The Meaninglessness of Binding International Treaties

What a wonderful past week we've had. First the European leaders got together and agreed to a new treaty to bind themselves to fiscal discipline of their public accounts. Then we got the wonderful waste of hot air in Durban, South Africa, where the global environment ministers made some kind of agreement to definitively make a binding decision at some time in the not too near future to unequivocably bind every nation to more or less binding commitments to reduce greenhouse gases. What would the bureaucrats do if we didn't have these conferences to have major disagreements over?

For those of you who are too literal, I'm being sarcastic. If the old treaty's weren't being complied with, why would anyone expect the new treaty's to be any more 'binding' than the old.

Let's look at the European situation.

What was wrong with the Lisbon and Maastricht Treaty's? They had binding provisions within them that ensured that not only did governments have to not let their deficits and debts get out of control, but the treaty's also ensured that the other governments of the Euro-zone would not bail out any country that did not comply.

So what happened? Countries allowed their debt and deficits to get out of control so that the other Euro-zone countries had to provide them with bail-outs. The solution therefore to the infinitely wise bureaucracy is to create another treaty to do exactly what the previous one was supposed to do but didn't. Addressing the problem of why the previous treaty's failed to meet the fiscal discipline objectives is simply not to be discussed.

In the end, if the Europeans don't address the structural problems that allowed the fiscal problems to get out of control, the new treaty will be just as ineffectual as the old treaty's.

The problem of course is one of a lack of leadership.

Germany is being asked, and expected, to lead in this crisis. Where is the evidence that Germany has political leaders who are capable of leading their own country never mind all of Europe. Germany’s public accounts and banking sector are a mess. They only look good when compared to some of their neighbours. Reality is however, that in many ways Italy is in a much better fiscal situation than Germany is. Italy isn't being asked to lead however, Germany is.

Not only are the the national accounts of Germany in less than optimal order, but Germany’s banks are hardly a shining example of financial prudence. If Germany is forced to nationalize as much of its' banking sector as some analysts have speculated, then Germany may find itself in no better fiscal shape than Ireland.

The problem with the banks, not just in Germany but across the Euro-zone, is that they have bad leaders. Instead of taking the bail-out money that they were given in 2008 and investing it safely and wisely to ensure that they have a good base of tier 1 capital, these brilliant leaders invested it in high yielding Euro government debt so that they could receive their over sized bonuses. It was high yielding because it was already viewed as risky in 2008. Now that this government debt is going bad because of economic recession, the banks find themselves in the same situation that they were in when they needed bailing out three years ago. And this is why even though the Euro treaty's explicitly say there will be no bail outs of weak governments, the strong governments are ignoring the treaty and bailing out the weak governments.

The solution of course was for the strong governments to intervene before the weak governments got into trouble. Which they very well may have if the strong governments hadn't undermined the enforcement mechanism within the treaty's when it wasn't convenient for them. It was Germany after all that broke the deficit limits first. If Germany could break the rules when it was inconvenient to follow them, then nobody else was going to feel bound to follow the rules.

Why would you expect Germany to not break the rules in the new treaty? Their economy and public accounts aren't in that good of shape that a structural shift in the global economy couldn't put Germany onto an economic down path. Ten years ago Germany was one of the weaker economic partners in the union. It is not hard to believe that with the cyclic nature of economics, Germany can not find itself in a weak position ten years from now.

How is a fiscal union supposed to help the situation in Europe? If you leave the same systems in place and just change the names, why would you expect anything to change? The US federal government is not responsible for the debts of individual states, nor does the US federal government make rules about how much states can borrow or how big their deficits can be. Why do European governments need a big sugar daddy to make the rules for them and bail them out when they break them?

Within a different constitutional framework, the federal Canadian government is not responsible for the debts of the provinces. Although some media people have floated the idea that if Quebec can't get its' affairs in order the federal government would have to bail them out. This is non-sense. It would be politically impossible for the federal government to bail out the Quebec provincial government, either directly or indirectly. There would be open revolt in the western provinces if such a situation occurred.

Which leads back to Europe. Why do the Europeans need a fiscal union to make the Euro-zone work? If each individual government had been looking after its' own financial situation and regulating its' banks properly, there would be no problem with letting Greece default within the Euro framework. Since the 'stronger' members of the Euro-zone weren't doing there own jobs, they want to create another level of government to force them to do their job. The problem with that of course is that the people who will be enforcing it are the same people who are writing it, meaning that it will be as effective as a mosquito in destroying a windshield.

The hot air coming out of Durban, isn't a lot different. Partisans of all types are spinning the situation this way and that but in the end it is just meaningless political gamesmanship.

Canada, and every other country, ignored Kyoto or only paid lip service to it, based on political expediency. It did not, and will not, matter what the philosophical orientation of future governments are, they will only meet climate change goals if those goals are politically expedient. Politically expedient is just a euphemism for 'job creating'.

The NDP is trying to pander to their base by throwing all kinds of labels at the Conservative government. Reality is, if the NDP was the government the only thing they would do differently is that they would change the rhetoric around the foot dragging to endorse a binding treaty. In the end, the NDP would choose jobs (particularly union jobs) over environmental principles, but they would try to ensure that their environmentalist supporters at least received heart warming speeches to keep them warm.

The first and ultimately only purpose of any government is to ensure its' own survival. To do so means that it must provide the populace with a reasonable standard of living and a reasonable expectation that things can, or will, get better.

It is the failure to meet these two conditions that created the environment to sustain the uprisings occurring across the Arab world. In the countries where there aren't uprisings, the economic conditions are not sufficiently bad that people feel they don't have more to lose than they have to gain by rising up.

The recent election results in Russia, with the protests over the fairness of the process, are largely a result of the Putin/Medvedev team failing to maintain a rising standard of living. As long as wage growth was increasing rapidly, Russians were more than content to have the Putin/Medvedev team in place. Wages have stagnated in Russia, and so has hope: protesters are in the street.

Europeans support for the Euro, and its' supporting institutions, is also strongly correlated to their perceptions of its' benefits. As long as Europeans thought that the Euro was bringing them benefits at no cost, they were highly supportive of it. Now that the price of membership is government austerity, many Europeans are not so sure that the Euro is a good idea.

The new treaty's planned for Europe, the fancy new agreement out of South Africa, are all in the end meaningless if they do not recognize and make provisions for the domestic needs of each individual government. The ability of each individual government to meet the objectives of the treaty/agreement will depend on the skill and vision of the individual leader.

The treaty/agreements do not address the subject of ensuring that each individual participating country must be lead by strong and competent leaders, and therefore these agreements are doomed to failure just as the previous agreements failed. Each country will pursue domestically expedient policies and dare the rest of the world to do anything about it.