The Biggest Poker Game Ever: Will the European Debt Package Really Work?

• Print
• E-Mail
• Feedback

The bailout package will massively alter the character of the euro zone. Until now, every country was responsible for balancing its own budget. The stability pact was to prevent budget deficits from growing too large. But it didn't work.

Before now, it was also inconceivable that strong member states would come to the rescue of those on the verge of insolvency. In fact, the so-called "no-bailout clause" of the Maastricht Treaty specifically stated that the community would not assume the debt of individual EU member states.

As Krämer sees it, the bailout package is transforming the currency union into a transfer union. "The aid package is putting an end to the Maastricht model of a currency union," he says, warning that keeping this framework in place for long could harm the EU both politically and socially.

Kai Carstensen, an expert at the Munich-based Ifo Institute for Economic Research, is ever more searing in his criticism. "The measures," he says, "go against the spirit of the pacts." He fears that states will no longer feel any pressure to lower their deficits. Like Krämer, he is calling for euro-zone members to implement radical savings plans, though he is at least encouraged that the EU countries on the verge of insolvency once again pledged to do so on the weekend.

"Should they not massively reduce their debts," says Carstensen, "the problems will only be bigger three years down the road … because the stronger countries are currently guaranteeing the debts of the weaker ones." Europe's heavyweights -- Germany and France -- could be taking on more than they can handle, he says.

Boysen-Hogrefe sees the danger as manageable. "I think that the funds are primarily meant to serve as a signal to the markets," he says. "Chances are that not much of it will be needed at the beginning." And even if it is, he adds, the money won't be lost. What's more, he says, "if things go well, Germany could even turn a profit."

• Back
• 1
• | 2
• | 3
• | 4

• Part 1: Will the European Debt Package Really Work?
• Part 2: How does the EU aid package work?
• Part 3: Will the Measures Work?
• Part 4: How Will the Agreement Affect the Currency Union?