A few days ago Chancellor Angela Merkel and President Nicolas Sarkozy announced that they would be seeking a new treaty for the EU/the Eurozone. The specifics of this treaty have not yet been discussed public and would of course also depend on whether the treaty would be for the whole of EU or only the Eurozone.
Recording to Bloomberg one element that they will seek to implement would be automatic sanctions averse to any country that violates the 3% national defect-rule. It is a directive that already is a part of the Eurozone, but famously has not been effectively enforced. That in it self is not really big news, if it where not for the comments made by the European Central Bank President Mr Mario Draghi, where he hinted the idea of a more Fiscal compacted European Union, or the first real step towards the for many dreaded ‘United States of Europe’. The two many areas of politics a country has to control is economy is the Monterey policies and Fiscal policies. With the creation of the Eurozone most countries in the EU forfeited the option of adjusting the economy with the help of Monterey policies. What they where left with where the ability to adjust the taxation, and expedites of the state. If the proposed treaty does contain elements of a more compact fiscal Union, this would mean that the nation government in realty also would lose the ability to control the national economies via fiscal policies. It is difficult to predict what the effects would be form this consolidation move, but it does not require must fantasy to imagine how this could reduce the competitiveness of Europe. When the EU member stats are facing increasingly bigger and bigger liabilities and what they are left with is the option of increasing taxes. What we will see is a Europe that in the end will end up strangling its industries and in the end it self. It is either that or that the European politicians by a miracle suddenly can reform all the economies in Europe. In realty when you have a monetary union you also need to have a fiscal union, we just have to look to the graveyards of the failed monetary unions history is filled with, both inside, and outside Europe. The common lecture of the failed unions seems to be that in the end it always falls apart when countries with different political cultures and systems tries to harmonize its monetary and fiscal policies, in realty we should by now have ascertained the lesion: What works is a free trade area and not politically motivated monetary unions. Personally I cannot shake the mental image of a EU that is drowning and simultaneously trying really hard to tie a really big stone to its own legs.
