Authored by Mike Shedlock via MishTalk.com,

The EU never enforced its Growth and Stability Pact or Maastricht Treaty rules. The crisis is coming to a head with France and Italy in the spotlight. The first casualty will be Green policy.

Image composite by Mish from the European Commission Compliance Tracker

Compliance Rules

1. Deficit rule: a country is compliant if (i) the budget balance of general government is equal or larger than -3% of GDP or, (ii) in case the -3% of GDP threshold is breached, the deviation remains small (max 0.5% of GDP) and limited to one year.

2. Debt rule: a country is compliant if the general government debt-to-GDP ratio is below 60% of GDP or if the excess above 60% of GDP has been declining by 1/20 on average over the past three years.

3. Structural balance rule: a country is compliant if (i) the structural budget balance of general government is at or above the medium-term objective (MTO) or, (ii) in case the MTO has not been reached yet, the annual improvement of the structural balance is equal or higher than 0.5% of GDP, or the remaining distance to the MTO is smaller than 0.5% of GDP.

4. Expenditure rule: a country is complaint if the annual rate of growth of primary government expenditure, net of discretionary revenue measures and one-offs, is at or below the 10-year average of the nominal rate of potential output growth minus the convergence margin necessary to ensure an adjustment of the structural budget deficit in line with the structural balance rule.   

Deficit Disaster Zones

France and Italy are major disasters right now on the budget deficit rule. France has a budget deficit of 7 percent and Italy 5 percent.

France needs to reduce its deficit by a whopping 4 percent of GDP!

Neither Italy nor Greece should never have been allowed in the EMU (European Monetary Union – Eurozone) in the first place.

Greece has a debt-to-GDP ratio of 170 percent. The target is 60 percent.

But the lead chart tells the picture. Only the Scandinavian countries are in compliance.

Looser Rules Postpone the Crisis

On February 10, the EU agreed to Looser Fiscal Rules to Cut Debt, Boost Investments.

The latest revamp of two-decades-old rules known as the Stability and Growth Pact came after some EU countries racked up record high debt as they increased spending to help their economies recover from the pandemic, and as the bloc announced ambitious green, industrial and defense goals.

The revised rules allow countries with excessive borrowing to reduce their debt on average by 1% per year if it is above 90% of gross domestic product (GDP), and by 0.5% per year on average if the debt pile is between 60% and 90% of GDP.

Countries with a deficit above 3% of GDP are required to halve this to 1.5% during periods of growth, creating a safety buffer for tough times ahead.

Defense spending will be taken into account when the Commission assesses a country’s high deficit, a consideration triggered by Russia’s invasion of Ukraine.
The new rules give countries seven years, up from four previously, to cut debt and deficit starting from 2025.

Note that the EU can tweak enforcement but not the baseline Stability and Growth Pact targets themselves without unanimous agreement, and a new treaty.

With that background, let’s look ahead to the crisis that looms as described by Eurointelligence.

Europe’s Next Financial Crisis

We would like to alert our readers to a theme that has been preoccupying us for a while – the possibility of another financial crisis in Europe. We have generally been restrained in our warning of financial crises. The main exception was the global financial crisis and its cousin, the euro area’s sovereign debt crisis. Fifteen or so years later, we see another financial crisis ahead here in Europe: a crisis of the European social and political model with deep consequences for fiscal and financial stability.

The canary in the coalmine is the overshooting budget deficits in France and Italy, at over 7% and over 5% for 2024 respectively. These numbers are a symptom, not a cause. Behind them lies a lack of economic growth needed to sustain Europe’s social model. Germany’s fiscal policy could not be more different than that of France or Italy, and yet Germany is afflicted by the exact same problem.

The European model was powered by oligopolistic industrial companies, which were heavily supported by the state through regulation that tilted the level-playing field in their favor. The German car industry is a classic example, but everybody did this.

What is killing this model now is a shift in technology and geopolitical fragmentation. Of the two, we would argue the first is the more important. More and more functions in our lives that were previously the realm of purely mechanical processes are nowadays wholly or partially digitalized. Barriers of entry have collapsed. China went from zero to the world leader in electric cars.

