Stephanomics: “That is getting very close to a fiscal union…”

While our focus was on the Prime Ministerial negotiations, the European Commission was moving to shore up the eurozone – agreeing emergency measures worth €750billion ($975bn, £650bn).

That’s on top of the earlier € 110billion three-year bail-out package to rescue Greece’s economy agreed with the IMF.

Ireland’s contribution to that earlier plan, providing for bilateral loans up to € 1.312 billion from Ireland to Greece, is due to go before the Dáil next week.

As, still everyone’s hero, Robert Peston warned on Monday

The actual loans and guarantees may turn out to be harder to deliver than the words of comfort from eurozone government heads.

Second, 750bn euros is just over one-year’s new borrowing by eurozone members and a bit more than 10% of eurozone government debt. So it’s certainly not enough if investors were to start to lose confidence in the ability of some big countries – such as Spain or Italy – to honour their debts.

Which takes us to the import third caveat. In the end, there won’t be a cure for the underlying eurozone strains unless and until the record, unsustainable deficits of some eurozone members are reduced in a permanent way.

Those concerns were shared by Karl Whelan at The Irish Economy blog

Regarding those deficits, earlier today, Spain’s Prime Minister, Jose Luis Rodriguez Zapatero, announced “a 5% cut to public sector salaries, as well as reductions to pensions and regional government funding.”

And in today’s Irish Times, Derek Scally warns that “German cities are drowning in debt, with no way to save themselves.”

But, also on Monday, the BBC’s Stephanie Flanders made this observation

If we are to take this package at face value, the rules of European Monetary Union have been fundamentally re-written. For governments, being in the eurozone means something very different today than it did just a few weeks ago.

As we have seen, the role and responsibilities of the European Central Bank (ECB) have changed radically as well.

If this deal is what it is cracked up to be, countries like Germany may have to fundamentally change the way they think about monetary union – and, ultimately, the way they think about economic growth as well.

And in an update to that post she noted

That is getting very close to a fiscal union, at least in terms of the implicit liability for core members like Germany over the next few years. Whether they will be getting a more stable eurozone economy in return for that new liability is still today an open question.

And on that point of an ever closer fiscal union, RTÉ reports today

The European Commission has proposed that eurozone countries submit their national budgets to the EU for ‘peer review’ before they go to national parliaments. [added emphasis]

The Commission also said it would call on national leaders to agree a permanent crisis resolution mechanism.


It said the time had come to draw ‘far-reaching lessons’ about the way economic policies were dealt with.

Adds The Irish Economy has more on the EU Commission proposals.