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Why Sweden should stay out of the EU budget pact

Why Sweden should stay out of the EU budget pact

Published: 13 Dec 2011 11:08 GMT+01:00
Updated: 13 Dec 2011 11:08 GMT+01:00

They knew exactly what they wanted when they came to Brussels.

German Chancellor Angela Merkel wanted to prevent the next crisis with the help of strict budgetary rules. French president Nicolas Sarkozy wanted to enable the next crisis by ensuring senseless lending.

On the current crisis that is tearing Europe apart, however, neither had anything to say.

Once again, EU leaders have come up with nothing more than a magnificent damp squib – for the second time in six weeks.

At the previous summit, which was also billed as the "last chance" to save the euro, three steps were taken: Greece got a small write down in debt; banks would be able to strengthen themselves with new capital; and the EU would top-up the emergency bailout fund to support troubled countries by attracting other investors, including China.

All three measures failed or made the crisis worse.

So now this past weekend it was once again the "last chance" to save the euro and Europe. They really could have done things properly this time. Greece could have been declared bankrupt and received real debt relief that had made a new start possible.

At the same time, countries such as Italy and Spain could have developed clear, substantive, long-term plans for putting their budgets in order so that investors would be assured that these countries could manage their debts. Perhaps that would have been convinced the rest of world that it can be lucrative to invest in these countries.

The plans should have been less about immediate cuts and tax increases, which can stifle growth even more during a downturn, and more about raising the retirement age and deregulating the almost medieval regulations that prevent economic growth.

In addition, the EU could have taken steps towards free trade in services, which is crucial for bringing back economic dynamism.

Without growth, the current liabilities will soon become completely unmanageable and even Italy and Spain will end up sliding towards bankruptcy.

However, countries like France and Germany have prepared a plan to rescue the financial system based on the principle that owners and executives of mismanaged banks will lose, and the state will only provide capital in exchange for ownership and future dividends.

But at the EU summit on December 8-9, people talked about anything but this plan.

Instead the focus was on smoothing out contradictions between the German and French world view - between the Save and Spend, if you like.

France was able to remove the requirement that banks be held account for some of their losses if their loans to states cannot be paid back. At the same time, they once again stated that the rescue funds be topped off to make it possible to send more money to mismanaged economies.

In return, Germany pushed through a restoration of the old stability pact limits on debt and budget deficits. Sanctions against neglected countries should be triggered more automatically this time, but can still be overridden if enough countries prefer it.

The French success will delight all who think that the big problem with today's debt crisis is that it is too small.

The Euro-project's biggest mistake is the idea that banks never had to be careful with their lending, because if households borrowed so much that they became insolvent states would save the banks.

And if states borrowed so much that they became insolvent, Germany would rescue them.

It was never said bluntly, on the contrary, they said it would never happen, but the behaviour of the central bank and politicians reveals that was always the idea.

That is why European banks lent out €750 billion – an amount equal to three Swedens – to the five states with the worse economic crises without asking any questions .

Now, France has decided that this implied guarantee should be made explicit. When banks now lend recklessly without any hope of getting their money back, it is no longer an oversight, it is the intention.

If they make money, they keep it, and if they lose money, they can pass those losses along to taxpayers. It is a way to take an acute crisis and make it permanent.

But in return, Germany has pushed through tougher budget rules, which means that governments must submit their budget to the European Commission or some new euro institution to get the green light.

It’s like giving a teenage son the whiskey and car keys, but in return, mother and father Merkozy follow him everywhere to make sure he doesn't drink or use the car.

It is a super-bureaucratized dream.

They could have let countries act freely, but with the requirement that they find their own resources to do so.

Instead, they are swimming in other people's money, but are prevented from abusing it by an untested and bureaucratic European system of supervision which has little democratic legitimacy.

France and Germany have also said that this is just the first step towards the coordination of tax and labour policy, as well as the entire financial regulatory framework of Europe.

It’s nothing more than preparation for a political and fiscal union that many always believed the monetary union presupposed.

It is a union that the people have repeatedly shown they do not want, and which they have voted against every time they got a chance – but which bureaucrats in Brussels have said just as often that they still intend to create.

"I am confident that the euro will force us to create a new set of policy tools," European Commission President Romano Prodi told the Financial Times back in 2001.

"It is politically impossible to propose it now. But one day there will be a crisis and then we will create the tools. "

Now we are there. The predicted crisis is a reality.

Instead of solving the crisis, Paris, Berlin and Brussels are instead using the opportunity to remake Europe in a way that is so politically unpopular that it takes a crisis to get everyone in line.

How indignant everyone may be over David Cameron's veto of this project, it was always absurd to imagine that Britain would agree to the EU institutions were used for it.

It should be equally unthinkable for Sweden to be a part of it.

Merkel and Sarkozy has failed to keep the euro together. Their Plan B seems to be to divide the European Union.

Johan Norberg is a freelance writer and regular media commentator. He is a Senior Fellow at the libertarian Cato Institute in Washington, DC and at the European Centre for International Political Economy, a Brussels-based free trade institute.

