express– And Hans-Olaf Henkel fears EU leaders are repeating the mistakes of the past by using the pandemic as an excuse for running up huge debts rather than prioritising fiscal discipline. The former President of the Federation of German Industries (BDI), who stood down from the European Parliament in 2019, was speaking in response to similar warnings by Sebastian Becker, Deutche Bank’s senior economist and vice-president.
Mr Henkel told Express.co.uk: “Of Course, Deutsche Bank is right about its warning about the eurozone repeating their mistakes of a decade ago.
“In 2010 the ECB violated the Maastricht Agreement by bailing out Greece.
“It was the Deutsche Bank who, along with the French President of France, Nikolas Sarkozy and others, put a lot of pressure at that time on the German Chancellor Angela Merkel to agree to a what was then labelled a ‘one-time exception’.”
Nevertheless, what had followed were further exceptions, both to Greece in the form of more cash, as well as similar payments to other countries, Mr Henkel explained.
He added: “The rationale for justifying these outright violations of previous treaties was to ‘save the Euro’, and if that didn’t suffice, to save Europe“.
Mr Becker is also right when he states that in the following years the eurozone missed the opportunity to achieve balanced budgets.
“While a decade ago ‘rescuing the Euro, the EU or even Europe’ was used to justify transfers to rather undisciplined countries via the ECB, today COVID-19 is used as an excuse for even larger transfers and much higher debts.”
Even Germany, led by Chancellor Angela Merkel, was casting aside its famous budgetary discipline by pouring money into huge investment projects, additional social benefits and further support to southern Europe via the European Central Bank, Mr Henkel pointed out.
He said: “What is worse, the German Finance Minister and Candidate for Chancellorship of the Social Democratic Party (SPD), Olaf Scholz, himself openly suggests that the COVID-19 Emergency Program (EPP) not to be an exception or a one-time reaction to the pandemic, but it should be the financing model of the EU in the future!
“While I support the general analysis of the Deutsche Bank of today, I wonder where they were when all these political decisions were made.
“Rather then criticising the ECB or the Governments for their decisions, they applauded them each and every time.”
Mr Henkel added: “When a decade ago the chief economist of the Deutsche Bank, Thomas Mayer, repeatedly warned about the long-term impact of the decisions taken to ‘save the Euro’ by the ECB, Brussels and Berlin, his management was apparently not amused and he decided to quit.
“Ever since I have little respect for the co-called ‘Chief-Economists’ of Banks.
Speaking last week, Mr Becker claimed European nations risked repeated the same mistakes made in the wake of the global financial crisis a decade ago.
He said: “Credibility could become an issue as most governments were not able to achieve balanced budgets in the ‘golden’ pre-pandemic years characterised by robust growth, booming labour markets and an ever falling sovereign interest bill.
“Indeed, advanced economies have never achieved a balanced budget on average for the past 30 years.
“A continued and careless buildup of debt can potentially lead to self-reinforcing loops of high debt and high risk premium, which do turn explosive at one point.”
Such a point could be reached at 130 percent of GDP or more – levels already breached by Italy and Greece.
He added: “These extra debts will have to be redeemed one day – either through newly introduced EU taxes or additional contributions by national member states.
“From a debt sustainability perspective, the loss of fiscal transparency and accountability at the member state level opens the door for moral hazard and careless national fiscal policies.”