News & Analysis
Super Rompuy to the Rescue?
EU plans to speed up closer union to save euro ... A top EU official is launching a plan to rescue the eurozone by binding its 17 nations closer together. There is a widely held view that the EU single currency needs a fiscal union in order to function smoothly. The "building blocks" for strengthening economic union will be drafted by the European Council President, Herman Van Rompuy, with input from the European Commission and European Central Bank. Mr Van Rompuy announced the initiative after an EU leaders' dinner. "There was general consensus that we need to strengthen the economic union to make it commensurate with the monetary union," he told a news conference in Brussels on Wednesday night. His report before the summit on 28-29 June would outline "the main building blocks" and "a working method to achieve this objective", he said. − BBC
Dominant Social Theme: This is the only solution. A more perfect union.
Free-Market Analysis: The EU is like a vast, slow motion car wreck. It's hard to keep your eyes off it.
While the outcome is by no means certain, we continually note the yelps for one solution ... to cement the union by making it "closer."
This is a code word for buttressing the current corruption with a deeper and more formalized corruption. In fact, as others and we have pointed out, Euro-leaders long anticipated a Euro crisis and were prepared to create a closer union based on steering the reaction to the crisis in the desired direction.
Out of chaos, order.
It seems difficult to imagine that the current chaos of the EU could be resolved by a closer union but that is what European Council President, Herman Van Rompuy and other top Eurocrats desire most fervently. Here's some more from the article:
Mr Van Rompuy was the chief architect of the EU's fiscal compact, adopted in December as an inter-governmental agreement rather than a treaty change, after UK Prime Minister David Cameron objected to it. Further binding measures to integrate the eurozone could be adopted similarly, without the signatures of all 27 EU governments ...
Eurobonds - a tool for the whole eurozone to guarantee the bonds of weaker members and ease their crippling debts - are now at the heart of the debate about fiscal union.
Mr Van Rompuy said eurobonds could only be part of a long-term solution. But France's new socialist President Francois Hollande and Italy's Prime Minister Mario Monti are among several EU leaders who favour an early launch of eurobonds to revive growth and restore market confidence.
Mr Hollande said that "for now, Germany's line of thinking is that eurobonds, if I give the most optimistic version, could only be an end point, whereas for us they are a starting point" ... German Chancellor Angela Merkel said the bonds would violate EU treaties and would "not contribute to kick-starting growth".
We can see that Van Rompuy wants to build the union on the back of Eurobonds. But as we've pointed out numerous times in the past, the problem the Eurozone faces is German intransigence regarding the cost of insuring the EU's solvency.
This is not merely a sentiment but a constitutional facility. The Germans understand that they will have to make an affirmative decision of some sort to offer additional support for the EU. The EU itself has enshrined into various laws the idea that no nation ought to be fiscally or monetarily responsible for another.
It is this latter recognition that Van Rompuy seeks to negate via "governmental agreement." But in this case, Van Rompuy would seem to be too clever by half.
It is a bureaucratic solution, not a diplomatic one. In other words, it doesn't recognize the fundamental issue is the Germanic unwillingness to provide the EU with an open-ended guarantee of money and labor.
Such a solution as Van Rompuy is proposing also carries within it a kind of contradiction in terms. Pro-EU arguments always start with the idea that the Germans are sold on the advantages of the EU. Yet what Van Rompuy is proposing would negate those advantages.
Why would the average German want to stay in a union that threatens to inflate away Germany's wealth? Better off outside it in that case.
There is a reason that German Chancellor Angela Merkel is resistant to eurobonds and much else that creates a necessity for German monetary backing of the EU. Ms. Merkel may be pro-EU, but she is well aware of both German constitutional law and the sentiments of her constituents.
Merkel seems to like being in power. But she is consistently losing elections, which cannot please her or her allies – and this is because of the perception that she is partial to providing a German guarantee for the Eurozone, and specifically for the PIGS.
Imagine the backlash if this perceived sentiment was bolstered by actions. Whatever credibility Merkel and her party have in Germany would be subject to considerable assault. Not to mention potential constitutional challenges.
Van Rompuy's proposal can thus be seen as somewhat desperate. It provides a methodology but it is one that doesn't deal with the practical realities of what the EU has become – a union in search of justification for additional German involvement.
Is this then the best that the pro-union elements have to offer? Right now it doesn't seem very persuasive. Of course, there is another argument to consider. It is possible that the top leaders of the EU despite their protestations actually want Greece to leave so as to precipitate a greater crisis.
The EU may be prepared to purposefully blow up any Greek exit – to make a bad situation worse, in other words. In such a case, Von Rompuy could be seen to be laying the groundwork for a sudden putsch.
Often legislation with massive ramifications is hurried through in the throes of a "crisis." The crisis needn't be real, only apparent.
Conclusion: Perhaps this is what the EU leaders are planning currently. Statements that seem unrealistic now are meant to provide context for what is yet to come.