Monetary union continues its painful progress

With the entry into force of the stability mechanism and the consensus on plans for a banking union, the Eurozone has compensated for the “birth defects” of the single currency, albeit at the price of a widening rift with other member states.

Published on 11 October 2012 at 15:23

As a spectacle, it is hardly alluring. And only insiders can grasp this ongoing construction of Europe in all its difficulty and complexity. But what is happening, once again, in the painful throes of the crisis, is the slow transformation of the Eurozone into a fully fledged monetary union. This is a necessary and positive development.

The 17 member states which use the single currency are on the road to the budgetary harmonisation, without which a monetary union cannot work. On Tuesday 9 October in Paris, the National Assembly ratified the Treaty on Stability, Coordination and Governance — only Europe could delight in such poetic terminology. On Wednesday, French MPs adopted the organic law that will implement the “golden rule”.

In everyday language, this is a budgetary pact that obliges signatories to ensure that their public finances tend towards equilibrium. With regard to another barbarous term — the “structural deficit” — the pact will introduce a measure of flexibility in procedures to pursue this objective.

At the start of this week, the Eurozone saw the entry into force of the European Stability Mechanism. With the capacity to deploy up to 700 billion euros, the ESM is a kind of European Monetary Fund. It will come to the aid of countries that are unable to finance their debt on the markets, or which are in need of funds to recapitalise their banking sectors. Finally, Europeans have now embarked on a course towards the common supervision of their banks.

Cameron wants to take advantage of the change

Budgetary harmonisation, financial solidarity and banking union: progress towards these goals has been laborious. And the social cost is high, at least in the short term, as Angela Merkel may have seen in the course of her visit to Athens on Tuesday. The Spanish, whose pride is in the wrong place, are reluctant to call on the ESM. The Germans have no desire to have Europe “supervise” their banks. The French have a genetic aversion to the very idea of budgetary equilibrium etc.

But it was high time. To keep the euro, we had to correct what the founding fathers had botched: an unbalanced way of working that exploded at the first asymmetric shock. There can be no monetary union without a budgetary union, a banking union and financial solidarity. Now we will have to act quickly to add an indispensable democratic component: one way or another, the management of this triptych will have to be placed under the control of the elected representatives of the 17 Eurozone states.

It is perfectly respectable to reject this leap forward in economic harmonisation. But if you do, you have to say no to the euro. The British Prime Minister was telling the truth when he noted on the BBC on Sunday that Europe will no longer work with just one budget. There will be one for the Eurozone with advanced transfer mechanisms, and another more limited one for all of the union. David Cameron wants to take advantage of the change to renegotiate much looser terms for his country’s participation in the union.

No doubt, this was inevitable: with the making of the monetary union, another Europe has begun to come apart. We will now have a core Europe in the Eurozone, as well as a second wider, but much less constraining, Europe. There will be many more late nights to come in Brussels.

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