Friday, June 3, 2011

EU Finance Ministry?

Mr. Jean Claude Trichet, President of the ECB, delivered a speech yesterday in Aachen proposing the establishment of a finance ministry for the EU. Some key points from his speech:
Would it go too far if we envisaged, at this second stage [when member states fail to restore stability] , giving euro area authorities a much deeper and authoritative say in the formation of the country’s economic policies if these go harmfully astray? A direct influence, well over and above the reinforced surveillance that is presently envisaged?

The rationale for this approach would be to find a balance between the independence of countries and the interdependence of their actions, especially in exceptional circumstances.
We can see before our eyes that membership of the EU, and even more so of EMU, introduces a new understanding in the way sovereignty is exerted. Interdependence means that countries de facto do not have complete internal authority. They can experience crises caused entirely by the unsound economic policies of others.
In a long term historical perspective, Europe – which has invented the concept and the word of democracy – is called to complete the design of what it already calls a “Union”.
In this Union of tomorrow, or of the day after tomorrow, would it be too bold, in the economic field, with a single market, a single currency and a single central bank, to envisage a ministry of finance of the Union?

Not necessarily a ministry of finance that administers a large federal budget. But a ministry of finance that would exert direct responsibilities in at least three domains: first, the surveillance of both fiscal policies and competitiveness policies, as well as the direct responsibilities mentioned earlier as regards countries in a “second stage” inside the euro area; second, all the typical responsibilities of the executive branches as regards the union’s integrated financial sector, so as to accompany the full integration of financial services; and third, the representation of the union confederation in international financial institutions.

Trichet's remarks are not entirely surprising. Virtually everyone has known for quite a long time now that the EU project is fundamentally flawed and that a monetary union alone is not sustainable when you have states as disparate as Greece and Germany trying to walk lockstep. The present approach whereby the EU seeks to fix problems in Greece, Ireland, Portugal etc with bandaid, with wishful thinking to back it up, was never going to be a satisfactory solution in the long term. Something has to give and Mr. Trichet's solution is one logical solution if deeper integration is the objective. However, the speech illustrates the vast gulf between Europhiles like Trichet and those who live more modest lives in the member states. From the evidence of recent elections and opinion polls, citizens in bailout recipient states and bailout donor states alike resent the EU and the popular mood is very much against further dilution of national sovereignty. The last thing anyone wants is more power for unaccountable EU bureaucrats.

Notwithstanding the earnest desires of Europhiles, the United States of Europe might be quite a long distance away.