MONETARY POLICies
itself, but of errant behaviour within it. If certain countries had not broken the rules, they argue, the eurozone would never have run into trouble. The way to restore confidence, it follows, is to ensure that rules are rigorously enforced. And this is more or less the clear message, which came out from the December 9th summit with focus on more e n fo r c eab le budget
rules
for participants nations.
These claims are wrong on almost every count. It is now clear that a monetary union outside a fiscal union is a deeply unstable arrang ement ; and that efforts to fix
this flaw
with stricter and more rigid rules are making the eurozone less stable, not more.
hallmark of fiscal integration is mutualisation: a greater pooling of budgetary resources, joint debt issuance, a common backstop to the banking system, and so on. Tighter rules are not so much a path to mutualisation, as, eventually, an attempt to prevent it from happening.
FX
its fundamental problems. If Europe’s leaders want to restore the financial markets’ flagging faith in the eurozone, they must do two things: commit themselves
to rectif ying the
currency bloc’s institutional flaws (in the medium to long term); and (in the shorter term) obsess less about rigidly adhering rules.
to The
legal, political and democratic obstacles
to
such a course of action are huge,
however.
So the eurozone is more likely to get the opposite: attempt rectif y
no to
the
A monetary union outside a fiscal union is a deeply unstable arrangement. Efforts to fix this flaw with stricter and more rigid rules are making the eurozone less stable, not more.
The reason the eurozone is governed by rules is that few of its member-states, least of all its wealthier North
European
ones, have any appetite for fiscal union. Rules are no substitute for
common institutions. And
tighter rules do not amount to greater fiscal integration. The
The time for ambiguity and muddling through will be soon over. Even Jacques Delors, possibly the main father of the single currency, recently admitted that the project was flawed from the start and the current generation of European leaders has failed to address
i n s ti t u ti o na l flaws, and an insistence on sticking to rigid rules.
This
course of action is more likely to
precipitate the euro’s
disintegration than its survival. Help from ECB can only buy time. It is unlikely to be a game- changer if a real path towards integration (i.e. diminishing unbalances)
is not pursued
with determination and decent speed.
Alessandro Balsotti FX TRADER MAGAZINE January - March 2012 47
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