This article was originally published in Swedish on the Newsmill opinion website. English translation by The Local

Paul Rapacioli (paul.rapacioli@thelocal.com)

Your comments about this article

14:37 December 13, 2011 by rohermoker
If you feel Sweden should no longer exist as a country then join the Euro block, Im sure Germany and France has the best interest of all of Europe at heart.
15:15 December 13, 2011 by Borilla
Sweden should do what is best for Sweden. However, be advised that the commentator is not "liberal" but "libertarian" and works fore the Cato Institute which is a "think tank" that toes the conservative US line. You can rest assured that opinions generated by the Cato Institute will fall in line with the wishes of the Koch brothers, and the rest of their reactionary element.
19:59 December 13, 2011 by Jim Brown
Any comment from an American that blames the Koch brothers for whatever problem should be ignored. Person using same has been brainwashed by multiple shell originations paid for by George Sores. They have no grasp of reality.
22:06 December 13, 2011 by rafa1981
It looks like free press still exists, keep the good work Johan. I can´t imagine an article like this one published in some free press democratic EU countries.
09:53 December 14, 2011 by the fonz
Some very valid points. Looking way ahead - if this coming together really happens would Sweden with its surplus and fiscal discpline be better of being in the same room as Greece, Italy etc? Would it really?

Sweden, UK, Denmark, Czech, Netherlands to name but a few will do perfectly well out of this mess.
14:53 December 14, 2011 by godnatt
We should all be thankful Sweden was smart enough to stay out of this mess.

This is one thing they've definitely done right.

A successful country like Sweden has little to gain and everything to lose by handing it's sovereignty to the appartchiks in Brussels and the irresponsible losers in the South.
16:46 December 14, 2011 by ionut
"It's like giving a teenage son the whiskey and car keys, but in return, mother and father Merkozy follow him everywhere to make sure he doesn't drink or use the car."

I honestly don't see how this relates to EU policy.EU is all about one Europe, one vision, united we stand.

But if you start searching for differences, then you are just a selfish ignorant.

So Mr.Editor, is not about giving a teenager the whiskey, is more about teaching him how to behave, how to live a honest life, to spend money efficiently and invenst some of his money to innovation and a more resources.

I guess most people don't have a clue what is their meaning is this word, beside being beautiful and having fun and parties and expensive cars.

Let me give you a hint:Just look at the skies and you may get an idea.
23:49 December 14, 2011 by planethero
It's like giving a teenage son the whiskey and car keys, but in return, mother and father Merkozy follow him everywhere to make sure he doesn't drink or use the car.

It is a super-bureaucratized dream.

For all those who say it can work thanks to rules for this and that. The rules in place to prevent this original crisis were flouted. Rules are pointless unless people are held to them. They wont be. In the end there are 100 million non-jobs in southern Europe. Until they are stopped, the farce will continue.
16:31 December 15, 2011 by acidcritic
Becouse in fact the EU budget pact it is a marriage pact betweeen two, the germans and the french. Now, neither frenchs nor germans are a reliable couple. Their relationship is not a normal, healthy one. The french have been repeatedly raped by the germans. However, they love the germans. In reference to the german, the french suffer from Stockholm´s sindrome, a unhealthful situation.

Another reasons Sweden should stay off from the pact is that, as always, the french present its offfer in an oportunistic way, as a "fact acompli". as always, germans and french want to share loses, never gains
10:58 December 16, 2011 by Kevin Harris
Take some of that whiskey. Poor youself a glass. And watch the Euro burn on its very own self- inflicted funeral pyre.

Or look the other way and pretend everything is wonderful.
13:50 December 16, 2011 by Anglosaxon123
Well done Sweden for having some "balls" :) It's only a matter of time before the Euro collapses completely. I'll give it until September, and that's if they're lucky. A landslide majority of British people have always been totally against the Euro. We felt that it was totally naive to allow poor countries like Greece and Portugal to share a currency with the wealthier nations. I don't know about you Swedes, but here in the UK we are feeling very negative about Europe and the EU generally. Majority of Brits I know don't even class themselves as European, so why should we hand over our sovereignty?

The EU = Waving goodbye to your FREEDOM!
14:25 December 16, 2011 by RobinHood
Please would Greece and Italy quickly vote themselves democratic goverments, instead of demeaning themselves with leaders appointed by foreigners. Imagine Greeks allowing themselves to be led by the nose like this. The proud birthplace of European democracy is now the graveyard. Shame on the EU for doing it, and shame on the Greeks and Italians for tolerating it.
16:17 December 16, 2011 by Ron Pavellas
The problem is simple, and the EMU/EU response is inadequate. The problem is too much government for the private sector taxpayers to support; the response is to print and borrow money and defer the solution (i.e., less government) until future politicians have to face re-election.
12:07 December 17, 2011 by viennacalling
the eurozone countries with the most amount of gold reserves are germany italy france holland and yes portugal, the total of the 5 is 9,321 tonnes, more than the usa with 8,133 tonnes sadly the uk has only 310 tonnes

the remaining 12 countries in the eurozone have 1110 tonnes

the euro will survive and will quickly recover when they the leaders create a Euro Bond where all countries borrow at the same rate
12:14 December 17, 2011 by Borilla
@ Jim Brown

It's Soros, not Sores. If you are going to throw names around, use the proper names. Are you the same Jim Brown that went to federal prison in Louisiana?
14:21 December 17, 2011 by cogito
@lonut"EU is all about one Europe, one vision, united we stand." (#7)

Whose vision? Stand against whom?

