Home Interviews The Karlsruhe judges save the safety net

Mario Ohoven, president of the Federal Association of Small Businesses, and Member of the European Parliament Elmar Brok

Interviews with Mario Ohoven and Elmar Brok

The Karlsruhe judges save the safety net

A safety net designed to rescue overleveraged European nations from their economic woes has been rescued. On September 12, the Federal Constitutional Court decided in favour of the European Stability Mechanism (ESM), the permanent safety net for the euro zone. But does Europe need a safety net? Opinions on this point are split, as the ITN interviews show. The Member of the European Parliament and ESM proponent Elmar Brok (CDU) is certain that the thumbs-up from Karlsruhe will single-handedly save not only the European economy but also the global economy from a devastating crash. On the other hand, Mario Ohoven, president of the Federal Association of Small Businesses, says the ESM sets a bad precedent by making it easier to incur debt.

ITN: “Mr. Ohoven, why are the ESM and the European Fiscal Compact such battleground issues for small business?”

Mario Ohoven: “The ESM is sending exactly the wrong message to problem countries: Going into debt is no big deal, and austerity is a punishment. That has to do with the main design flaw of the ESM, which is the obligation for the additional contribution of 190 billion EUR and, above all, the lack of a time limit. That is the kind of bailout package businesspeople can only dream about, and it is the citizens and businesses of Germany who will be stuck with the tab when the guarantees are called. Then interest rates will rise, it will be harder for businesses to raise capital, and ordinary citizens will foot the bill in the form of increased taxes.”

ITN: “You have already predicted a kind of switchyard of debt that could come out of this. Why should Germany and small businesses in Germany be worried about this so-called ‘debt union’?”

Mario Ohoven: “Germany is moving toward a broader European policy union at a blistering pace, and at the same time, we are being saddled with enormous credit risks. So far the euro zone has accumulated 8.2 trillion EUR in debt, and of that, Germany alone accounts for 700 billion EUR. On top of that, the Bundesbank currently faces another 700 billion EUR in exposure to other central banks in the euro zone through the TARGET2 transfer system. And no one knows how many other countries – in addition to Greece, Portugal, Ireland, Spain Cyprus and probably also Slovenia – are going to need help from the EU in the future. For the sake of comparison, the German federal budget this year is approximately 313 billion EUR. So whether we are looking at Euro bonds or debt funds, however you look at it, it boils down to a communitarisation of EU member debt. If it goes on like that, eventually Germany, Finland and perhaps Luxemburg and the Netherlands are left as the de facto creditors and guarantors for all the EU member states. Not even the strongest national economies could support that.”

ITN: “There are proposals to use EU rescue funds not only to recapitalise distressed banks but also to buy government debt from insolvent euro zone countries. Does this prospect make you angry?”

Mario Ohoven: “Not angry so much as sceptical. Buying out those loans would be a clear violation of the rules spelled out in the Maastricht Treaty, but the thing is, a lot of the other proposals under consideration would violate those rules as well. So we really have to ask ourselves in general what the point of these treaties is. It seems in the context of the EU debt crisis the old maxim ‘agreements must be kept’ just does not hold.”

ITN: “In your view, are there alternatives to the ESM and the fiscal compact that could get the EU financial crisis under control and bail out the countries that need help? Does politics play a role here at all?”

Mario Ohoven: “Politics always plays a role in negotiations. Above all else, Brussels and the national governments need to take decisive action to reduce indebtedness. At the same time, the distressed countries need some basis for growth. For that reason we enthusiastically support the 130 billion EUR growth package that was agreed upon at the most recent summit. Ireland’s situation clearly shows that austerity and development are not mutually exclusive. At the same time, we have to rein in capital flight, since countries like Greece and Spain are threatened by systemic underinvestment. One possibility would be to introduce parallel currencies on a temporary basis. In Greece’s case that would potentially prevent a total collapse.”

ITN: “What is your position on eliminating the euro and establishing greater fiscal sovereignty in the EU nations?”

Mario Ohoven: “A vast majority of small businesses in Germany – about 85% – come down in support of the euro. That number comes from a recent survey conducted by the BVMW. However, 60% also say that not all EU countries should get to stay in the EU. So I do not think we should necessarily regard Europe as inseparable from the euro. Having a common currency can certainly facilitate the process of unifying Europe, but it need not and should not be a goal unto itself.”

ITN: “Mr. Ohoven, thank you for your time!”

ITN: “Mr. Brok, why does Europe need the permanent rescue fund (ESM) and the Fiscal Pact? Are there alternative measures to be taken?”

Elmar Brok: “In politics there are always alternatives. The media are already discussing a number of alternatives, including a division into a ‘north euro’ and a ‘south euro’, the temporary exclusion of Greece and a reintroduction of the Deutschmark. However, all of these alternatives involve some kind of division of the EU. Furthermore, those options are less economically viable than mutual support and joint restructuring of our economies. Exchange rate risk among European states would weaken trade within Europe and could jeopardise the international competitive position of countries that are currently in a strong position. So I just do not see these as alternatives worth pursuing. The ESM is a tool for bringing about the fiscal and structural reforms that are needed to prevent future crises. The Fiscal Compact as well as the so-called Six-Pack and the European semester are intended to enforce future compliance with agreed-upon rules. We need all of this to prevent a worldwide economic collapse, which would be disastrous for Germany.”

ITN: “Can you briefly explain the core elements of the euro relief measures and what makes them useful?”

Elmar Brok: “The ESM has 80 billion EUR in original capital, around 22 billion EUR ofwhich Germany is contributing. In total, it provides 700 billion EUR in guarantees. So it offers eurozone countries fiscal support and imposes crisis management conditions. These tools are flexible and allow us to respond quickly to unexpected problems, which is necessary in today’s business world. The requirement that countries requesting assistance implement a structural adjustment programme will help make European countries more competitive. The Fiscal Compact, in turn, operates on the principle of fiscal soundness. It will strengthen the rules imposed by the Maastricht Treaty and cultivate economic and fiscal cooperation. Provisions for quasi-autonomous sanctions and consequences make the Fiscal Compact a powerful and effective tool. These are all necessary conditions for European solidarity and for developing a viable EU-wide policy that will encourage growth and job creation.”

ITN: “What do you say to the critics who claim that the ESM bailout is nothing more than an inexorable move towards communitarisation of public debt and that the Fiscal Compact would lead to excessive centralised control of national budgets?”

Elmar Brok: “We must accept that we are operating in a global economy, not a national one. The story of globalisation is that of increasingly intertwined economies and consequently of decreased economic autonomy on the part of individual countries. A crisis originating in the United States was imported to Europe and has just about brought the EU to its knees. Germany and other countries are opposed to communitarisation of liabilities, and we will stand by our objections until more communal controls can be implemented. The Fiscal Compact is a step towards strengthening the old rules, which are necessary to preserve the foundations of a common currency. There is really an extreme naïveté on the part of factions demanding a return to national rule. We cannot allow budget holes to let us question the basis for 60 years of peace, freedom and prosperity. We have monumental decisions to make. Europe must stand together or perish in the new world order.”

ITN: “Mr. Brok, thank you for your time!”

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Related Keywords

Debt Crises

Euro Crisis

Government Debt

Small Business

European Fiscal Compakt

European Stability Mechanism

ESM

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