European companies no longer generate sufficient profits to fuel the social model – and to fund long-term research. It is no surprise that Europe has only very few tech companies. In short, Europe’s oligopolistic old-tech model no longer works in a digital world. We have been reporting on the attempts by the EU to stem against technological developments through regulation. But this is a way of addressing symptoms, not causes.

After the multiple global shocks of this decade, the consequences of Europe’s technological decline translate into lower potential growth rates. Italy came first. Its productivity growth has been near zero since it joined the euro. The UK’s productivity growth slumped after the global financial crisis, and never recovered since. Germany’s productivity growth is unlikely to recover, even if the economic cycle does. The German Council of Economic Experts see a potential growth of around 0.5% until the end of the decade. With productivity growth that low, Europe’s model has become financially unsustainable. It is unsurprising that the political system is fragmenting everywhere. The argument for sustained deficits, in France for example, is that you need them to keep Marine Le Pen out of power. This means they will persist.

We have a fiscal crisis ahead, caused by a combination of falling productivity growth and political gridlock. Technology is the main cause of the decline. Geopolitics is what accelerated it. The solutions we have been advocating over the years – a joint fiscal capacity, a capital markets union, joint defense procurement to neutralize the rise in defense spending – are further away than ever. Unless one of these parameters change, a financial crisis is a very plausible scenario. 

Spotlight France

France has a budget deficit of 7 percent but wants to fund a European army to fight Russia.

How is that supposed to work?

Spotlight Green Fantasies

The EU has adopted ambitious Green policies that will cost much more money than has been budgeted.

How is that supposed to work?

Targets Won’t Be Met

You can take those Green targets and throw then into the ashcan of ideas that never should have been set in the first place.

Even if you give France 7 years to be deficit compliant, how is France supposed to cut back a whopping 4 percent of GDP?

What’s the Basic Problem?

Eurointelligence says “Technology is the main cause of the decline. Geopolitics is what accelerated it.”

Technology is not the problem. The Maastricht treaty that created the Eurozone is flawed. And it cannot be fixed without unanimous agreement.

Given productivity and work rule differences, one interest rate set by the ECB cannot serve Italy, France, Greece, and Germany.

Add to that, EU nannycrat rules. The EU is more interested in cracking down on Google (Now Alphabet GOOG), Apple (AAPL), Facebook (now Meta Platforms META), and Microsoft (MSFT) for alleged monopolies than developing anything.

The EU Is Dysfunctional

In a single word, the EU is dysfunctional. That’s the problem, not technology. The Maastricht treaty itself is a big part of the reason the EU is dysfunctional. The Euro itself, with one common interest rate, is fundamentally flawed.

Companies like Alphabet, Meta, Microsoft, and Apple could not exist in the EU because in the name of competition and diversity, the EU would kill them before they ever got big enough to matter.

EU rules make it impossible to fix the basic problem. So the EU has resorted to nannycrat rules to regulate US and Chinese companies instead of fixing anything.

Technology, including AI, and geopolitics is now accelerating the basic problem, the EU is dysfunctional by treaty. It’s showing up in polls everywhere.

European Parliament Polls in France

EP France Polls from Wikipedia

Marine Le Pen’s National Rally is clobbering Renew/Modem by a whopping 12 percentage points, 30-18.

This chart is for France only, not the entire parliament, but it reflects on French President Emmanuel Macron’s sinking popularity and the sinking centrists in general.

A War Economy

As a way to create jobs, EC President Charles Michel promotes a war economy.

In a preposterous proposal to deal with growth, The European Council President Calls on Europe to Switch to a War Economy

I have a suggestion. Let US senator Lindsey Graham and EC president Charles Michel lead the charge.

Instead of fixing Germany’s aging infrastructure, attempting to compete with the US on AI, or competing with China on anything, EC President Charles Michel promotes war as growth.

It’s Time for a New Strategy

Please note German Chancellor Olaf Scholz is refusing to send Taurus cruise missiles to Ukraine.

