When things go bad everyone looks for someone to blame. In the case of the euro-crisis that someone (for the moment at least) is former German Chancellor Gerhard Schröder.
An article released this morning accuses Germany of undermining the Stability and Growth Pact for its own gain – and to everybody else’s detriment.
The Stability and Growth Pact was created with the intent of keeping the common currency secure and was to act as the guarantor of a stable euro. It originally required European countries to keep total national debt below 60% of Gross Domestic Product and budget deficits below 3%. Any violation would result in a preliminary warning from the European Commission, which was then to be followed by a financial penalty if the issue continued.
As the twenty-first century began Germany was finding it difficult to adhere to these conditions. The German economy was stagnating, with growth persistently lingering around zero. Both the budget deficit and the unemployment rate were on the rise. As new documentation is said to prove, instead of introducing austerity measures in order to stick to the Stability and Growth Pact guidelines Chancellor Schröder instigated a two year campaign to change them.
In order to adjust the Growth and Stability Pact to suit German financial needs Schröder had to convince his reluctant finance minister, struggle with a stubborn European Commission and cajole partner countries into agreement. Although many countries were steadfast in their commitment to fiscal conservatism, Schröder managed to secure the support of the three biggest member states of the euro-zone. Together they quashed the opposition and the pact was altered.
Soon after, with confidence in the regulations undermined, some countries abandoned their previous efforts to limit spending.
Just two years after Greece was plunged into financial chaos the Fiscal Pact was agreed. Euro-zone member states reversed the 2005 measures which so dangerously weakened the Growth and Stability Pact before making its terms stricter than ever.
As Spain and Italy can attest, that action may have been a case of too little too late.
Seven years after Schröder’s success it is now considered by some that the revised, weakened Growth and Stability Pact is to blame for the current crisis.
With rather damning documentation being brought into the open, the condemning eyes of Europe may be directed at Schröder for some time.