Theo Weigel, Germany's former finance minister, expresses his displeasure in today's Wall Street Journal (online subscribers can access the article here).
According to the official statistics, Germany's public debt amounts to 65% of gross domestic product. However, Germany's council of economic advisers calculated in 2003 that, including future liabilities for social security and health care, the actual figure comes to 250% of GDP. In the face of this gigantic burden for future generations, the Maastricht criteria should be tightened and the Stability Pact rules applied even more strictly. Instead, Europe's leaders meeting in Brussels displayed a cynical disrespect for those generations that will follow us by embarking on an irresponsible policy of fiscal folly...
Today, German Chancellor Gerhard Schröder and Finance Minister Hans Eichel celebrate their fiscal fall from grace as an "economic success." In reality, they are taking a knife to the roots of the new currency instead of spreading confidence by upholding the agreed-upon rules.
This was the theme of a Caroline Baum article of a few days ago, but Bernard Godement offered this opinion in a comment to my post on the subject:
However, I suspect that the reason why the Euro is not so attractive in recent times has little to do with the stability pact's fortunes. After all, that is not news, we have known since early last fall that the stability pact was deceased, the coroner had simply not written its report yet (and currency traders are usually a little bit faster than 6 months). As for the state and prospects of public finance in major European countries, we have known that forever, haven't we, so why today, why not two years ago ?
What I think happened over the past two weeks is that people have suddenly realised that chances are that France will say no to the European Constitutional Treaty. Last fall, opinion polls were giving a yes vote upwards of 65%, gradually decaying. Two to three weeks ago, for political reasons internal to France, opinion shifted violently towards a no vote which now gets 53%-55% in opinion polls. Such an evolution had been predicted by a few politically astute observers, but they were not the majority, and I believe that few outside France were really watching. This shift in polls has suddenly gone to the frontpage in the European press, not just France's. The prospects of a crisis in Europe is surely a negative to the Euro.
Earlier in the week David K. Smith made a similar observation.
We even have polls raising the prospect of a French referendum rejection of the EU constitution (France came close to saying no to the Maastricht treaty 13 years ago). The constitution debate is hotting up. Last week Professor Roland Vaubel and 100 other notables from European think-tanks and universities published a round-robin letter calling for it to be rejected...
.. Optimists would say that once the vote is out of the way, things will be back on track. I would not bet on it.
Stay tuned.