The E.U. is getting tough with member nations according to The New York Times. Strong warnings to Germany, France, Spain, Italy, and the Netherlands. Get your your budget deficits in order, or else…. Excuse me if I don’t buy it. Here are three things you must know about the E.U.’s track record:
- Nations, which use the Euro as their currency, agree to limit annual government deficits to 3 percent of GDP. But the E.U. has never once levied a fine for non-compliance. (Greece turned in a 13 percent ratio for 2009.)
- These nations also agree their total government debt will never exceed 60 percent of GDP. But in aggregate, E.U. nations have never met this requirement since the Euro’s inception.
- Before the Euro was introduced, the founding nations debated whether to make fines automatic for non-compliance. The idea was to eliminate politics. Fines would be levied—robocop style—the minute any member violated the 3 or 60 percent rules. But the provision never passed.
The E.U. has the power to levy fines on member nations. There is no absolute mandate, however, and given historical behavior I doubt we’ll see any enforcement. Just talk.
What’s behind E.U. warnings? I bet they realize it’s not enough to blame Goldman Sachs or hedge funds for the Euro’s travails. Case in point: Goldman has been accused of financial privateering in Greece. They sold the 2001 currency swap which hid debt and, according to some, turned things bad. They also sold the credit default swaps that enabled hedge funds to profit from Greece’s travails. Talk about a Trojan Horse.
Hang on a minute. Goldman’s 2001 currency swap improved Greece’s Deficit/GDP calculation by 10 basis points. Yet in the same year, Greece failed to add 1.2 billion Euros in military purchases to its deficit numbers. That omission had ten times the impact of the Goldman currency swap according to The Wall Street Journal. I’m not defending Goldman. But blaming Goldman and the hedge funds won’t fix self-destructive behavior. And I have no doubt the E.U. is well aware.
Note to the E.U. Rattling sabers isn’t enough. It’s time, if you’ll pardon my Americana, to speak softly and carry a big stick.
The New York Times describes my novels as “money porn,” “a red-hot franchise,” and “glittery thrillers about fiscal malfeasance.” Through fiction I explore the dark side of money and the motivations of those who have it, want more, and will steamroll anybody who gets in their way.