After the recent declaration of a proposed European Stabilizing Mechanism (ESM), and Germany’s subsequent approval of such a measure, it appeared as though a potential resolution to the persisting Eurozone crisis was approaching. These hopeful sentiments have quickly receded, as Germany, Finland, and the Netherlands have now backtracked on their commitment to the ESM, instead introducing troublesome stipulations which have inflamed the Community and cast clouds on any hopes of an imminent resolution to the crisis.

A joint statement by the finance ministers of Finland, Germany, and the Netherlands issued on September 25th promulgated two controversial proposals. First, the statement calls for national governments, not the ESM, to be responsible for ‘legacy assets.” This essentially calls for delinquent states- specifically Spain and Ireland- to take care of their own current and previous financial woes, rather than be recapitalized by the ESM. Instead, the ESM would only deal with costs incurred after its enactment. The second proposal advocates using private capital first and public capital second to recapitalize the national banks of member states, with the ESM as a purely last resort.

Some implications of this announcement are addressed in an editorial by economist Karl Whelan, who states that Germany, Finland, and the Netherlands are basically telling Spain and Ireland to “drop dead.” Whelan describes the ominous consequences these proposals would hold for Ireland, which he argues would be denied any serious debt relief by the ESM.

Likewise, the Economist details the repercussions for Spain’s national debt if this proposal is enacted. Currently, Spain’s banks are roughly 59 billion Euros in the hole, and Germany’s plan would tremendously stifle the relief which Spain seeks from the ESM. This may very well throw into jeopardy any potential of economic recovery in Spain.

The immediate reverberations of Germany’s decision to reverse its commitment to the ESM will be financial, as evidenced by the Spain’s precarious national debt. Ultimately, however, its impact may be existential for the European Union and the Euro. The continued reluctance of economically strong states to lend to weaker states has transitioned to flat-out refusal, which some may argue is a betrayal of the precept of solidarity central to the Community, as explicated by Title IV of the Charter of the Fundamental Rights of the European Union. The refusal to cooperate emphasizes the growing disillusionment of member states with being roped in with delinquent states, which a growing chorus of political voices argues threatens national sovereignty. These political and inter-Community tensions threaten to not merely prolong the common market’s economic malaise, but dissolve the Union altogether.

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