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The EU’s Fiscal Austerity Is Keeping the Ghost of Brüning Alive

When the world was still in order, economic textbooks suggested not to repeat the mistakes of German Chancellor Heinrich Brüning (1930-1932), whose “fiscal austerity” paved the way to Nazism in Germany. The EU has evidently not learned those lessons and is now implementing the same policy. The compromise on the so-called “Stability Pact” (rules on permissible debt and deficit) reached by the EU finance ministers (Ecofin) in a videoconference yesterday, can be summarized: EU member countries can choose on how to destroy their economy—either by direct budget cuts or by quicker implementation of “climate transition” policies.

The new rules, in fact, retain the same old parameters for maximum debt (60%) and deficit (3%). Then it introduces a “safeguard” target of 1.5% for deficit, in order to allow a spending buffer for contingencies, making it harder for countries to function, and it introduces a timeline for high-deficit countries of 4 to 7 years to reduce the deficit. Then the catch: Member countries shall present plans to the Commission on how they intend to achieve the target. The Commission can offer more or less flexibility, according to the “sustainability” of the planned spending from the standpoint of the Commission’s “climate transition” policies. Translation: Incur debt for “climate transition” and the country gets a pass.

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