The European Union’s Latest Smoke and Mirrors Deal
Politics / Eurozone Debt Crisis Jul 07, 2012 - 12:35 AM GMT
Danny Esposito writes: The market cheered news out of the European Union that a deal was made to tackle this financial crisis head-on and provide capital to the Spanish banks. Forget the numbers for the moment; what is more important to note is that the money to help the Spanish banks is supposedly going to come from the European Stability Mechanism (ESM), which requires the approval of all 17 countries of the European Union in order to be enacted.
Immediately following the announcement, the dissenting countries of the European Union weighed in. The focus is always on Germany and how it looks like Germany caved to the needs of the European Union this time because the financial crisis is so severe. However, people ignore the other smaller countries of the European Union that remain under the radar: Finland and the Netherlands.
People tend to forget that Finland and the Netherlands are AAA-rated countries with low unemployment rates and stable economies. Certainly their economies have suffered and are continuing to suffer the effects of the financial crisis and the recession in the European Union; however, because they are sound, responsible economies that do not have high debt levels, they are tired of paying for other countries within the European Union that are neither sound nor responsible.
The European Union’s treaty states that the countries must maintain their budget deficits below three percent of gross domestic product (GDP). With the financial crisis, none of the countries have been able to adhere to this policy, not even Germany. In spite of slower growth, however, Finland made the sacrifices necessary to meet this target.
Since they are playing by the rules, they are tired of just being asked to pay up for countries that are unable to make the sacrifices necessary to right their economies.
Finland and the Netherlands believe that collateral from Spain and Greece are required to back any future loans. Whether it is in the form of gold bullion or other tangible assets, Finland and the Netherlands are afraid that if they lend the money, they will never be paid back.
Despite the announcement to fend off the financial crisis, the 17 nations of the European Union meet next week to hammer out the details of how the ESM will funnel money into Spanish banks.
With Finland and the Netherlands already wanting assurances and collateral, it promises to be a very interesting debate. This financial crisis is far from over, and despite this week’s announcement, the European Union is far from being close to a deal.
Many people may have been ignoring Finland and the Netherlands within the European Union, but as of next week, if they scuttle the deal, many more people will be hearing about these countries that are about to make their voices heard loud and clear.
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