Pimco, the world's biggest bond investor, has warned the Eurozone community that European governments must either rapidly commit to a far stronger fiscal union - even if this requires a renegotiation / rewrite / re-ratification of the Lisbon Treaty or accept a partial break-up of the Euro to prevent a 'fundamental erosion' in the demand for the region's debt.
Would this partial break-up of the Euro mean that some of the less responsible nations, like those in the PIIGS or others seeing downgrades in the credit ratings, would be returned to their original currencies and set to suffer the ramifications of their fiscal responsibilities? This would work to save a number of the EU countries from the effects of their less than responsible partners but do little to endear the EU with the residents of those countries?
Of course, the other side of the question is if the citizens of these countries would be more or less insulted by being removed from the EU or by having the EU bureaucracy, and in effect Germany, make all of the decisions regarding their fiscal policies around taxation and entitlements? Will austerity measures being forced by Berlin, or Brussels, or Strasbourg on Greeks, Italians, Spanish, Irish, or Portuguese be accepted?
Liam Halligan, of UK's Telegraph, says that the downside for the fiscal union, like German control, and 'quanatative easing' / funny money efforts by the European Central Bank will not happen.
We cannot dismiss the effect and the fear around German influence in the EU's solution has on member nations. In Athens, protesters are carrying photos of German Chancellor Merkel with the swastika as they complain about the possibilities of a stronger fiscal union dominated by Germany. Some commentators are seeing this domination of Europe by Germany becoming the 'Fifth Reich'.
What really is the right solution for the Europeans?
The right solution is there to be seen and grasped. It's not even a new solution. It's the solution that was apparent when the Euro was being created and this crisis was envisioned. Richard Fernandez, the blogger behind "Belmont Club", now part of PJ Media covers this in his post "Judgment Day"...
Twenty two years ago the Los Angeles Times juxtaposed the figures of Jacques Delors and Margaret Thatcher. The Frenchman and the Briton stood on opposite sides of the question of Europe.Fernandez hits the real point in his conclusion...
Thatcher and Delors personify a broader struggle over the central question of what Europe should become as the 12 member nations of the European Community push toward greater unity. Should the 12 be merely a glorified free-trade zone of like-minded states a la Thatcher, or, in Delors’ vision, a fully integrated union–the continent’s economic and political epicenter, bound as much by a common social ethos as by commercial necessity?
In the LAT article, Delors represents the future while Thatcher represents the retrograde past. “But as Delors presses, encourages and cajoles the European countries toward greater unity, Thatcher mounts a series of delaying actions.”
“She sees herself as some kind of resistance fighter in the mountains that’s simply not going to let Big Brother take over from Brussels,” said Britain’s opposition Labor Party leader, Neil Kinnock.
Fast forward to the present. Charles Moore of the Daily Telegraph caught up with Delors in his Parisian office where he granted the newspaper a rare interview...
… Deciding not to beat about the bush, I ask the man who prides himself on being an architect of European Union whether he got it all wrong.”
Unhesitatingly, he denies it. It is a fault in the execution, not of the architects, which he claimed to have pointed out in 1997 when the plans for introducing the euro finally came together. …
For a long time, the euro did remarkably well, Mr Delors argues, bringing growth, reform and price stability to the weaker members as well as the stronger. But there was a reluctance to address any of the problems. “The finance ministers did not want to see anything disagreeable which they would be forced to deal with.” Then the global credit crisis struck, and all the defects were exposed. …
So will the euro survive? Mr Delors does not, of course, deviate from his belief in the European single currency.
History is a strange thing. It let Delors keep his mind long enough to witness the ruin of his dream while leaving Margaret Thatcher unable to even realize that she probably got it right. But that is how life is; we make our bets and leave the stage before it all ends. All we can do is fight the good fight, finish the race, and keep the faith.
Two key points jump out to me from Richard's excellent commentary - and the effects of the Thatcher / Delors 'debate' these decades later.
Margaret Thatcher argued and articulated the 'conservative' approach - that based towards limited government, individual accountability and responsibility, and that the EU vision should be a 'glorified free trade zone of like minded states' and nothing beyond that. Jacques Delors argued and articulated the 'liberal' approach - that being based towards a larger and centralized government control, far less individual accountability and responsibility, and that the EU vision is one of a United States of Europe controlled by a strong central government.
Of these competing 'visions', once again, the conservative approach is the one that would have worked best for all involved - and likely avoided the crisis the region finds itself in today. While nations like Greece, Italy, Spain, etc could still find themselves in a fiscal crisis, this would have been a crisis of their own making - one that they individually would be accountable and responsible for. They would not have the same effect across the other nations of Europe / European Union as they do today.
This is why the solution calling for greater centralized fiscal control by the European Union bureaucracy is the wrong thing for Europe to be doing. They are not the United States of Europe nor will the United States of Europe work as an entity. The EU and Euro that was developed was far closer to the vision of Jacques Delors - and to complete that vision will not solve the problem of going down that path in the first place.
The second key point that jumped out to me came from the words of Jacques Delors in the interview with the Telegraph's Charles Moore when asked if he got it all wrong.
Unhesitatingly, he denies it. It is a fault in the execution, not of the architects, which he claimed to have pointed out in 1997 when the plans for introducing the euro finally came together.When faced with the fact that he, and his vision, do get it all wrong, Delors resorts to the standard mea culpa of the left to place the blame not on the intellectual bankruptcy of their vision, but on the execution of that vision. The inability of the so-called intellectuals to see or to admit the bankruptcy of their vision in the real world - as opposed to the world of theory - is what prevents new generations from learning from the past. Each new set of converts to this bankrupt ideology believes that they will finally be the one's who will succeed in the execution of the architecture. So they will try yet again, and when they fail, they will point to the execution as the point of failure, not to the deserved fault in the architecture.