SPIEGEL ONLINE: Slovakia has yet to approve the expansion of the euro backstop fund, the European Financial Stability Facility (EFSF), because your Freedom and Solidarity (SaS) party is blocking the reform. If a majority of Slovak parliamentarians don’t support the EFSF expansion, it could ultimately mean the end of the common currency.
Sulik: The opposite is actually the case. The greatest threat to the euro is the bailout fund itself.
SPIEGEL ONLINE: How so?
Sulik: It’s an attempt to use fresh debt to solve the debt crisis. That will never work.
TRUTH! Out of a politician! Yet note carefully folks: NOT ONE of those running for President here, in the United States, has said this. NOT ONE has said that we must cut the federal government budget to the point of balance – actual balance, not via gimmicks. That’s a 43% cut, incidentally.
You cannot fix a debt problem with more debt, and any sort of “refinancing” is simply more debt. You must either pay it down or default it.
But it gets better…
SPIEGEL ONLINE: Which ground rules should we be following?
Sulik: We have to observe three points: First, we have to strictly adhere to the existing rules, such as not being liable for others’ debts, just as it’s spelled out in Article 125 of the Lisbon Treaty. Second, we have to let Greece go bankrupt and have the banks involved in the debt-restructuring. The creditors will have to relinquish 50 to perhaps 70 percent of their claims. So far, the agreements on that have been a joke. Third, we have to be adamant about cost-cutting and manage budgets in a responsible way.
Heh, how about here in the US? Why can’t we hear this from the people here?
Those homeowners who can’t pay must go under. Those municipalities that took on debt via bond issues to pave roads or build bridges that exceed their ability to pay both interest and principal via tax collection must default. Those students who borrowed money to go to school but can’t find a job that pays enough to cover the debt and their living expenses must (be permitted to) go bankrupt. Those political promises made that cannot be funded must be repudiated.
And just as importantly, those banks that lent money to any of the above who can’t pay must suffer the loss, thereby causing the cost of credit to rise to the point that it fairly reflects the risk of default.
SPIEGEL ONLINE: Nevertheless, banks could run into significant problems should they be forced to write down billions in sovereign bond holdings.
Sulik: So what? They took on too much risk. That one might go broke as a consequence of bad decisions is just part of the market economy. Of course, states have to protect the savings of their populations. But that’s much cheaper than bailing banks out. And that, in turn, is much cheaper than bailing entire states out.
Exactly. But Sulik is incorrect in his last point: You can’t bail yourself out – it is like trying to lift a bucket by the handle while standing in it. Any such attempt will fail.
The sooner we quit deluding ourselves the better, and the irony that a Slovakian politician is the first one I’ve heard speak truth on this matter, rather than a candidate for President of the United States, is telling.