There was a lot of talk bouncing around the blogosphere the past few days about an apparent move towards closer monetary union among the EU members. Driving that speculation were some comments from Germany’s Finance Minister.
Germany is open to a discussion over whether countries that share the euro currency should harmonize their fiscal policy, German Finance Minister Wolfgang Schaeuble said.
In an interview published on Sunday in Bild am Sonntag newspaper, Schaeuble said the decision made at the euro’s creation to not integrate state finances into a European framework could be addressed anew.
“The basic decision was for fiscal and budgetary policy to be decided on the national level. If that is to be changed, then we can talk about it,” he said.
Berlin has opposed calls by Spain and other countries to move toward a full-fledged “fiscal union” in the 16-nation bloc but appeared last week to have agreed to a limited form of policy coordination.
But as we all know talk is cheap. Ambrose Evans-Pritchard points out the reality of getting to a truly economically unified European community:
It is entirely predictable that Angela Merkel and Nicolas Sarkozy would move so quickly to shoot down last week’s Eurobond proposal, issuing pre-emptive warning before this week’s EU summit that they will not accept “a bundling together of all Europe’s debts”.
Even if Chancellor Merkel wished to take this course – and even if the Bundestag approved it – the scheme would still be torn to pieces by the German constitutional court unless legitimised by radical EU treaty changes, which would in turn take years, require referenda, and face populist revolt in half Europe.
What the German people are being asked to do is to surrender fiscal sovereignty and pay open-ended transfers to Southern Europe, taking on a burden up to six times reunification with East Germany.
“If we pool the debts of the countries in the south-west periphery of Europe, we are blighting our children’s future: the debt levels are astronomic,” said Hans-Werner Sinn, head of Germany IFO institute.
Barring some incredible turn of events it’s most likely just a matter of time until one or more of Europe’s basket cases decides to throw in the towel and go it alone or is forced to do so when Germany says no mas. The Germans are under no illusions about the difficulty that lies ahead for any one or all of the PIIGS. Having lived through reunification and spent a fortune righting the economy they had inherited they know full well that the battle is just beginning and likely to cost far more than is anticipated.
It seems that sooner rather than later the Germans are going to conclude that throwing good money after bad is not a viable option. When they decide to walk out expect the French to follow through the door they open. At that point I suppose we either end up with a much smaller EU comprised of viable countries or every one decides to reintroduce new currencies. Either way it may be messy but it will also offer the opportunity for the defaults and restructurings which would eventually have occurred.
Life will continue to exist on the planet and perhaps we might all learn something as someone, somewhere finally admits that debt driven technocratic solutions really do just postpone the inevitable.