The European Economic Community, as the European Union was once known, was more about trade than unity. There was an assumption that trade integration would lead to ever-closer ties ultimately promoting union. One important signpost along the route, certainly for the enthusiastic supporters of a politically federal Europe, was the establishment of a single currency.
When the euro entered circulation on Jan. 1, 2002 among 11 EU states, there were concerns some countries had fixed their books in order to qualify for membership. There was however hardly any focus on the underlying reality that by driving ahead with the single currency, as mandated in the 1992 Maastricht Agreement, Brussels was actually betting the farm.
Now as German Chancellor Angela Merkel issues strident warnings that the euro is in danger, it is dawning on others that the entire European Union could be in jeopardy. Saving the euro is therefore not just about saving a currency. It is also about saving the EU.
Currently, it may seem unthinkable that the EU could break up, but then until the Greek economic collapse, it was also unthinkable that the euro might ever fail.
Yesterday Chancellor Merkel persuaded grumbling German legislators to back her intention to provide the lion’s share of the $1 trillion bail-out fund, put together last week in an attempt to calm sovereign bond markets, nervous of a Greek, then Portuguese or Spanish or even Italian default. Optimists believe that Germany is now in the financial driving seat and will be insisting on rigid compliance to tough fiscal rules, which are already embedded in Germany’s Constitution, regulating spending and borrowing.
The chances are that close examination of national budgets, controversially, perhaps even before they are presented to the domestic Parliaments, will become mandatory. Implicit in such a process is the notion that Brussels will have the power to veto spending or borrowing plans thought to be imprudent. There are two things wrong with this.
If the EU is to examine the books of euro zone states, it will undoubtedly discover the financial slight of budgetary hand that most finance ministries have carried out in the last eight years, but only the Greeks it appears, practiced with such reckless abandon. Will Brussels blow the whistle on cheating states or will it, as it did with the establishment of the euro, connive at a further fix?
The second and probably more serious problem is that the new unified budgetary rules will have been imposed at a time of crisis. When the danger is past, they will be deeply resented. How much stronger would the proposed regulatory structure have been had it evolved, as a matter of prudence and common sense? Unfortunately evolution is not something the EU favors. Revolution is more its style, in which a good idea is driven through regardless, even if its time has not yet come. That was what happened with the euro and why it is now in deep trouble and why, if it fails, the fate of the EU will also be in the balance.
[Source: Arab News]
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