Debt Redemption Fund], European (European Redemption Pact, ERD): institution proposed by the German Council of Economic Experts in January 2012, in which EMU members contribute most of their government debt, for twenty-five years. The fund would manage these debts and ensure their servicing (servicing: interest payment and redemption) by allocating them to all members of the monetary union. This would communitize the liabilities of the deficit countries. However, this is incompatible with the non-bailout clause in Article 125 TFEU and would require special contractual arrangements and (at least in Germany) parliamentary approval. At present (spring 2014), however, Germany, Austria, Finland and the Netherlands are not yet prepared to do so. Moreover, the joint liability would have no corresponding influence on the financial behavior of the participating members, and nothing would force the debtor countries to take care of reforms and regain competitiveness. However, because the interest pressure of the financial markets would be removed from the highly indebted states, there would be no incentive to introduce inconvenient reforms involving cuts in acquired rights and possessions. In return for the reduction in the cost of servicing their debts – which is the result of joint liability, because countries with weak credit ratings benefit from the good creditworthiness of other liable members such as the Netherlands or Germany – the participants are to deposit foreign currency or gold as collateral and increase taxes; the additional tax revenues are to be used for the extinguishment of debts. – In political practice, this is unlikely to be enforceable, which is why the plan for a common debt pot ultimately turns out to be euro bonds through the back door. Moreover, the time limit of the pact is doubtful: according to all previous experience in European political business, the fund would become a permanent institution. – See bad bank, bail-in, deficit financing ban, Finland, euro bonds, common, European Financial Stabilization Facility, European Monetary Union, fundamental error, ECB sin, guarantee, moral hazard, Plan C, policy clamp, policy default, rescue Europeans, rescue routine, return ideology, debt union, safety net, global, stabilization mechanism, European, stand-by credit, transfer union, troika, constitutional article one, debt-productivity-linkage, contract fidelity, growth-debt fact, historical, monetary union 2, two-way option. – Cf. Monthly Report of the Deutsche Bundesbank, June 2012, pp. 8 ff. (sharp criticism of the proposed debt repayment pact, justified in detail).
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University Professor Dr. Gerhard Merk, Dipl.rer.pol., Dipl.rer.oec.
Professor Dr. Eckehard Krah, Dipl.rer.pol.
E-mail address: info@ekrah.com
https://de.wikipedia.org/wiki/Gerhard_Ernst_Merk
https://www.jung-stilling-gesellschaft.de/merk/
https://www.gerhardmerk.de/