Euro crisis: “With that we buried the Maastricht Treaty, the legal basis for currency union”

A couple of interesting reports in the Irish Times with relevance to the ongoing euro crisis.  First, from Derek Scally in Berlin

…Mr Asmussen, a member of the ECB governing council, said growth measures – agreed without reopening the fiscal treaty – could help drive European integration.

“The benefits of a currency union are so outstanding that they should be stabilised by deepening, which means a fiscal union and banking union as well as a democratic legitimised political union,” said Mr Asmussen yesterday in a speech in Berlin, sketching out his vision for the EU in 10 years’ time.

Picking up from where his boss, ECB president Mario Draghi, left off earlier this month, the German-born economist listed growth measures that would not require extra spending, from labour market reform to labour force mobility. The “critical mass” of measures was more important than their legal form, he said.

Mr Asmussen called for a Europe-wide financial regulator and finance watchdog, as well as an EU budget “special fund” for the euro zone, financed by the earnings of a tax on financial transactions.

After years of government-led crisis measures, efforts to promote greater democratic legitimacy were overdue in the EU. His proposal: to give the European Parliament the right to initiate legislation.

[Mind the gap democratic deficit! – Ed]  Indeed. 

Meanwhile, Arthur Beesley notes a European Commission report on tax revenue rates

The Taxation Trends in the EU report also said the property collapse in countries such as Ireland served as a powerful reminder of the danger to budgetary stability of over-reliance on once-off property transaction taxes.

“In Greece, Ireland and Spain annual revenue levels fell by between 0.4 per cent and 0.6 per cent of GDP between 2008 and 2010; for the latter two countries, the destabilising effect was even greater considering that by 2008 revenues had already dropped by about 1 per cent of GDP compared to their peak two years earlier.”

Citing 2010 data, the study said Ireland had the EU’s fifth-lowest tax take as a proportion of national economic output.

Irish tax revenue compared to gross domestic product was 28.2 per cent, a little above fellow euro country Slovakia (28.1 per cent) and in the same league as Bulgaria (27.4 per cent) and Latvia (27.3 per cent).

The lowest tax revenue was in Lithuania (27.1 per cent) and the highest was in Denmark (47.6 per cent) which was followed by Sweden (45.8 per cent).

While tax revenue rates were higher in the countries which were in the EU before the 2004 expansion, Ireland and its fellow bailout recipients were outliers.

Adds  And from the Guardian’s Eurozone crisis live-blog

Alexis Tsipras [the leader of Greece’s anti-austerity Syriza coalition] wound up his press conference in Berlin by warning that Europe could be dragged into another military conflict if the economic crisis really deteriorates:

: we need to learn from history or face prospect of another world war. Dialogue is key to progress. Press conf ends after 1 hr

And while Tsipras was taking in Berlin, one of his economic advisers was telling Joel Hills of Sky News that Syriza would not seek to withdraw Greece from the eurozone without a referendum (and, of course, it’s current position is that Greece should remain in the euro, but with a ‘better’ financial programme)

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  • Pete Baker

    Adds And from the Guardian’s Eurozone crisis live-blog

    Alexis Tsipras [the leader of Greece’s anti-austerity Syriza coalition] wound up his press conference in Berlin by warning that Europe could be dragged into another military conflict if the economic crisis really deteriorates:

    : we need to learn from history or face prospect of another world war. Dialogue is key to progress. Press conf ends after 1 hr

    And while Tsipras was taking in Berlin, one of his economic advisers was telling Joel Hills of Sky News that Syriza would not seek to withdraw Greece from the eurozone without a referendum (and, of course, it’s current position is that Greece should remain in the euro, but with a ‘better’ financial programme)

  • dwatch

    An Ultimatum for Greece
    Europe Raises Threat Level against Athens.

    Officially, euro zone governments say they’re not talking about a Greek exit from the euro zone. But it’s a different story behind closed doors. Finance ministers meeting in Brussels last Monday threatened to evict Greece, SPIEGEL has learned. Meanwhile, Germany denied reports that Chancellor Angela Merkel called for Greece to hold a referendum on the euro.
    http://www.spiegel.de/international/europe/europe-raises-threat-level-against-athens-a-834188.html

  • Denis Cooper

    “Meanwhile, his predecessor at the ECB, Jürgen Stark, has said countries bailed out by the EU and International Monetary Fund should have been asked to leave the euro zone before being assisted.

