The existing rescue mechanism for the euro is a completely inappropriate reaction to the weak fiscal policy of the countries in the currency union, according to the German professor Markus Kerber, who specializes in public finance and political economy. He stated that all measures to adress the crisis in Europe have only led to a temporary return of financial stability and that nothing was achieved in dealing with the underlying problem of a lack of fiscal discipline in the countries belonging to the currency union.
In a speech held in The Hague, he explains that the various measures taken since the start of the European debt crisis, such as the European Central Bank’s public sector purchase programme (PSPP) and the introduction of a European Stability Mechanism (ESM) have removed the incentive from countries to make thorough reforms and to balance their budgets. After all, thanks to these measures, they could borrow much cheaper than under normal circumstances.
Europe as a transfer union?
Instead of enforcing fiscal and monetary discipline, Europe has opted for various European emergency funds and for a central bank stimulus program, which has helped countries to deal with their financial problems. The ‘stronger countries’ of the currency union will eventually be bearing the costs of this experiment, according to Markus Kerber.
According to the professor, there is already a transfer union within Europe, which will only become stronger if the French President Macron gets his way and the European Stability Mechanism is upgraded to a kind of European Monetary Fund. This means that countries that run into problems can be indirectly supported by the central bank, a situation that will seriously affect trust in the currency union.
This video was recorded on 24 May 2018 in The Hague, Netherlands.