Here’s why the euro never made any sense: The 17 countries that have adopted it have retained sovereignty over their fiscal policies and have different economic capabilities, resources and preferences, not to mention politics. With such a system in place, it was perhaps inevitable that one country whose straits were particularly dire (i.e. Greece) could pull the entire bloc down, despite the considerably better straits of another country (i.e. Germany). The solution? Less sovereignty, apparently.
That’s the proposal from, oddly enough, German Chancellor Angela Merkel – perhaps because she knows that everyone would take their cues from her under this plan. A fiscal union would give European Union (EU) institutions more control over how each country taxes and spends, for the benefit of the entire region (in theory). French President François Hollande, the only other EU leader anyone bothers listening to, is fine with the idea as long as it’s accompanied by debt reduction tools beyond austerity, to assuage concerns of citizens.
Assuage, maybe. Eliminate? Doubtful. A poll from earlier in the month reveals that Europeans are becoming increasingly cold to economic integration and blame it for their own countries’ problems. However, no majority in any country wants to drop the euro. Nobody can blame them, seeing as this would most likely create an initial economic shock that would do little, at least at first, to improve their lot. That’s why you don’t see Western countries encouraging this.
So, with that and “doing nothing” off the table, we have two choices: Pay down the debt by . . . most means necessary (those of us outside the eurozone don’t want to bail it out) before beginning the process of disintegration, or integrate some more. This would certainly improve fiscal stability in the short run. But what happens if an external economic shock drives the entire region into this level of debt again? Would they demand a global fiscal union so they can hurt less?
As I see it, the solution to the eurozone crisis is much like the solution I would have preferred for the 2008 banking crisis: bail them out with strings, and then break them up. Earlier legislation, like the Glass-Steagall Act, might not have stopped the banks from declaring bankruptcy, but it would have mitigated the overall impact of the crisis. The banks would be smaller, with fewer people’s accounts affected. That obviously hasn’t happened for U.S. banks. There’s still time for it to happen to the eurozone.
In the meantime, since the global stock market is apparently as fragile as a Hummel figurine on a windy day, it’s probably best that this discussion stay confined to the independent blogosphere.