@Borilla #2

I hope all those vast-right-wing conspiracies don't keep you awake at night.
19:49 December 17, 2011 by wxman
"Why Sweden should stay out of the EU budget pact." Allow me to give the short answer: because it's frigging stupid! Why tie your economy to the lazy ghetto economies of the Mediterranian? They'll suck you dry of your wealth, like all parasites.
20:27 December 17, 2011 by BritVik
@viennacalling

the eurozone countries with the most amount of gold reserves .... sadly the uk has only 310 tonnes . . . the euro will survive and will quickly recover.

Yes, sadly the UK has little gold left, thanks to the sell-off at rock bottom price by one Gordon Brown, the same Brown who signed the UK up for even more 'eurocracy'. Thankfully Cameron has shown some bottle at last and said no to becoming further involved in the euro shambles. As to the euro surviving, that is a very moot point. Somehow I doubt it. There are too many different levels of culture and standard for a single currency to survive. There is also too much Brussels bureaucracy and financial waste that cannot be tolerated. Small wonder it has been nicknamed the EUSSR.
22:42 December 17, 2011 by Thomas VH
The European Experiment has failed. Europe tried to sell Swedes on joining the Euro not on the merits of the currency itself, but on philosophical grounds, that Sweden was part of a "greater Europe". Swedes rejected the Euro and, in doing so, also rejected the core argument of a greater Europe as well.

Those countries who created the Euro Zone, signed onto it, and drove it into the dirt are the ONLY countries that should deal with the outcome. If Sweden wishes to assist in any way, that should be done on the same grounds as development assistance, humanitarian outreach and other related programs for Third World countries in Africa, Asia and elsewhere.

To do otherwise, is to lie to Sweden's citizens about Sweden's role in the Euro Zone and in a "greater Europe". It would be dishonest at a basic level. I would only hope that Sweden's Moderat leadership will see that and react properly. If Germany and France wish to force Swedish participation, then that should be viewed as an aggressive act by countries, even if allies -- and a proper response would be to reject that outright and bring it into the public debate for nationwide discussion.

The Future of Europe is not Sweden's concern -- Sweden's security, economy and own future are the only goals.
09:49 December 18, 2011 by viennacalling
@britvik #18

yes i read that GB sold half the Gold Reserves way back in 98/99 at about US$300 per troy ounce that was a bargain for the buyers its now worth $1,700 per troy ounce and all UK Parliamentary Parties Agreed to the Sale !

So going forward as I stated the Euro will survive and recover when there is a Euro Bond where every EZone country borrows at the same Rate
17:11 December 18, 2011 by ionut
@cogito:Against SUN!Against FUTURE?Or you want to eat the whole cake all by yourself and not share it with the rest of us?

So let's see what is your proposition:1% using guns against harmless 99%?
17:28 December 18, 2011 by cogito
@ionut.

Huh? Totally incomprehensible and incoherent.

You are an excellent representative of the 99 percenters.
11:11 December 19, 2011 by ionut
cogito don't be a bastard.
15:36 December 19, 2011 by the fonz
@ no 18 & no 20.

Did you also know that tyhe price at which Gordon Brown sold the UK's gold is known as 'The Brown Bottom' ? I would also suggest that this is a perfect description of his time at the Treasury and No. 10.
22:22 December 19, 2011 by karex
@ionut

Responsible parents don't give their kids the whiskey bottle and the car keys until they are OVER AGE and the parents are sure that they have learned what it means to be responsible. THAT'S the big difference. Handing over a license to party without the receiving party first learning the first thing about understanding the consequences, or worse, expecting someone else to foot the bill is just an excuse to create more beaurocracy, to in turn justify creating more government jobs to run this inflated and needless beuarocracy at the expense of the taxpayers and benefits such as education, health and other "trivial" needs. Want to have a party? Great, finance it yourself and if in the process you wreck your house (or worse, not even your house but your parents'), it's your problem!
05:48 December 20, 2011 by viennacalling
@ #24 Hi the Fonz

I like that the Brown Bottom!

The Price of Gold yesterday was US$1,600 per troy ounce

if the EuroZone 17 sold 25 percent of their gold reserves they would still Hold More Gold than the USA and they could advance the funds from the Gold Sale to the ECB to start the process of a Euro Bond issue where all the 17 have an opportunity to Borrow at the same Rate

cheers
12:03 December 21, 2011 by Swedishmyth
Rejecting the Euro was a brief moment of clarity on Sweden's part. Who is the beneficiary of a bond between the productive and the lazy?
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