    “If a country mismanaged itself and has to perform a correction . . then outside the euro area,” he said. “The currency union has already taken a hit. A severe cut at the start of the crisis would have been better.” Mr Stark said it was a “mistake” to allow the IMF help countries inside the EU. The EFSF bailout mechanism also sent a wrong signal, he said.

    “With that we buried the Maastricht Treaty, the legal basis for currency union,” he said.”

    Well, what does he know, when Dr Gavin Barrett says that it’s all hunky-dory and there isn’t really any need to have the amendment to Article 136 TFEU?

    http://www.irishtimes.com/newspaper/opinion/2012/0504/1224315590259.html

    “… it is far from clear that the article 136 TFEU amendment is really necessary in order to set up the ESM … the ESM’s temporary predecessor, the EFSF, was successfully set up on the basis of another treaty article.”

    But that is not true: it’s perfectly clear from reading the original Decisions of May 9th 2010:

    http://register.consilium.europa.eu/pdf/en/10/st09/st09614.en10.pdf

    that the EFSM was established through a Council Regulation based upon an abuse of Article 122(2) TFEU, but there was no identifiable legal basis at all for the EFSF.

  • Zig70

    So Pete is the Troika decision making process blinkered by the conception that the lack of fiscal or political union is the root cause and solution to the debt crisis or is it a tool to engineer greater fiscal union? Or have I misunderstood the politics of it again. I’m currently thinking the former but the last one is more likely.

  • Pete Baker

    Neither.

  • I think the Germans have already thought beyond a few countries like Greece, Portugal and Ireland leaving the euro. They wont budge an inch on the firewall or underwriting the currency until they get everything their own way. Their big problem is how to protect Spain and Italy before they get them under proper political control. I dont see how they can solve that one.

    It is time that the Mr. Scallys of this world stopped spewing out unrealistic solutions in their newspaper columns. Giving the European Parliament the right to initiate legislation would not bring union, let alone evolve to reduce the democratic deficit. You need to go much further than that. The first big step on that road is not the right to initialise the legislation. It is the giving to MEPs complete political independence.

    To make that happen, you would need an amendment to the treaties so that MEPs are immune from being de-selected by the political parties that they represent – unless they have been found to be corrupt or unfit for office but not on political grounds – at the EU elections.

    Once that happens, the MEPs are free to join or leave the political groups that they want to be part of. The latter then become actual Euro-Parliamentary parties. Those Euro-Parliamentary parties then negotiate a consensus between them and eventually join up into a coalition which is capable of commanding a majority of votes. But the evolution has to go further. That same coalition then forms its own committee. That becomes the new de facto executive.

    In the opening period of the existence of these new institutions, there is a power battle between the new de facto executive and the existing European Commission which is the “real” European executive. The Presidency of the Commission is the first to come under the new executive control as it is elected by the Parliament. Eventually the de facto executive wins the battle to exercise all the Commission’s powers. This is followed by a further treaty change whereby all commissioners are elected by the European Parliament.

    The final stage of political union is the transfer of the remaining sovereign national powers of taxation, defence and foreign policy to the European Parliament. The timescale, however, is the problem with this theory. There are just too many microsteps in between those treaty steps to achieve it in the timescale envisaged by the Germans (10 years).

    It is also a timetable that is completely unrealistic in terms of saving the euro.

  • Pete Baker

    Seymour,

    Read it again. You owe Mr Scally an apology.

    In the extract I’ve quoted he’s reporting, to his usual excellent standard, the views of Jörg Asmussen of the ECB governing council.

    Even more significant, perhaps, although I felt constrained to include it in my original post, are the comments from Mr Asmussen’s predecessor at the ECB, Jürgen Stark. See the comment above by Dennis Cooper.

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  • Comrade Stalin

    Seymour,

    In your first paragraph you are essentially arguing that the Germans will allow the Euro to collapse rather than loosen their grip on the ECB. Doesn’t that seem counterproductive ? Along with the idea that places like France will have nothing to say about it.