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Thursday, October 27, 2011

Die another day

The EU puts off the inevitable. But not for long:
Very quickly, there has been much loose talk about EU fiscal union. What was agreed at 4AM this morning is nothing of the sort.

It is a "Stability Union", as Angel Merkel stated in her Bundestag speech. Chalk and cheese.

"Deeper economic integration" is for one purpose only, to "police" budgets and punish sinners.

It is about "rigorous surveillance" (point 24 of the statement) and "discipline" (25), laws enforcing "balanced budgets" (26), and prior vetting of budgets by EU police before elected parliaments have voted (26).

This certainly makes sense if you want to run a half-baked currency union. As the statement says, EMU’s leaders have learned the lesson of a decade of self-delusion. "Today no government can afford to underestimate the possible impact of public debts or housing bubbles in another eurozone country on its own economy."

But none of this is fiscal union. There is no joint bond issuance, no move to an EU treasury, no joint budgets with shared taxation and spending, no debt pooling, and no system of permanent fiscal transfers. Nor can there be without breaching a specific prohibition by Germany's top court, a prohibition that could be overcome only by changing the Grundgesetz and holding a referendum....

EMU break-up is Verboten, fiscal union is Verboten, full mobilization of the ECB – either to lift the South off the reefs through reflation, or to back-stop the system as a lender-of-last resort – is Verboten. Germany will have none of it. Instead we have the summit conclusions – EUCO 116/11 of October 27 2011 – and a great deal of coercion.

Please tell me what exactly has been solved.
I get the feeling that the politicians are desperately trying to play musical chairs, hoping that the collapse occurs on the other side of the Atlantic first. History being a perverse little bitch, this naturally tends to suggest that it is going to start in Asia.

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