France and Germany want the stability and growth pact hurdle to move to zero percent by 2016

According to Spanish website Cinco Dias, France and Germany want to move from a 3% deficit target to balanced budget by the year 2016. The website said France is working with Germany to propose a deal which will include a balanced budgets and deficit limit in national constitutions along with additional facets to ensure supranational fiscal solidarity. This aim points to a clear intention by the two countries to present a deal on fiscal integration and priorities in the coming days.

My translation of Cinco Dias is as follows:

the French Minister of Budget, Public Accounts and State Reform, Valérie Pécresse, has confirmed that France and Germany are working on a revision of Europe’s Stability and Growth Pact with the aim of giving "greater discipline to the euro area" which includes the obligation to reach a zero deficit in 2016.

In an interview with French television channel France 2 collected by the French press, Pécresse stressed that all euro area countries should impose a zero deficit target."The golden rule is to return to balance in 2016," said the minister.

Note that an adjustment to balanced budgets throughout the euro zone would require either an exactly equivalent offset in private sector savings down and/or in the export sector up. So implicitly, Germany and France are calling for a rapid and massive private sector dissaving and/or reduction in the external value of the euro area currency. I see this as a pipe dream. More likely, the cuts in the public sector will lead to a deflationary spiral via bank balance sheet deleveraging. This proposal tells you that bad things are definitely going to happen in Euroland.

Source: Francia adelanta que el pacto de estabilidad exigirá déficit cero en 2016 – Cinco Dias

7 Comments
  1. socrates+ says

    i guess that eurocrats think that if they just say it, it will come true

  2. socrates+ says

    i guess that eurocrats think that if they just say it, it will come true

  3. frank c says

    Italy introduced a balance budget amendment today. This is all part of the German/France deal and the “two speed” euro.
    We will bail you out ( ie we will allow the ECB to quantative ease and or loan to the IMF or both) if you agree to a balance budget that will have severe sanctions for failure to comply.

    https://www.breitbart.com/article.php?id=D9RABS080

  4. frank c says

    Italy introduced a balance budget amendment today. This is all part of the German/France deal and the “two speed” euro.
    We will bail you out ( ie we will allow the ECB to quantative ease and or loan to the IMF or both) if you agree to a balance budget that will have severe sanctions for failure to comply.

    https://www.breitbart.com/article.php?id=D9RABS080

  5. Norme says

    Here’s an idea, how about they stop coming up with new proposals and act on the “more Europe” monetary union proposal already on the table. What the heck went on in Brussels? Back to the drawing board?

    If they are going to play brinkmanship with the markets, they will need lower cost fiscal funding. The ECB holds the key to that. The more they play, the lower their bond prices become. Still, ECB intervention does not reduce the risk of default with austere nations tax revenue. In fact, it makes the problem worse. Who will pay higher bond prices for a meager risk premium on high risk bonds?

    Printing, at least temporarily, is the”fast track” solution through participation in and submission to this voluntary funding program. It’s an interim step into developing the monetary union with a central funding facility (maybe the ESM.) It buys time to develop Draghi’s call for “implementation” and introduces peripheral nations to the idea of loss of sovereignty as the EC reviews and approves their fiscal budgets (no doubt with Merkel looking over their shoulder.)

    Now there is talk of the Fed doing what the ECB won’t do for itself: monetize debt…in a foreign currency, no less. Fed fiscal action sets the table for the dreaded hyperinflation event as EU sovereigns are strapped with debt denominated in US dollars.

  6. Norme says

    Here’s an idea, how about they stop coming up with new proposals and act on the “more Europe” monetary union proposal already on the table. What the heck went on in Brussels? Back to the drawing board?

    If they are going to play brinkmanship with the markets, they will need lower cost fiscal funding. The ECB holds the key to that. The more they play, the lower their bond prices become. Still, ECB intervention does not reduce the risk of default with austere nations tax revenue. In fact, it makes the problem worse. Who will pay higher bond prices for a meager risk premium on high risk bonds?

    Printing, at least temporarily, is the”fast track” solution through participation in and submission to this voluntary funding program. It’s an interim step into developing the monetary union with a central funding facility (maybe the ESM.) It buys time to develop Draghi’s call for “implementation” and introduces peripheral nations to the idea of loss of sovereignty as the EC reviews and approves their fiscal budgets (no doubt with Merkel looking over their shoulder.)

    Now there is talk of the Fed doing what the ECB won’t do for itself: monetize debt…in a foreign currency, no less. Fed fiscal action sets the table for the dreaded hyperinflation event as EU sovereigns are strapped with debt denominated in US dollars.

  7. Norme says

    A hard currency is just not resilient or flexible enough in times of stress. And there is a danger if the “hard” single currency goes “soft”, it might stay that way.

  8. Norme says

    A hard currency is just not resilient or flexible enough in times of stress. And there is a danger if the “hard” single currency goes “soft”, it might stay that way.

  9. Anonymous says

    The problem is that without governments running deficits then the private sector has to balance its books as well. That is not so hard for Germany with an export surplus but for countries with a trade deficit it is much harder. Sectoral balances matter. 

    1. Oz says

      Indeed… and if economic slowdown hits (i.e. tax receipts drop and unemployment claims rise), governments will be forced to frantically cut spending at precisely the worst time (just like they are doing now).

      Suicidal…

      1. Anonymous says

        It is completely suicidal but it is worse than that. It is being used as a way to undo a century of social progression and cramming down the 90%. The politicians talk about the squeezed middle when they are talking about scapegoating the poor. The problem is that with current policies the average wage will fall and that means that the vast majority will be poorer in twenty years time and they will still be blaming the poor when it is their own fault. 

  10. Anonymous says

    The problem is that without governments running deficits then the private sector has to balance its books as well. That is not so hard for Germany with an export surplus but for countries with a trade deficit it is much harder. Sectoral balances matter. 

    1. Oz says

      Indeed… and if economic slowdown hits (i.e. tax receipts drop and unemployment claims rise), governments will be forced to frantically cut spending at precisely the worst time (just like they are doing now).

      Suicidal…

      1. Anonymous says

        It is completely suicidal but it is worse than that. It is being used as a way to undo a century of social progression and cramming down the 90%. The politicians talk about the squeezed middle when they are talking about scapegoating the poor. The problem is that with current policies the average wage will fall and that means that the vast majority will be poorer in twenty years time and they will still be blaming the poor when it is their own fault. 

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