Monday, December 16, 2013

Is Angie's hammer coming for Austria?

Der Standard reports that (Andreas Schnauder und Lukas Sustala, Neuer Budgetpfad verstößt gegen Vorgaben der EU 16.12.2013) Austria's next budget may not meet the standards required by the Fiscal (Suicide) Compact German Chancellor Angela Merkel muscled most EU countries into signing.

And when one of the satellite countries fails to meet Angie's standards, there are consequences!

Austria's national economy is heavily dependent on Germany's and is not large enough to have any great impact on the eurozone by itself.

But to end the depression in the eurozone, the countries like Germany and Austria currently benefiting from the euro crisis would need to be stimulating their economies, not removing stimulus and lowering aggregate demand by pursuing an austerity course.

Yet that's what the Fiscal Compact locks them into. Angie made the signatories write it into their Constitutions, including Austria.

The Fiscal Suicide Compact is formally known as the Intergovernmental Treaty on Stability, Co-ordination and Governance in the Economic and Monetary Union (TSCG). I wrote about it here last year as it was being approved by the various victim countries: Irish referendum today (Thursday) on eurozone fiscal suicide pact 05/31/2012.

I've been exceptionally pessimistic about the survival of the euro since the adoption of the Fiscal Suicide Compact last year, whose terms enter into full force at the end of this year. It essentially forces all countries to pursue pro-cyclical economic policies during recessions and depressions, i.e., policies that reduce aggregate demand and make the recession/depression longer and worse. It was really nuts for any country to approve that hideous brainchild of the Angela Merkel/Wolfgang Schäuble team.

According to this chart from the EU, Belgium and Bulgaria have yet to ratify the Fiscal Suicide Compact: Ratification Details, accessed 12/16/2013, while Denmark and Romania rejected it. Great Britain was excluded from the Pact because of Prime Minister David Cameron's opposition to it.

This report from the British House of Commons Library provides some detailed background: The Treaty on Stability, Coordination and Governance in the Economic and Monetary Union: political issues; Research Paper 12/14; 27 March 2012.

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