On March 16, I commented Ukraine Won’t Win the War, It’s Time for a New Strategy

There’s Solidarity, Then There’s Solidarity

Poll after poll shows support for Ukraine. Every one of then is flawed because they fail to ask “how much are you willing to pay.”

There’s solidarity in the EU, but it stops with wheat and weapons. In the US, Biden is desperate for the war to go on. But he still has no goal. Is Biden’s goal the same as Zelensky’s: “The war will not be over as long as Crimea is occupied.”

We don’t know because Biden won’t say. Biden also will not say how much he is willing to commit. Is it another $150 billion or is it $1 trillion or more?

Meanwhile, prepare for carnage of the center, Greens, and warmongers in the next European Parliament elections.

A fiscal crisis awaits. The first casualty will be Green energy policies.

Authored by John Cody via ReMix News,

Following a long legal battle, Germany’s public health agency, the Robert Koch Institute (RKI), has released the confidential protocols that show the RKI was aware that “lockdowns cause more harm than good” and evidence for “making masks mandatory was lacking.”

The RKI voiced concerns in 2020 that shutting down German society could lead to increased child mortality and other negative outcomes. The RKI experts also disagreed with the implementation of FFP2 face masks, saying there was a lack of data to support such a measure.

“Active communication would make sense in order to make clear why the RKI does not recommend this measure,” notes the minute regarding implementing FFP2 mask regulations. The agency even notes in the minutes that it would tell the public it did not support FFP2 mask regulations, but notably, the agency never did so despite mass protests against mandatory masks and other harsh measures.

The 2,500 pages of documents also contain a passage noting that experts warned that lockdowns could “do more harm than good,” with experts citing lockdowns in Africa and the negative outcomes seen there.

The documents have revealed that German politicians dramatized the situation, contrary to the opinions of experts. This was done presumably in order to implement coercive measures and restrict basic rights. There are now calls to release the rest of the documents, as more than a thousand passages are still redacted, representing a third of the total text dating from meeting notes from the “crisis unit” taken between February 2020 and April 2021.

The release of the documents has sent shockwaves through Germany and led even left-wing parties, such as the Greens, to call for a “comprehensive review” of coronavirus policy. Other parties, like the Alternative for Germany (AfD), are calling for more action, including a commission investigation.

Politicians are urging the RKI to lift the redactions and make all findings available to the public, and further court proceedings are pending. In the meantime, debate continues to rage, with the #RKIFiles tag on X already generating 45,000 posts.

An example of just a couple of posts shows the anger many Germans still feel towards the coronavirus-era policies put in place.

“The Bavarian state government tortured children with masks until spring 2022 — even in physical education classes. Not because there was scientific evidence for it, but because Markus Söder liked the role of coronavirus hardliner. #RKIFiles,” wrote one X user.

Another showed video of police brutalizing protesters demonstrating against Covid-19 measures, writing:

“It’s good that the RKI protocols are included in the broader discussion! But there can be no such thing as cheap forgiveness. With the coronavirus, 2/3 of Germans became massively aggressive against 1/3. The handcuffs must click on the main criminals.”

Gut, dass die #RKIProtokolle in die breitere Diskussion gelangen!
Aber billiges Verzeihen darf es nicht geben.
Bei Corona sind 2/3 der Deutschen gegen 1/3 massiv übergriffig geworden.
Bei den Hauptverbrechern müssen die Handschellen klicken!#RKIFiles pic.twitter.com/Eo8lKTWVko

— SIGGI (@SiegmundFrei) March 25, 2024

Virologist reacts to report

Virologist Klaus Stöhr, once the WHO pandemic commissioner, said the revealed protocols once again show that the “risk assessment was not based on data.” According to Stöhr, “his hair stood on end when it came to (Germany’s) pandemic plan.”

Stöhr also commented on the fact that the RKI protocols uncovered that experts were telling the government that there is little data to support widespread mask adoption for the public.

“And the fact that what was known about FFP2 masks was completely ignored is just two small building blocks.” There was “a lot more data available where it was seen that the work was not based on evidence,” he said.

