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The Fourth Reich - A Blog from Freemont Group

Freemont Group
30 May, 2012

After the narrow defeat of Nicolas Sarkozy by Francois Hollande, France is in for another round of big spending government heroin. A lost opportunity just as Sarkozy, by no means a fiscal conservative, seemed to see the light. During his campaign, he even replied to Hollande's calls for a 'European growth pact', a euphemism for 'Let others pay the bill of our welfare state', that “The only way for France to recover control over its destiny is to repay its debts.” 

All over the EU it appears that the people of Europe do not want austerity. In Greece extremes on both sides of the political spectrum made massive gains during last month's elections. While everybody was upset about the victory of the far right party Golden Dawn, a more moderate anti-EU sound was completely ignored: the Independent Greeks.

The Dutch government fell in April over so-called austerity measures that were more about tax increases than anything else. The plan was still adopted by a make-shift coalition of the ruling conservatives and Christians with support of several left-wing parties. Elections are planned for September and again the extremes on the left and right are likely to be rewarded.

Political pundits view the French election results in the same light: the general populace is sick and tired of austerity measures. However these commentators are misguided: what is passed on as austerity does nothing of the sort. Reducing a budget deficit under 3% does nothing to reduce government debt. It merely reduces the speed by which it increases. A rapport form the European Commission shows that from 2007 to 2012 only one out of 27 EU member states reduced its government debt as percentage of GDP: Sweden. The average budget deficit among Euro states is proposed to fall from 4.3% last year to a 'mere' 3.5% of GDP in 2012. How this can be sold as austerity baffles common sense.

Yet it becomes slightly more understandable given the fact that tax rates have steadily increased in the entire European Union since 2007. It is the pain of increased taxation and the economic downturn that is falsely associated with the word austerity.

The growth of government is directly linked to the economic crisis. According to EU statistics, average government budget to GDP ratio in the EU surpassed the 50% mark for the first time in 2010. In other words, the EU is now 50% planned economy and only 50% free market.

But politicians all over Europe have refused to take responsibility by reigning in government spending, and instead have opted to outsource their bill to Brussels. The result is the most monstrous EU institution ever created: the European Stability Mechanism. This unelected, unaccountable European institution can demand unlimited funds from any Euro state in order to help another.

Instead of ruling over national budgets, politicians will soon engage in a European game of musical chairs, where every country will have to compete for ESM funds. Just like the game, at the end of the day there won't be anything left to take; it will be just as horrible a sight as the Eurovision song festival.

The treaty that oversaw the creation of the ESM was formulated in such a way that it bypasses referenda in most Euro states, similar to rephrasing the rejected European Constitution into the Lisbon Treaty. Yet the ESM has not yet been ratified. Again Eurocrats have cleverly bypassed democratic checks and balances. Where the Lisbon Treaty still had to be ratified unanimously in order to be enacted, the ESM treaty only has to be ratified by countries representing 90% of paid-up capital: it could only take four or five countries to ratify the ESM in order for it to be launched.

As it stands now, only France and The Netherlands have surrendered their sovereignty. Ireland is to hold a referendum this week, and another one should they give the wrong answer. Germany, by far the biggest ESM contributor, has yet to ratify it. Since it is seen as a constitutional issue, the ESM will need a two-third majority in both houses of parliament. Chancellor Merkel is working hard to make that happen.

Calling the ESM Germany's attempt at creating a Fourth Reich is obviously an exaggerated comparison, but not too far beside the truth since Germany will hold all the cards. And as long as the people of Europe are not willing to really swallow the bitter austerity pill, they will get the autocratic politicians they deserve.

About the Author

Freemont Group

Freemont Group is a comprehensive provider of fiduciary services, including corporate formation and administration, trust, fund formation, legal-and tax services. Contact: info@freemontgroup.com


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