Vitis: EU fiscal harmonisation?
The problems with the European Monetary Union (EMU) are being cruelly exposed by the Greek crisis. When negotiations for the functioning of the euro zone were taking place, it was a political bridge too far to hammer out a bailout mechanism agreement between member states. After all, that would have been seen as a step down the road to political union.
Instead the Growth and Stability Pact was supposed to obviate the possibility of any member state running into a fiscal crisis. But the global credit crisis has seen a number of countries on the periphery of the zone run up spiralling budget deficits.
If the IMF is forced to come in and bailout Greece, then it has the potential to undermine the euro. But will German taxpayers tolerate subsidising the profligacy of the Greeks and possibly others?
EU Commission apparatchiks will be keeping their fingers crossed that Athens will be able to squeeze through this crisis without resorting to either possibility.
But in future it seems certain that the commission will take a greater role in the preparation of national budgets which, in turn, will lead to much greater fiscal co-ordination throughout the region. Not quite the political union that is so feared among member states but will it become one step closer to fiscal harmonisation?
Restoring competitiveness is seen as one of the biggest challenges facing the State. In the absence of a free-floating currency, wage deflation is the most affective means of regaining much needed competitiveness. That, and bringing back into line the cost of State-delivered services. But the unions have been silent on both of these issues. Perhaps they were keeping their fire for the partnership talks.
