European policy had long is excluded sovereign defaults in the euro zone, it is perfectly clearly. Instead, it has the hope that debtor countries through structural reforms again take root and will achieve an effect of growth of debt. It is now clear: The reality has overtaken hope. Some euro countries sit so deep in debt that short-term correction is not possible. A change in strategy is necessary.
It comes to without a debt restructuring, i.e. a de facto bankruptcy. It will be a debt spiral for the debt-ridden euro countries. Granted, the incentive effects are bad. The over-indebted countries such as Greece will increase dramatically declaring bankruptcy to its creditors. Other countries could also follow suit. The default of a euro member state is expected to trigger shock waves that to act far beyond the affected country. The risk premiums for other euro area countries with high public debt would be driven suddenly into the air.
This will increases their funding costs. This domino effect could lead to a meltdown of equity and of sound financial institutions. In this case, will be necessary the support of insolvent countries through Community assistance. The money is needed to recapitalize their banks. At the same time as consideration, must structural reforms are under way. It is good that the Greek drama is not for European tragedy. Maybe some of you are wondering whether it would be better if the private creditors were involve at the disposal of the situation.
To simply over-indebted countries, such as Greece may be hope for a declaration of bankruptcy to the detriment of its creditors. We wish to rid of this. Structural reforms are suddenly no longer, so urgent and other countries could follow the example. Nevertheless, things should not work this logic. This would not lead to positive development. As you can see from Argentina, can such a country be ruled out in the end from the capital market?
Thus, the structural reforms are already enforced by the fact that the borrowing is radically reduced to zero; also even the remaining debts must be serviced.
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For decades, in Germany there is a prevalent tactic. This tactic is related to whether the economy was “limping or growled”. With the introduction of the debt ceiling, the fiscal management is committed. From 2016, the federal government may only have a structural deficit to GDP 0.35 percent.
In summer 2010, the federal government had to stand up and put together a “package future”. It provides for the years 2011 to 2014 cost-cutting measures, modest reductions in tax breaks, and substantial tax increases in the form of new taxes. The volume for the whole period of just under 80 billion euros, without the savings in interest payments this is just under 75 billion euros. Here, the federal government also relieved at the cost of public pensions. For the state (in a consolidated view) it includes the “Future Package” around 71 billion euros.
Parts of the package have been implemented. An aviation tax and a tax on nuclear fuel, they were introduced, and transfers parental benefits were reduced slightly. In many ways, it is good, but let us look in more detail. A financial transaction tax was 6 billion euros. It is not inserted, but is still planned.
The nuclear fuel tax probably will be in another amounting instead the desired 9.2 billion. For the planned reform are used much smaller savings than provided funds (4 billion euros). The savings from the Federal Employment Agency and the unemployment benefits are also below target fail (20.5 billion euros). The personnel and operating expenses of the targeted savings effect will also not be reached.
At present, it looks as if the public finances from 2011 to 2014 by the “Future Package” relieved to only 37 billion euros. It is even planned to increase the Christmas bonus for federal officials, which will cost 0.5 billion euros per year. The total discharge would then shrink to 35.5 billion euros and thus amount to about 50 percent of the summer of 2010 announced discharge volume.
The prospects for the federal budget are still low. Tax revenues fall since the summer of 2010. The labour market also is performing better than anticipated. There is a good chance that the federal government in 2016 to meet the requirement of the debt brake.
The free movement of capital is a valuable asset. Nevertheless, a sharp sword punishes unsound fiscal policies. The same situation exists in full force with regard to dubious private spending, even without regard to the question of guilt. It comes to this, which is being popularly as a fiscal union.
This refers to the joint control by government and private credit market bubbles in the countries of the euro zone. Recently, this control had virtually nil. The massive imbalances in the peripheral countries are built since 1999, without there being an independent body. They criticized politically and therefore they were placed in the pillory. This needs to change. To be establish an Economic Affairs and Finance of the euro zone is necessary the meddling in the details of the specific national policy, as and control of the national burden of the financial markets. In addition, an important element is debt brakes, most firmly anchored in national constitutions.
The second lesson relates to the national crisis. Then relief should be granted only but only when in fact the country is ready to adopt radical austerity and reforms. It comes down to the willingness they to be put off economically under guardianship. Greece currently needs actions.
This willingness missing but it is a procedural basis for membership in the euro area destroyed and for membership in the EU. This is because the return of a crisis in a country’s own currency without capital controls is completely illusory. Just the threat of exclusion as a last resort will ensure a rule of national reform, whether it comes to a haircut.
All that matters is that the country will pave the way back into the global financial market, without international spread of the crisis, and without endangering the euro. The third lesson concerns the role of the rescue fund. Here, a clear line can be drawn between the fiscally fed Fund and the Central Bank, which prints money. The help is basically a question of solidarity in the euro zone, in the enlightened self-interest.
The willingness to help is documented by participation in the relief fund.