Fog Over Eurozone Can’t Pass Through British Sky!!
Written by Tony Perla
The implementation of a European Banking Union – at least for the Euro-Zone – is almost complete. The elements are there and it is just a matter of time for them to be instituted into national law. Europe has no “Constitution” or even body of law. All directives, for instance, from the European Commission must be voted into existence in each country’s legislation. Yes, this makes for a time consuming lag from inception to implementation.
The process, to my mind, is clearly being driven by Germany. They have insisted on two measures that must exist before they give any leash to the ECB to assume any further Quantitative Easing.
The first measure is the fact that the Golden Rule of Budget Balancing (with a condition that no budget exceed a certain percentage of GDP). The Germans had accepted the 3% limitation at the signature of the Maastricht Treaty, but caved on the ability of the EU Commission to review national budgets before being voted. (Otherwise there is no sense to an overview.)
How this will work is still a great unknown. But the very fact that there is now a formal EU Commission oversight will likely prevent errant countries to assume debt “off-the-books” as Greece did with the connivance of Goldman, Sachs. Also, if the inter-government treaty is not signed by a member country, then it cannot benefit from the European Stability Fund that amounts to about 500 billion euros.
There is also the fact that the European Court of Justice will oversee the implementation of all legal agreements pursuant to the Treaty. So, if thought necessary, the other European countries can bring a member before the Court of Justice.
Will this prevent profligacy? Well, it can’t. The Commission’s oversight authority cannot complain about what a country spends its budget upon. It can only raise points about overall spending levels and how the country will balance their budget from revenue sources. The internal discipline therefore must remain with the country’s political leadership. Obviously, from Left to Right of the political spectrum, that interpretation will vary widely.
Still, once these measures are in place, Europe just might see the sort of Stimulus Spending that Keynesians think is absolutely necessary to kick-start EU economies. And I tend to agree.
Waiting for the stimulus-spending fairy to do it just won’t do …
Unseen and unnoticed in this process is the fact that one major EU country will not be participating in the Union. Namely, the UK. Once again, “Fog over Channel. Continent cut off” from our British friends.
Will this have an ultimate impact upon British politics? Eventually, it just may do that. Britain’s fence-sitting is getting a bit “old hat”, as the Brits say …
About the Author
Tony Perla is an American national who is fully conversant in European business. He assists American companies seeking to implant/expand in Europe. He knows French, Italian and English. To know more about him, follow his LinkedIn account.