December 28, 2008
First – apologies for delay in getting to this post – my trip abroad was longer than planned and then got into the Christmas holiday period…
Second – I am a ‘lay’ person intersted in eurozone goverance but am not an expert in all of the fine print of EU law so I may get a couple of things wrong in these posts! If my mistake is small and does not invalidate my point then let it be! If, however, my mistake completely invalidates my point then please let me know!
Ok, the post….
The first head of government eurozone meeting took place in the second half of 2008 – and indeed with the addition of the UK’s Brown perhaps this does not constitute a eurozone meeting. I think this point is worth emphasising – the eurozone came into existence in 1999 and the first head of government meeting took place in the second half of 2008…..
I understand the arguments against such meetings – 1) there are already institutions and goverance within the EU and therefore we don’t need to create new ones. 2) All EU countries (who do not have opt outs) are commited to joining the eurozone so it isn’t a separate organisation requiring goverance – just a case of early mover status by some countries.
I think this is wrong and the eurozone needs a proper governing framework and I think this is urgent. why?
1) There are clear fault lines in the euro area – the absence of a unified fiscal union is the main one. Therefore goverance is even more important. The stability and growth pact (as a subsitute for for proper fiscal authorities) will need defending and fixing – and it is the job of the eurozone members to do this
2) The eurozone hasn’t dealt with its end state – or to be more accurate it hasn’t dealt with its structures once all members (theoretically) join. At the moment all members of the eurozone sit on the ECB council. So if (being optomistic) all current members of the EU join the eurozone the governing council of the ECB will be a 27+ body. As we have seen from the Lisbon treaty ratification process, “taking” a member’s representative away is a controversial issue so it seems the rule is the ECB governing council will be as big as the eurozone. As a comparison the US FOMC (Federal Open Market Committee) has 12 members. This is a far more appropriate structure for decisions as important as interest rates and the ECB needs to work towards a system that is not nation specific. My point here is that we are repeating history – enlarge, use existing rules only to discover at some point that decision making is impossible, panic and seek to set new rules before further expansion – as noted it’s called ‘Lisbon’. Let’s not repeat it with the eurozone – get the structure right BEFORE further expansion.
3) Simply put the eurozone is different – Sharing a currency is not the same as agreeing on a more unified fisheries policy! It is a major decision to abandon independent monetary policy. Perhaps this is unpopular now as a confidence lacking EU doesn’t say things like “sovereignty sharing” but that is what the eurozone is – a major level of sovereignty sharing. Unfortunately we went half way -we did the monetary union without the political (meaning fiscal) union and it is therefore less than satisfactory. Therefore governance is even more important.
4) we cannot wait for all EU coutries to join – look, let’s be realistic – there will never be ‘union’ between EU membership and eurozone membership (if only because the EU doesn’t seem to ever want to stop enalarging!). The UK is still not ready psychologically (actually the current discussion in the UK on euro membership is quite bizzare – there is no way Germany, France or Ireland would support UK membership at the current exchange rate!) to join and based on the economic situation of many of the eastern european countries it will be many years before qualification is met. Therefore we will almost certainly never reach a stage in which the membership of the eurozone and the EU are the same. What does this mean? It means the eurozone needs to look after its membership – to repeat, sharing a currency is a major step and a major sharing of sovereignty – it needs a proper governance structure.
I will expand on all of these points in further posts but key points are:
a) the eurozone is a major step – stop pretneding it is not a significant sharing of sovereignty – it is
b) there will always be a difference between EU membership and eurozone membership – i.e it is and will always be a different group
c) without political union (fiscal union) the eurozone is a risk (like the sovereignty issue let’s not be afraid to say the word risk). If we are not going to pool fiscal policy then we need proper goverance and we need it at the eurozone level only
d) stop the ever expanding ECB governing council – get the 15 to agree the right size – the US model involves a partial rotating system, perhaps this is the way forward. In any case we cannot go on expanding the ECB council and expect proper decision making
In summary therefore, we have taken a risk with monetary union without political union – let’s get the goverance right or let’s unwind it altogether because the current state being allowed to drift is actually dengerous and not in the long term interest of Europe or its citizens. A proper functioning eurozone can, however, leverage the size and wealth of the region to take its proper place in the world – particularly after China / India emergence!
’till next time
JohnAuthor : jpf74