Inquiring minds are investigating proposals by the German economy minister regarding creation of a non-political ‘stability council’ for EU

Germany has proposed the creation of a new EU ‘overseer’ that would crack the whip and impose sanctions on countries that do not adhere to rigid budget discipline and pro-business labour policies.

The country’s economy minister, Philipp Roesler, on Tuesday (10 August) told reporters that the bloc should create a new EU institution, a ‘stability council’, of unelected supervisors that would ensure member states that stick to budget temperance and limit debt and keep in check debt growth.

This council should be given the power to slap sanctions on countries to ensure they cut their deficits and monitor use of financial assistance. The plans would also require that a German-style ‘debt brake’ be written into national constitutions.

But the new body would also be empowered to carry out ‘competitiveness tests’ amongst eurozone states to see if labour market policies are sufficiently competitive. The tests would also assess the innovation climate.

Roesler said that Germany would be bringing the proposal to the next meeting of EU finance ministers.

However, it appears that the minister, head of the free-market-liberal Free Democrats, has not cleared the ideas with his Christian Democrat coalition partners.

“This is an opinion of the ministry and not a government position,” the Financial Times Deutschland reported government officials as saying.

I am curious. How do the “unelected supervisors” get selected for membership on the a ‘stability council’. Are names drawn out of a hat? Who puts the names in the hat? Would the governments of all the countries in the EU accept the crack-the-whip authority of the council? Would all the governments be willing to put German-style ‘debt brakes’ in their respective constitutions. Would German voters go along with this scheme? Does Germany even honor its own ‘debt brake’?

As usual, all these proposals flying around raise more questions than answers. However, I will make an attempt to answer that last question. Please consider

Analysis: Debt brake may be one German export too many

Late last year, the Bundesbank and the government’s “wise men” panel of economic advisers, criticized Merkel’s coalition for violating the spirit of its own debt-brake law after Berlin refused to adjust its consolidation plans to take into account better-than-expected 2010 tax revenues.

Had it done so, its scope for new borrowing in the coming years would have been sharply reduced because 2010 is used as the base year for its goal of cutting the structural deficit to 0.35 percent of gross domestic product (GDP) by 2016.

Signs of backsliding are also evident in Germany’s most populous state, North Rhine-Westphalia, where a regional court is threatening to block plans by the minority government of Social Democrats (SPD) and Greens to sharply increase borrowing — in part to cover losses at regional Landesbank WestLB.

Who is going to crack-the-whip on Germany? I have one final question. What will the German bankrolling of the bailouts of Italy, Spain, Portugal, Ireland, and Greece do to its own debt problems?

Mike “Mish” Shedlock

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