41 / 169
LINES OF CONFLICT ON EU REFORM IN GERMANY
41
union on the basis of ordoliberal ideas stress the
overarching importance of internal currency sta-
bility (inflation) and external currency stability
(exchange rate) as the state-sponsored founda-
tion for efficient markets, which generate
growth and prosperity. So as not to endanger
this, fiscal policy for individual states in a cur-
rency union should have clear limits. Finally, it is
very important that incentives for incorrect na-
tional policy are eliminated as far as possible, to
minimise the risk of moral hazard.
This understanding of the functioning of a
currency union can be applied to an analysis of
the euro crisis. Thus advocates of a stability un-
ion stress that the debt and deficit limits of the
Maastricht Treaty and the Stability and Growth
Pact were not fully observed. A constant theme
is the alleged negligent policy of the crisis states
before the financial crisis, during which com-
petitiveness was lost, credit-financed consumer
and property bubbles were allowed to form,
and there was a delay in structural reform of the
labour market and long-term stabilisation of
state finances. Essentially, incorrect state-level
policy within the institutional framework of the
currency union is said to have caused the crisis.
Non-compliance with the required stability pol-
icy therefore led necessarily to the self-inflicted
economic crisis.
From this perspective, in a currency union
with efficient markets and free movement of
capital but restricted mobility of labour as a pro-
duction factor, the only variable for regaining
competitiveness must be a national price reduc-
tion through wage cuts. Foreign trade imbal-
ances, the key indicator in the euro crisis, are
also interpreted in this light. Countries with a
deficit, which import more goods than they ex-
port, had for years tolerated elevated wages and
rising inflation, thus allowing their competitive-
ness to be eroded. They could only finance their
unsustainable excessive consumption and high
standard of living through foreign debt.
In line with their views, proponents of a sta-
bility union as a solution therefore demand that
the Maastricht criteria should be more strictly
monitored and strengthened through national
“debt brakes”, as stipulated in the Fiscal
Compact, and greater and more direct interven-
tion capabilities for the currency union to en-
force national structural reforms in line with the
German model. To be consistent with this line of
thought, all conceivable mechanisms either to
cushion these adjustments by increasing unit
labour costs in the solvent countries or to allevi-
ate them through temporary transfers should
be rejected, as they would once again imply
moral hazard. If individual countries get into dif-
ficulties despite these strengthened rules and
direct intervention measures, there should now
be sufficient instruments in the European
Stability Mechanism (ESM) to prevent illiquidity
and to enforce the due reforms and cuts through
loan conditions, if need be. Some supporters of
these ideas even think that a state insolvency
code is necessary, to make the no-bailout rule
credible again, and to eliminate a key source of
moral hazard.
A fiscal union based on political design
In the debate about the correct structure and
control of a currency union, supporters of the
stability variant are in opposition to the advo-
cates of a fiscal union. This position is based on a
Keynesian belief in the need for state stabilisation
of demand when markets are in crisis, and a re-
jection of the assumption that lower wages in
this situation would lead to greater supply, which
would in turn lead to greater demand. However
if adjustments to interest rates and exchange