Mayers of the world economy: a life at the expense of the savers


    On the Website of the Federal Ministry of Finance, one can read that the stability and growth Pact (SGP) was concluded in 1997, “in order to guarantee sound public finances – an important prerequisite for the proper Functioning of economic and monetary Union”. The idea that over-indebted countries to force sooner or later the Central Bank to the monetary financing of its debt and thus the money value stability be undermined. In the meantime, you can look at the Pact but as a failure.

    In the first two years of the monetary Union (1999 to 2000) was the government’s budget deficit in the three major countries of the monetary Union (Germany, France, Italy) under the SGP requirement of three percent of gross domestic product (GDP), the rate of success for this criterion, therefore, at 100 percent. But already in 2001, the deficits in Germany and Italy more than three percent of GDP, and the success rate decreased to 67 percent (i.e., two out of three years, the deficit ratio was below three percent). From then on, the success rate fell with increasing age of the EMU in all three countries, up to 42 percent in 2010. In the economic recovery after the financial and Euro crises, the success of dispersed ratios for the deficit criterion in the three countries. In Germany and Italy, it rose again to 60 percent in 2018, while the rate in France slipped to 35 percent.

    Even less success was destined to be the three governments in compliance with the debt criterion. Only in Germany the debt ratio before entry into the monetary Union under the prescribed 60 percent of GDP. France succeeded in the boom years around the turn of the Millennium, to push the debt ratio in the years 2000 to 2001 60 percent and the success rate, therefore, in the short term, to the top. Thereafter, the debt ratio rose steadily, and the success rate declined over the years, up to 10 percent in 2018. Italy joined with a government debt to GDP ratio of 111 per cent of GDP in the currency Union pushed the rate up to 99.8 percent in 2007, before the increase in the Trend again, to a 133 per cent in the year 2018. The success rate for the debt criterion was in Italy constant at zero percent. In Germany, the debt ratio rose from less than 60 per cent in 1999 to more than 80 percent in 2010, but then dropped in the further course in the direction of 60 percent. However, the success rate of Germany decreased over time to 20 percent in 2018.

    As in the SWP for Exceedances of the deficit and debt ratios sanctions are provided for and the success rate is, in particular, for the stability of the currency is particularly important debt criterion alarmingly low, could have been a lot of penalties and expect. In fact, has been imposed in the history of the stability Pact, but still no penalty. Rather than a Pact with the bite of the SGP proved to be a Pact with Teeth that could be removed, if the course should be bite. Even the specific infringements of the Pact in the budget plans of France and Italy for the year 2019 will be very likely to lead to no punishments.

    Should the Eurozone economy in the future, in the recession, is expected to increase the level of debt in France and Italy more clearly. Simulation calculations (to be found on the Website of our Institute) show that a half of deep recession such as in 2009, would leave the debt ratio of Italy to 2021 to 144 percent of GDP. In France, this ratio would reach 109 percent of GDP. In contrast, the debt ratio could go back in Germany after a temporary increase in 2021 to the state by 2018.

    in view of the extremely high level of indebtedness in France and Italy, for their rescue from bankruptcy, the financial power of the European stability mechanism would not be enough, you will need the European Central Bank as a lender of last resort for States. Where, however, money is the financing instrument of the States, suffers the rule of the money value stability. German savers should their investment behavior to the “new normal” in the customize soft currency Union. That is to say: the way of investments in nominal assets (money and bonds) to assets in real terms. As for the majority of savers real estate investments, concentration risks, past stocks, no way. This requires, however, the courage, the associated with equity investments price to withstand fluctuations.