| EMU's post-crisis institutional landscape is taking shape |
| 28.11.11 10:11 | |
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Over the weekend, several news reports pointed to intensified efforts led by France and Germany to push ahead with greater integration of the fiscal policies of euro area member states. Germany's Minister of Finance, Wolfgang Schaeuble, reiterated on TV that stricter control of fiscal policies could make the euro the world's most stable currency. For that, limited EU Treaty changes that could introduce limits on EMU member's fiscal policies were necessary and feasible. FAZ reported that this should be done before the end of 2012. Schaeuble said further that any discussion of eurobonds or ECB interventions was destructive at this stage and could only be discussed later once the stricter and legally binding fiscal rules had been achieved. Reuters reported senior French and German civil servants have been exploring other ways of achieving the goal faster than EU Treaty changes, which could take a year or more to secure. Two models discussed include: (i) one based on the Schengen treaty which was signed among 7 countries outside the EU treaty but which was open to any member state to join and was later acceded to by five more EU states plus Norway; (ii) another option would be to have a purely Franco-German mini-agreement along the lines of the Elysee treaty of 1963 that other eurozone countries could also sign up to, officials say. In addition, German's Handelsblatt reported this morning that the euro area AAA-rated countries - Germany, France, the Netherlands, Luxemburg and Finland - are contemplating the issue of joint bonds through German Finanzagentur as a measure of last resort. As we noted in Euro Themes: What will it take to save Italy (and the euro)? the odds of success in managing the euro area crisis depend to a large degree on developing a more coherent vision of the post-crisis landscape. Both markets and policymakers need greater clarity on the institutional endgame of the European financial drama, without which markets are unlikely to settle. In our view, the French-German approach will accelerate implementation of an institutional post-crisis landscape significantly. Rather than a Maastricht or SGP 2.0, the new framework will likely include some fiscal union where national budgets of member states with excessive deficits or high debt levels can be rejected by the EU commission or heads of government of EMU member countries. Once EU Treaty changes have been agreed or other legal agreements been signed, we may also get a better idea on joint fiscal liability. As the AAA joint bond proposal indicates, joint fiscal liability may initially only cover members with solid public financial positions and come as a reward for countries agreeing to surrender fiscal autonomy. Such accelerated procedure, however, also raises the risk that some EMU members may get left behind. source: BarCap |
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