The EU Revives a Combination of Brüning and Schacht

The new year is re-introducing the debt rules for the European Union, which had been suspended due to the COVID pandemic. The reformed rules of the Stability and Growth Pact, decided by the European Council on Dec. 20, are a revival of the pre-pandemic austerity a la Brüning (the German Chancellor who helped pave the way for Hitler), and of the rearmament policy of Hjalmar Schacht (Hitler’s central banker).

To sum it up, EU member countries can choose how to destroy their economy — either by direct budget cuts or by accelerated implementation of “climate transition” policies.

The new rules, in fact, retain the same old parameters for maximum debt (60% of GDP) and deficit (3% of GDP), but make them even stricter by introducing both a “safeguard” target of 1.5% for the deficit, in order to allow a spending buffer for contingencies, and a timeline for high-deficit countries of four to seven years to reduce the deficit. Then comes the catch: Member countries have to present the Commission with their plans to achieve the target. The Commission can offer more or less flexibility, according to the “sustainability” of the planned spending from the standpoint of Brussels’ “climate transition” and defense policies. Translation: if the debt is incurred for “climate transition” and military expenses, the country gets a pass.

It gets worse. Since climate investments and tanks won’t create growth, they will worsen the debt to GDP ratio, thus leading to demands for more cuts, which in turn will further curb growth, and thus in turn worsen the debt to GDP ratio, etc. Italian economist Gustavo Piga is convinced that the new debt rules will increase the gap in Europe and represent a death sentence for democracy, since a technocratic body, the European Commission, will have more power.

The most ominous aspect of the new rules, though, is the decision to put military spending off-budget, following de facto the same scheme adopted by Hjalmar Schacht to rearm Hitler’s Germany. Schacht had a private company, Metallurgische Forschungsgesellschaft (MeFo), issue promissory notes, which were then discounted by the Reichsbank central bank. In this way, the military buildup of the Third Reich occurred without formally increasing government debt.

The new EU Stability Pact has established a central “control account” to check for deviation from fiscal policies. A procedure for excessive debt will be then be opened against countries that deviate from the expenditure pathway, with a few exceptions: “recent increases in defense spending will be taken into account favorably, which puts defense in a slightly advantaged spending priority compared with other EU priorities like the green and digital transition or social goals”, as was correctly reported by the pro-EU portal Euractiv.

There you have it: defense spending will be not counted in the budget. The EU wants member countries to reach the NATO target of at least 2% of GDP for military expenditures. That may not sound impressive, but for countries such as Italy, it means doubling its military budget from the current close to 20 billion euros to 40 billion. For Germany as well, it means a doubling of the 2021 budget, from ca. 40 billion to more than 80 billion. Of course, if the Europeans want to have a war with Russia in 10 years, as Chancellor Scholz has implied, then even more funds will have to go into the military buildup….

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