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Edward Price is President of Ergo Intelligence. A former British trade official, he also teaches at New York University’s Center for Global Affairs.
France and Germany didn’t always get along, and there were some rough spots. However, after replacing the war with the economy, they got married and lived happily ever after in Brussels.
just kidding. Here’s what Sam Fleming of the FT said last week.
Germany and France are at odds over how tight the EU’s revised budget rules should be, as member states struggle to resolve differences over the future of the region’s fiscal framework.
What’s the point? France does not want automatic debt reduction rules. I never did. Instead, in 1997, France insisted on adding the word “growth” to Germany’s proposed “stability” agreement.Increased stability as a result and Growth Pact (SGP). Thus was born the insane contradiction that now lurks in the very heart of Europe. please think about it.stable and growth?deflation and inflation policy? I don’t even know what the title means.
The SGP was to implement the 1992 Maastricht Regulations (deficit no more than 3% of GDP and debt no more than 60%).
Of course, these rules were quickly broken. And who broke them? France and Germany. By 2005, European fiscal flexibility was formally recognized, after a flurry of events at the European Court of Justice. The bottom line is that there are no sanctions for 3% violations.
The 2010 Eurozone sovereign debt crisis is no stranger. After the crisis, the referee fought back. Berlin (Merkel/CDU) pushed for stricter rules. These were introduced between 2011 and 2013 along with the so-called Six-Pack, Fiscal Compact and Two-Pack frameworks. Like a cold lager, it didn’t last long. In 2015 the European Commission I wrote more about flexibility within existing rules.
And then of course Covid came along.of SGP general escape clause enabledwhich of:
. . . This allows committees and councils to deviate from normally applicable budgetary requirements.
Not surprisingly, much of Europe’s budget deficits are now above 3%…
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. . . And many European countries also have debt levels above 60%.
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The SGP will be held again next year, but the same problems are inevitable.The real problem is the wrong policy of seeking stability and Growth is an oxymoron.
— 🇩🇪 👉 Stability means avoiding crisis. For stability, the economy curbs borrowing, debt, spending, consumption, and ultimately growth. Germans don’t like eating out. Too much heavy-duty manufacturing.
— 🇫🇷 👉 Growth, on the other hand, means the opposite. You chase consumption. you are dependent on debt. you will be in debt you spend The French like to hang out of their limousines, Gauloises flare up. You can wait for the subsidized harvest.
This is the collision. This is a conflict at the heart of European economic policy. It’s just a clash at the heart of the EU. Debauchery ≠ Prudence. SGP, on the other hand, reflects this strange marriage. That is, it is incompatible with itself.Ann Amour de la Dépanse versus Liebe zur Sparsamkeit.
real irony? Despite playing diametrically opposed roles in this financial psychodrama, France and Germany have done it together. Both broke the rules. From now on, the two will share responsibility.
Expect more quarrels between France and Germany as the SGP recovers in 2024. We’re too cynical to expect a solution, so instead – why not grab some popcorn?
