ECB calls for “further sharing of sovereignty"

EU Observer reports that a member of the board of the European Central Bank, Jörg Asmussen, has said that euro-zone states need to give up more sovereignty in order to fix the construction flaws of the euro, with the bail-out fund possibly turning into a budget authority further down the road. “We have construction mistakes of Economic and Monetary Union, and it is time to correct them. It is clear that the core of the current debate has a name: further sharing of sovereignty,” he said.
Part of the vision—which the ECB is shaping in a report drafted by Herman van Rompuy—is a cap on how much debt countries can issue, intervention in national budgets, and fiscal corrections imposed if a country deviates from the deficit and debt limits imposed in the euro zone. A common budgetary authority could also be formed, Asmussen said, with the forthcoming ESM a “starting-point.”
“The ESM is a fiscal authority by definition, because it deals with taxpayers’ money,” he explained, adding that it would have to be put under the scrutiny of the European Parliament—or a subdivision of it, pooling members from euro-zone countries only. The ESM is yet to be set up, pending a ruling of the Constitutional Court in Germany, due on 12 September, and in Ireland the outcome of Thomas Pringle’s appeal to the Supreme Court.
Under the existing rules the Parliament has no say over the ESM. Asmussen said this needed to change and that the ECB itself should be under more scrutiny from the EU Parliament, as it will acquire new supervisory powers over banks in the euro area. “Deeper euro-area integration can only be sustainable if there is progress on democratic legitimacy.
And it should not be only the ECB continuously emphasising it,” he said, adding that already national parliaments could be involved more, so that they “internalise” what it means to be an economic union.
Asked if he thought all present euro members were “willing and able” to go this path of further concessions of sovereignty, he said it was “worth fighting for,” and that majorities in those countries needed to be convinced that it is the only way to achieve prosperity.
Asmussen, a former official of the German ministry of finance, also defended the sometimes criticised stance of the ECB when giving advice to politicians on how to change the structure of the euro zone. “It is clearly not beyond our mandate. If we can’t answer where we want to be ten years from now, no-one will buy a ten-year bond from us, and that is very much an issue for the ECB,” he said.

"How can one speak of default in future tense when we’re already bankrupt?"

Greece saved for an uncertain fate!

How can one speak of default in the future tense when we’re already bankrupt? . . . Don’t you see the people scouring through refuse and sleeping on pavements? Those who led us to bankruptcy—the troika and the government—now claim they want to save us from bankruptcy. It’s incredible!”

—Míkis Theodorákis, Greek composer and songwriter.

If Greece’s latest €130 billion loan was to be used for fiscal stimulus, it might be worth the commitment. Because that kind of money could put a lot of people back to work and kick-start the economy fast.

But the loan isn’t going to be used for stimulus. It’s going to be used to recapitalise the banks and pay off creditors, neither of which will do anything to boost activity or create jobs.

So, why bother? Why dig an even deeper hole if it achieves nothing?

If that’s the case, Greece should just default now and begin rebuilding the economy ASAP. There’s no point in putting it off any longer.

The “troika” (European Central Bank, European Union, and International Monetary Fund) demanded another €3 billion in spending cuts, even though unemployment is tipping 20 per cent and the economy shrank by 7 per cent in the last quarter.

What sense does that make? You don’t have to be a genius to see that Greece won’t reach its budget targets if tax revenue continues to fall, because everyone’s either been sacked or taking a pay cut.

It will just make a bad situation even worse. But the troika doesn’t worry about these types of things.

They don’t care that their economic theories have failed miserably so far, or that their “austerity” measures have been a complete flop.

They just keep plugging along, making the same mistakes over and over again, impervious to the criticism of reputable economists, oblivious to the abysmal results.

They remain steadfast in their commitment to belt-tightening, convinced that a strict diet of breadcrumbs and water is the best way to nurse an ailing economy back to health. It doesn’t bother them that the facts prove otherwise.

The Fitch ratings agency isn’t convinced that austerity will work; in fact it lowered Greece’s rating, saying that they now think a default is “highly likely.”

Similarly, a “confidential report” that was given to euro-zone finance ministers suggests that there’s a high probability that the slump in Greece will get worse and that the country’s debt-to-GDP ratio will still be 160 per cent by 2020, a full decade after the implementation of austerity measures.

So even if Greece sticks with the hairshirts and follows the troika’s diktats to the letter, its debt could still be at “unsustainable” levels eight years from today.

Why? An article in the high-circulation German weekly Der Spiegel puts it clearly:

Of course, the €130 billion would not solve the problem. It is only intended to buy time. Time until the financial markets have stabilised to the extent that they can handle the actual bankruptcy of Greece without a chain reaction. Without bank failures, no knock-on effects through the loss of credit insurance and no interest for the remaining problem of explosion of the Euro-zone countries.

They’re all heart!