Since its inception, critics of the eurozone have been pointing to its
incomplete nature -- everyone uses the same money but keeps their own
national budgets and tax regimes -- and speculating that this "fatal
flaw" would doom the system. Other observers, however, gave the euro's
creators more (Machiavellian) credit and assumed the initial version was
simply what was politically attainable at the time. Future leaders, they
predicted, would wait for (or engineer) a crisis and then use it to bully
their reluctant citizens into a centralized government.
This month the crisis erupted, with Greece closing its banks, imposing
capital controls and briefly defaulting on its debt before finally giving up.
And now come the calls for centralization:
France's
Hollande Proposes Creation of Euro-Zone Government
(Bloomberg) - French President Francois Hollande said that the 19
countries using the euro need their own government complete with a budget and
parliament to cooperate better and overcome the Greek crisis.
"Circumstances are leading us to accelerate," Hollande said in
an opinion piece published by the Journal du Dimanche on Sunday. "What
threatens us is not too much Europe, but a lack of it."
While the euro zone has a common currency, fiscal and economic policies
remain mostly in the hands of each member state. European Central Bank
President Mario Draghi made a plea this week for deeper cooperation between
the euro members after political squabbles over Greece almost led to a
rupture in the single currency.
Countries in favor of more integration should move ahead, forming an
"avant-garde," Hollande said.
"Europe has let its institutions weaken and the 28 European Union
member countries are struggling to agree to move ahead," Hollande said
on Sunday in a text which was also a homage to his mentor Jacques Delors, a
former European Commission President who proposed similar ideas.
Draghi called for the creation of a shared treasury within 10 years in a
joint proposal with politicians including European Commission President
Jean-Claude Juncker and Eurogroup President Jeroen Dijsselbloem last month.
If you assume that the plan all along was to engineer a crisis and use it
to force integration, then the behavior of the Troika begins to make sense.
Instead of resolving the first Greek crisis in 2011, they papered it over and
used the resulting breathing room to move Greece's debt off the balance
sheets of the European commercial banks that would have been fatally wounded
by a Greek default. Then, once the system was sufficiently insulated from
Greek damage, they told Athens to go ahead and leave, knowing that whatever
happened next would be non-fatal to the currency union but scary enough to
make full integration palatable for a critical mass of Spaniards, French and
Italians. Hollande's trial balloon is designed to test this thesis.
Lots of problems remain, of course, mostly involving the differences
between the big and little players. For, say, Portugal or Greece, a
"shared treasury" basically means becoming German subjects and
living according to the latter's rules, which sends obvious shivers down many
spines. For Germany and the one or two other dominant players, running such a
central government means being fully responsible for the behavior of
Italians, which they would obviously like to avoid.
Most scary of all for the Germans, an integrated Europe, with its aging
population, massive levels of government spending and rapidly accumulating
debt would need a weak currency to avoid stagnation. So either way -- a
continuation of euro 1.0 or the adoption of euro 2.0 -- inflation at higher
rates than Germany expects will be unavoidable. Based on their reaction to
the Greek "resolution," foreign exchange traders seem to be
figuring this out.