He decries the latest EU plan for a “fiscal entity” in the Five Presidents’ Report, fearing that such move would lead to a rogue plenipotentiary with unbridled powers over sensitive issues of national life, beyond democratic accountability.
Such a system would erode the budgetary sovereignty of the member states and violate the principle of no taxation without representation, forgetting the lessons of the English Civil War and the American Revolution.
Prof Issing said the venture began to go off the rails immediately, though the structural damage was disguised by the financial boom. “There was no speed-up of convergence after 1999 – rather, the opposite. From day one, quite a number of countries started working in the wrong direction.”
A string of states let rip with wage rises, brushing aside warnings that this would prove fatal in an irrevocable currency union. “During the first eight years, unit labour costs in Portugal rose by 30pc versus Germany. In the past, the escudo would have devalued by 30pc, and things more or less would be back to where they were.”
“Quite a few countries – including Ireland, Italy and Greece – behaved as though they could still devalue their currencies,” he said.
The elemental problem is that once a high-debt state has lost 30pc in competitiveness within a fixed exchange system, it is almost impossible to claw back the ground in the sort of deflationary world we face today.
It has become a trap. The whole eurozone structure has acquired a contractionary bias. The deflation is now self-fulling. Prof Issing’s purist German ideology has no compelling answer to this.
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