Eurozone politicians have built a Tower of Babel

Tower of Babel.pngLast week saw the 20th EU ‘Crisis Summit’. Like the previous 19, it achieved little. Yet everyone at the meeting knew what had to be agreed:

• A banking union which operates across national borders
• The issuing of joint Eurozone bonds, guaranteed by all euro members
• Adoption of a Federal budget and economic policy

These measures would create the essential fiscal union required to support the euro as a common currency.

Equally, this is not a new debate. It was spelt out in 1990 by German Chancellor Kohl and French President Mitterand, when the concept of the euro was first discussed. As the US example shows, monetary and fiscal union also requires political union.

But today, the two countries at the heart of the euro project are as far away as ever from agreement:

• Germany wants to have central controls over spending
• But France will not agree to give up national sovereignty.

Equally, as Reuters notes, the leaders continue to talk different economic and political languages. The ‘crisis summits’ thus resemble the efforts to build the biblical Tower of Babel, pictured above by Breughel.

Thus in German, the word for ‘debt’ is Schuld, which also means ‘guilt’.

So in Germany, the Eurozone debate is a morality play, where those in debt are ‘sinners’:

• It wants the debtor countries to introduce a stability culture of low inflation and low debt, via a savings policy based on austerity
• But new French President Hollande won election on the basis of a ‘growth policy’ based on spending, not savings.

Pensions policy highlights the difference. Germany is raising pension ages to 67 years. Whilst France has just reduced them from 62 to 60 years.

The European Central Bank is caught in the middle. It provided €1tn ($1.4tn) of emergency funding in December to avoid the collapse of the banking system. But it cannot force the politicians to accept the need for fiscal and political union to support monetary union.

Thus as the blog warned a year ago:

“The alternative (to agreement) is not the status quo, as too many politicians still hope. It is that the Eurozone could eventually break up, and in the process severely damage both the European Union and the wider global economy.”

Leave a Comment