Wolf Richter: "The Fed’s policy of stirring up inflation and devaluing the dollar is called Inflationspolitik in German, synonymous with government deception and theft."

"...the vague agreement that emerged may be illegal under European Union law and may devastate weaker economies.

It elevated Germany to a leadership role that other countries perceive as domineering and arrogant.

It can’t be put into a treaty.

...legal experts from the EU Commission, the ECB, and the European Council stated that the proposed side treaty for a fiscal union would be illegal under the Lisbon framework.

Countries could only offer “political declarations of intent.”

They would not be legally binding, and any new government could declare them null and void...

...At its most fundamental level, the Eurozone has a nasty flaw: it allows member economies to become addicted to the crack cocaine of deficit spending without giving them a central bank that provides unlimited amounts of money to feed the habit.

The Eurozone is the only major economy that has forbidden its central bank by law to print money to buy government debt. Goal: a currency that would retain its value.

The Fed’s policy of stirring up inflation and devaluing the dollar is called Inflationspolitik in German, synonymous with government deception and theft.

...But deficits spiraled out of control and debt piled up and the crisis arrived.

...All they want is for the ECB to turn on the printing press and buy unlimited amounts of Eurozone sovereign debt.

It would cause a bout of inflation (30% – 50% over ten years, as it has in the US), devalue the currency, and demolish the purchasing power of the middle class as wages wouldn’t keep up with inflation.

On Thursday, the ECB has come close with its announcement that it would lend unlimited amounts of money at near-zero interest rates for up to three years … to banks.

But not countries.

...While each country is required to propose an essentially balanced budget, any major catastrophe or recession would allow it to run a large deficit—a matter of interpretation.

No date has been set when the rules would go into effect.

Maybe 2020, if Germany’s own new rules are any guide.

It’s not a current fix.

Then, a majority of finance ministers can vote to stop the “nearly automatic” sanctions.

...The existing deficit and debt limits have been violated with impunity by 11 of the 17 Eurozone countries, including Germany and France.

In 2003, when Germany’s debt blew past the debt limit, EU finance ministers stopped the sanctions against Germany, which was the end of all sanctions for all times.

Hence, the crisis.

The new sanctions?

Actually, there aren’t any in the agreement.

And the new treaty can’t even be a treaty.

To establish a fiscal union by modifying the Lisbon Treaty, all 27 member states, including the UK, would have to agree to the changes.

Complex democratic procedures would follow.

It would take years and require parliamentary votes and messy referendums.

...Implementation of deficit reductions will take years and will allow countries to wean themselves gradually from their habit.

At the same time, Merkel has been tolerant of the ECB’s signals that a fiscal union would give it more leeway in buying sovereign bonds at a pace faster than it already is buying them.

Thus the compromise: less dependence on crack cocaine but some money from the ECB to feed the habit.

While Friday’s agreement doesn’t fix anything, it does reveal a perhaps last-ditch effort by Germany to accommodate a measure of Inflationspolitik in order to safe the euro, as long as member states will make a serious effort to get their budgets in line.

Of course, the devastating short-term impact that withdrawal can have is now playing out in Greece: it brings the economy to its knees and sends people rioting into the streets."

Via Naked Capitalism