The scientist referred to “curfews, border closures, 2G/3G (areas restricted based on vaccination status), and the side effects of lockdowns” as further examples of this. Stöhr noted that “these are all things that were known – including that the vaccines could not halt the spread of the virus.” He said that the vaccines could not end the pandemic, and it was “clear from the beginning that the vaccine couldn’t do that.”

He is now calling for a commission or review process to avoid the mistakes made by the government during the Covid-19 era in the future.

Virologist Hendrik Streeck, who was appointed to the RKI expert council, also stated: “I’m very surprised that entire pages about vaccinations, for example, were blacked out,” he said to Welt. “And I wonder what it says, why the public shouldn’t see it.”

Lauterbach in panic mode?

Federal Health Minister Karl Lauterbach (SPD) reacted with horror to the findings in the report. As federal health minister during a significant portion of the pandemic, he has often been the top target of criticism from those opposed to Germany’s Covid-19 policies.

“Enlightenment is good, but we must not allow conspiracy theories to arise on social media through the interference of foreign governments,” he wrote on the X platform. Why he referred to “foreign governments” remained unclear, but when cornered, left-wing politicians often resort to claims of “foreign interference” and “Russia.”

Despite calls for a review of policy, Lauterbach is desperate to avoid this outcome and is also openly rejecting a commission, as the AfD and BSW parties are calling for.

Lauterbach claims this would only benefit “a small group of politicians, but also people who perhaps represent radical ideas in other areas.” He claims they would use the findings “to politicize against the state.”

Some from the Greens also resorted to claims of “foreign influence” following the release of the RKI protocols.

Green health politician Janosch Dahmen, one of the most aggressive supporters of extreme Covid-19 policies, said: “It seems to me that the virulent spread of such untruthful rumors is also the result of the influence of foreign intelligence services on our society against the background of Russia’s war against Ukraine, to further divide and render politics incapable of action.”

The AfD, FDP and BSW want an investigation

The AfD, Free Democrats and BSW parties all want a more thorough investigation than a simple “review.”

“The public has a right to know what really happened back then,” said the health policy spokesman for the AfD parliamentary group, Martin Sichert, regarding the redactions still in the report. He appealed to the other parliamentary groups: “Take a look at the protocols of the RKI crisis team and set up a coronavirus investigation committee with us.”

Even the FDP, which is in a governing coalition with the ruling government, is calling for a more thorough investigation. FDP vice-president Wolfgang Kubicki announced that he would “work to ensure that the entire basis for decision-making at this time becomes public.” He also said it is becoming increasingly clear “that the Robert Koch Institute for Health Policy served as a scientific façade for former Minister Jens Spahn and probably also Karl Lauterbach.”

Some Greens are conciliatory

Some left-wing politicians believe some kind of review is necessary to improve “social cohesion.”

“It would be good for social cohesion if there were a review of coronavirus policy with a little distance,” said the Green parliamentary group’s legal policy spokesperson, Helge Limburg, to Welt newspaper. “This could be a commission of inquiry, a commission of experts, or another form of debate that signals to people: We are not simply brushing aside the drastic measures of that time.”

Health and budget politician Paula Piechotta said: “Almost exactly four years after the first pandemic measures were introduced in Germany, it is now overdue to address the mistakes of pandemic policy in a wide range of areas, from health and education to financial policy, in a transparent and timely manner for everyone.”

Her party colleague, Vice Chancellor Robert Habeck, also said a review of the coronavirus era was necessary but was short on specifics.

“We should now initiate a phase in which we reflect on the difficult pandemic period with all its effects,” he told the Bild newspaper. The German government at the time had to make far-reaching decisions quickly in an unprecedented situation during the pandemic.

“Certainly mistakes were made, but it would also have been a mistake not to make a decision,” he continued. “I think we should have the courage to learn the lessons, review processes, and evaluate the impact.”

In retrospect, it is fair to ask “whether the advisory bodies for politicians really covered the diversity of perspectives in science,” said Green MP Dieter Janecek. “For example, some encroachments on fundamental rights were certainly questionable: Unvaccinated people were not allowed into restaurants or swimming pools, even though it was already clear that the vaccine did not prevent transmission. Children and young people were unduly disadvantaged.”

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