Thursday, October 24, 2013

No United States of Europe

"A European Union running fiscal policy for its member states out of Brussels was never in the cards--that could not have been a noble experiment. " (Out of the Box blog, January 2012)

Today, the Wall Street Journal puts our headline more delicately, "Plans for Political Union in Europe Unravel."  What a surprise!  

The story further notes, "Germany is leading the resistance," which was the inevitable outcome because, as we've long held, the interests of France and Germany diverge fundamentally as they concern the euro, the improbable economic union, and the unimaginable political union.  

We've also written about the need for the EU to increase the competitiveness of all its members, which covers the gamut of issues from barriers to labor mobility, budgets, agricultural subsidies and many other member practices that hamper the effectiveness of the common market.  So, an adviser to Chancellor Merkel put these issues on the table when the WSJ reported,

"He (Herr Meyer-Landrut) proposed that EU leaders attending the meeting agree on a set of indicators, such as rising labor costs, that would signal when a country's economy is veering off course. He also said national governments should sign binding promises on economic overhauls that EU leaders would monitor."

The proposal, which is eminently on point, found no takers, and it generated a French rejoinder about needing to focus on "social cohesion."  The fissure is evident again, as well as the fact that Italy and the periphery have no interest in having their national policies subject to EU monitoring.  

If this is the case for a rather straightforward economic rationalization that would benefit the euro, how on earth could a political union ever be on the table?  It isn't and it won't be under any conceivable circumstances.

Since the EU built the Brussels bureaucracy ahead of the creation of a meaningful currency and economic union, the talks and meetings will continue for the indefinite future.  Otherwise, the bureaucrats would be out of jobs and there would be lots of vacant buildings and apartments in Brussels. 

The euro will continue to limp along as a currency until the next shock again threatens the stability of the failed experiment.  The ECB will raise its head again, and we'll have the same rounds of discussions.  The system really does not serve the economic interests of citizens of the entire European union. 

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