So we’re facing a massacre in the financial markets again. But rather than the banks being to blame, this time the finger points clearly at the politicians.
The difficulty the Eurozone leaders have dealing with the euro’s problems is that the politicians have failed to resolve the politics.
The dodgy book keeping that went on to show countries had met the financial and economic tests is now clear to see. We are seeing a rerun of what happened in 2008, except this time it is not mortgages at the root of the problem but sovereign debt.
The Germans have the biggest problem in that they want to hold the euro together, but know that in doing so they risk the prudence and self restraint that has underpinned their economic strength. Stereotypes notwithstanding, the fact is that Germans pay their taxes; the Greeks don’t. Why should German taxpayers feel happy about their taxes being used to bail out the Greeks who don’t pay a half of what they are supposed to?
For the euro to survive, all the countries in the Eurozone will have to adopt similar policies on taxation and national financial management. Some of this is sort of being put into effect through some of the bailout measures: sales of state assets, higher taxes, wage cuts in the public sector. Some countries are probably doing more than others. But unless there is a more complete fiscal union, the Eurozone will remain a bit of a basket case.
This is where the politicians really need to man up. Are they going to say that complete fiscal authority is going to be passed outside their national parliaments to a super finance ministry in Brussels? Governments that do not control their money have no power and a government with no power is a bit like a local authority. With respect to some of the smaller nations in the Eurozone, they are more like local authorities and now some of the bigger nations face that prospect too.
Italy has already climbed down and announced a series of cuts aimed at reducing their deficit but with an election on the horizon, will they stick to it? I doubt it. A government promising and delivering cuts usually gets booted out of office.
Whether that will happen before or after they hand over control of the country’s finances to the EU will be a moot point. It didn’t make any difference in Ireland. The new government had to go with the same basic deal as the old one because the problem does not change with a change in government.
