Euro crisis: “Slithering to the wrong kind of union”

A number of people point to the warning by Otmar Issing in the Financial Times that the measures eurozone leaders have agreed in response to the continuing euro debt crisis “is not a move in the direction of a true political union. It is a dangerous step, and one which will end up dividing Europe.”

From the FT article

The idea that a new European process to transfer taxpayers’ money that is neither democratic nor governed by principles that support fiscal solidity would move in the direction of political union is totally misleading.

Emu is based on rules enshrined in international treaties. The euro was created as a “depoliticised currency” – its stability entrusted to an independent central bank with a clear mandate to maintain price stability. Any attempt to “save” monetary union via agreements which transfer sovereignty to a European level, where violations of fundamental treaties have become a regular event, lacks any logic. In the end it will only further alienate the people from Europe itself.

A monetary union with a stable euro can only survive if central bank independence is fully respected. This implies that the European Central Bank abstains from fiscal policy actions. Yet to change the “no bail-out” clause ever more in the direction of a bail-out regime is not a step towards a democratically-legitimised political union. It is a move on a slippery road to a regime of fiscal indiscipline drowning hitherto solid countries in the morass of over-indebtedness.

This type of political union would not survive. Its collapse would be brought by resistance from the people. In the past cries of “no taxation without representation” have brought war. This time the consequence would be to threaten the collapse of the most successful project of economic integration in the history of mankind.

And he’s a supporter of the “European Project”…

If not, necessarily, the shrinkage of politics…

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  • monaraba

    The phrase “no taxation without representation” has been replaced by “no taxation for my group; let the other fella pay”. I agree that fiscal indiscipline will drown countries in a morass of over-indebtedness, much of which was created by themselves.

  • Neville Bagnall

    Its probably worth pointing out that the bailout countries have not received grants or huge increases in EU budget spending.

    Rather, the EFSF is transferring the repayment risk (that makes market loans unaffordable) from the bailed out countries to the entire bloc. The original repayment obligation within the bloc remains with the bailed out countries. It is a political fix for the budget instability caused by the crunch, recession and the previous erroneous ratings that treated all eurozone bonds as equivalent.

    In return for that bloc solidarity the fiscal freedom of the bailed out countries has been severely restricted. Its a welcome support, but far from an attractive situation for a state to find itself in. Critically, as of now, it remains far less attractive than fiscal responsibility.

    Further the fiscal union measures that have so far emerged seem targeted to prevent the need for fiscal transfer. Of course, so was the Stability and Growth Pact, so it remains to be seen whether the new measures will be any more effective, but hopefully it will be a case of lesson learned.

    It’s probably too early in the negotiations to determine what will be the level of governance and democratic accountability required.

    At the moment most of the effective measures are aimed at cleaning up the mess. If we get past that, a different set of measures, some of which are taking shape, will be required for the “normal scenario”.

    In the current phase the primary decision makers are the heads of government. That is the best democratic mandate available in the current circumstances. That will/should not be the case in the normal scenario. It is in the final negotiations for that new normalcy that the governance and democratic legitimacy of the new structures should be decided.