euro with only minimal opposition. Now, the German-in-the-street is making up for lost time…

There is an air of déjà vu… four German professors who launched an unsuccessful anti-euro lawsuit at the constitutional court in 1998, are preparing fresh legal action. Their claims of infringements to the EMU rules, in particular over the “no bail-out clause” preventing joint payment of weaker states’ debts, have a much greater chance of success this time.

As Greece approaches a possible debt restructuring and even a euro exit, questions are due on why warning signals went ignored that weaker eurozone countries were building up unsustainable borrowings…


Inadequate discussion of the eurozone’s problems has been particularly acute on the issue of whether monetary union required political union. Both the Bundesbank and Helmut Kohl, the former German chancellor, suggested in 1991 that without political union, EMU would eventually fail… In 2006 Otmar Issing, former chief economist at the Bundesbank and then the ECB, said monetary union “can work and survive … without fully fledged political union”. Now Mr Issing says: “In the 1990s many economists – I was among them – warned that starting monetary union without having established a political union was putting the cart before the horse.”

Leading German figures never explained that large deficits in countries such as Greece would eventually impinge on Germany’s own finances. Germany, the main surplus country, has inevitably become the largest creditor of the eurozone’s heavily indebted peripheral nations. As Mr Issing said in 1999, the no bail-out clause was meant to prevent the “negative external effects of national misbehaviour” from spilling over elsewhere. In fact, German taxpayers will have to pay for Greece: directly, through emergency government loans; indirectly, through supporting German banks that will be hit by a Greek debt restructuring; or, conceivably, both.

This is one of many costly facts about monetary union now bursting disagreeably to the surface.


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