WHICH CRUEL RULER IS CONTINUALLY FORCING NEW ROUNDS OF
AUSTERITY MEASURES ON SOUTHERN EU STATES? – NOT GERMANY - BUT THE EUROZONE’S SHADOW STATES?
via Deutsche Welle
Amid the EU’s lack of a strong
central government to enforce common fiscal policy, a “shadow state” has
emerged – a patchwork of agencies that is facing growing criticism as
undemocratic and illegitimate.
Which cruel ruler is continually
forcing new rounds of austerity measures on the GREEKS? And which dark power
managed to break the resistance of CYPRIOTS? The answer is not GERMANY. It is
the EUROZONE’S shadow state.
It sounds like something from
science fiction or fantasy, the Star Wars saga or Lord of the Rings. But the
term “shadow state” in reference to the euro crisis does not come from a
conspiracy theorist, but rather a well-known economist: senior Deutsche Bank
advisor Thomas Mayer.
SHADOW GOVERNMENT: THE EUROPEAN COUNCIL
“Within this euro shadow state is a
shadow government, the European Council,” Mayer said at a recent lecture at the
Academy for Civic Education in Tutzing, southern GERMANY. “There’s a shadow
executive, the EUROGROUP. And there’s a task force to implement discipline that
was grossly infringed upon. That’s the
troika.”
The euro would not be viable without
this shadow state, Mayer says, because there are only two ways to organize a
monetary union. The first is to create a central bank that is truly independent
and tasked with nothing but maintaining the stability of the currency. In this
case, the member states are sovereign but adhere to agreed-upon rules. That was
the original idea behind the Maastricht Treaty, which established the euro as
the currency of the EUROPEAN UNION.
THE END OF INDEPENDENCE
In reality, no one adhered to the
rules, leaving only the second path to a currency union. Under this model, the
European Central Bank (ECB) is no longer an independent currency guardian, but
rather a political agent. That was made clear when it refused to grant banks in
CYPRUS further emergency funding until the government in Nicosia could come up
with a plan to partially finance its own bailout. It was also made clear upon
the earlier announcement of ECB President Mario Draghi that the bank would buy
unlimited amounts of government debt from countries hit hard by the euro
crisis.
“If the crisis-hit countries don’t
recover and win back their competitiveness, then the risk premiums will rise
regardless of Draghi’s promises,” said Friedrich Sell, economics professor at
Bundeswehr University Munich. “In that case, Draghi will eventually have to
negotiate – that’s when things will get exciting.” Exciting, because the ECB
would have to pump so much money into the market that inflation would
inevitably increase.
The ECB has become a political
central bank financing the debts of its members, and the euro has become
“public debt money.” For these reasons, according to Thomas Mayer, the ECB
needs its own state to fulfill its duties. “If it doesn’t have a state, and
unfortunately that’s the situation in the EUROZONE, then they could end up
constructing a euro shadow state,” he said.
SHADOW STATE FACES GROWING RESISTANCE
People in countries like CYPRUS are
increasingly unhappy with the balance of power in the EU
That’s exactly what Mayer argues has
occurred in recent years. The basis for the euro shadow state comes from
treaties that many EUROPEANS have never heard of. Does anyone know what the
“two-pack” or “six-pack” agreements are? Is anyone sure of exactly what the
“fiscal compact” does? “This network of treaties diminishes national
sovereignty and imposes a degree of discipline on states so that they can
operate in the system of public debt money,” Mayer said.
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Yet the shadow state and its rules
are coming up against increasing resistance. The government of CYPRUS strongly
opposed the conditions of its bailout, indirectly threatening the EUROZONE with
its own bankruptcy – although it eventually relented. And ITALY recently voted
out a government that was never elected in the first place – a rejection of the
shadow state, Mayer said, and its representative Mario Monti.
Since those elections in ITALY,
there has not been a clear majority coalition in parliament, making the country
essentially ungovernable. Unemployment in the EUROZONE is increasing, the
economy is shrinking and protests against austerity measures are a near-daily
occurrence in GREECE, SPAIN and other debt-burdened countries.
Mayer said the EUROZONE’S problem is
that it is functioning in a system with public debt money and a central bank,
but no functional state to go with it – a problem with a historical precedent
set in the former SOVIET UNION.
NORTH
AGAINST SOUTH: IS THE EUROZONE IRREVOCABLY DIVIDED?
After the collapse of the USSR in
1991, the former SOVIET republics attempted to keep their common currency, the
ruble. However members of the “ruble zone” failed to agree on a supra-national
governance structure that would keep their economic and fiscal policies in line
with each other. States then began to compete in extracting credit from their
national central banks, resulting in high inflation. The ruble zone began to
collapse in 1992 as the Baltic states became the first to abandon the common
currency. RUSSIA’S own exit a year later solidified the currency union’s
ultimate failure.
SHOWDOWN WITH ITALY – THE EUROZONE’S THIRD-LARGEST ECONOMY –
COULD SPELL THE END OF EUROPE’S COMMON CURRENCY
“If we don’t manage to uphold the
authority of the shadow state, then we’re threatened with the fate of the ruble
zone,” Mayer said. This is also why Brussels prevailed against Cyprus’s
reluctance in agreeing to harsh bailout terms, Mayer added, and why a showdown
with ITALY – the EUROZONE’S third-largest economy – could spell the end of
Europe’s common currency.
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