An Immoral Proposition
2011/01/19
In the Club
The Czech daily Lidové noviny reported on December 11, 2010 [1] that, during Czech Prime Minister Petr Nečas' visit to Berlin in September 2010, German Chancellor Angela Merkel called on him to bring the Czech Republic as soon as possible into the Euro zone. "We would like to see you join the club," Merkel is said to have told him, writes the journal, referring to "sources in the entourage" of the Prague government. Nečas chose neither to confirm nor deny Lidové noviny's revelations. Protocols of the German-Czech summit are confidential.
Searching for Allies
Lidové noviny reports that during the talks, Merkel justified her pressure for a speedy Czech membership in the Euro club with tensions and power struggles within the EU. In the debate about the configuration of the European crisis policy, for example, Berlin has ended up in a minority position. The Union is being dominated by a coalition of "wasteful" and "agrarian southern" countries under France's leadership.[2] They are made up of Greece, Spain, Italy, Belgium and Ireland. The German position, aimed at a strict monetarist policy, is shared by Austria, Finland, the Netherlands and Slovakia. According to Lidové noviny, Berlin's standpoint expressed during Nečas visit to the city, was defined as the position of the "responsible, economy of the North". Just a few weeks earlier, Merkel used a "similar choice of words" to pressure Polish Prime Minister Donald Tusk to join the Euro zone in the near future. More Central East European countries joining the Euro zone is supposed to strengthen Berlin's position and again establish a majority for German ambitions.
An Idiocy
Berlin's pressure has been greeted with disinterest both in Warsaw and in Prague, as well as with more or less unambiguously formulated rebuffs. Nečas had already made it clear in late November that the question of a possible adoption of the Euro will be "our decision, if and when we want to take this step."[3] In December, the Czech head of government even reiterated that it is out of the question that his country would join the Euro zone before the end of his incumbency. "I don't think that it will come to that in the foreseeable future and certainly not during my term of office." To take on the Euro at this time would be "economic and political idiocy." Czech President, Vaclav Klaus, a confessed Euro-skeptic, engaged in hefty verbal sparring matches with his German counterpart, Christian Wulff, and publicly declared that, for the time being, "no one in the Czech Republic wants to introduce the Euro." Poland's government formulated its rejection a bit more discretely, but Warsaw, in the meantime, considers its joining the Euro zone in 2015 - up to now, the earliest possible date - to be out of the question. Recently, the Governor of the Polish Central Bank, Marek Belka, more clearly warned Warsaw against hastily joining the Euro zone. The Euro is an "ambitious, but unfinished project," he said.[4]
Return to the Koruna
The Hungarian government seeks also to postpone its entry into the European monetary union. 'We are not in a hurry," confirmed the Hungarian Minister of the Economy, Gyorgy Matolcsy, on Janauary 6. "We'd like to generate GDP growth, economic growth. And we'd like to create 1 million more jobs" before thinking about joining the Euro.[5] Due to their difficult economic situation, Rumania and Bulgaria have also put off plans for an early entry into the Euro zone. In Slovakia, which joined the Euro zone only in 2009, demands are being raised to withdraw from the Euro zone. On December 13, 2010, the Speaker of the Slovak Parliament, Richard Sulik, demanded that his country be prepared to abandon the Euro: It is "high time for Slovakia to stop believing in what Euro zone leaders say and prepare Plan B, the reintroduction of the Slovak koruna."[6] The discontentment in Bratislava over the new expensive currency grew particularly during the Greek crisis, when the parliament of this impoverished country refused to contribute 800 Mio Euros to the bailout package in August 2010. In Eastern Europe, potential new members of Berlin’s Euro zone are nowhere in sight. Presently, only the two Baltic countries, Latvia and Lithuania, are members of the "exchange rate mechanism II", guaranteeing close monetary ties to the Euro and widely considered as something like the "waiting room" for joining the euro.
Warding Off German Export Offensives
It is more than merely the costs of salvaging the Euro that is generating a growing skepticism in Eastern Europe towards the European common currency. Above all, many of the Central East European nations have learned to appreciate their currency policy margin of maneuver during the crisis, which they would have lost had they joined the Euro zone. In the course of the crisis, the Polish and Czech currencies lost up to 30 percent of their values in comparison to the Euro, so that imports from Germany - the European export champion - would become more expensive and thereby strengthen the domestic Polish and Czech industries. It was particularly the southern Euro countries' inability to ward off these German export offensives by devaluating their domestic currencies, causing enormous trade deficits and huge debts that, in the final analysis, had led to the crisis in the Euro zone. (german-foreign-policy.com reported.[7]) The Southern European debt crisis demonstrated to the Warsaw, Prague or Budapest governments just how quickly entire national economies can be thrown against the wall and driven into the depression by the German export machine, once they have given up their sovereignty over currency policy.
Burden of Debts
Only those countries with a high foreign debt in Euros are still interested in quickly joining the Euro zone. During the debt-financed boom in Eastern Europe, western banks generously issued credits and mortgages, worth about 1,150 billion Euros, throughout the area extending from the Baltic to the Black Sea. The East European debtors often took their loans in Euros, to take advantage of interest benefits. With a devaluation of domestic currencies, the weight of credit interests quickly grows to become unbearable. This is why at the beginning of the year, Estonia, for example, joined the Euro zone where, mainly Scandinavian banks are driving the Euro credit loans of the private foreign debts up to 116 percent of the GDP. Estonia, the teacher's pet in budget policy, corresponding exactly to German ideals, with a national debt at less than ten percent of its GDP, could - similar to Ireland - in the case of a further exacerbation of the crisis, be rapidly transformed into another bankrupt nation through the socialization of its burden of debt.
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