Otmar Issing's article in the FT this morning makes for very interesting reading. His former role on the ECB's executive board and therefore as an architect of the Single Currency makes his analysis of the current problems all the more important. But it also raises big questions.
"The crisis of European economic and monetary union seems to confirm a long-standing belief that monetary union cannot survive without political union...He goes on to warn that:
...Connecting the initial idea of a political union with developments currently under way is both logically flawed and politically dangerous. In short: a consistent concept of a political union should be based on a constitution, and imply a European government controlled by a European Parliament, elected according to democratic principles.
What we see happening now is something quite different. More and more national taxpayers’ money is now at risk to “save” the euro. Yet the conclusion that this process is leading in the direction of political union is derived from the strict conditions imposed upon member states that broke the rules, in exchange for help – conditions which imply a kind of European control over elements of member state governments."
"Any attempt to 'save' monetary union via agreements which transfer sovereignty to a European level, where violations of fundamental treaties have become a regular event, lacks any logic. In the end it will only further alienate the people from Europe itself.Issing's analysis is extremely powerful and one that we would largely agree with - and it's also an indication of the frustration in Germany over the direction in which the Single Currency is moving, not least with the ECB's decision to start splashing around in the Spanish and Italian bond markets. But Issing's article begs the question, what is the alternative solution to the political union that he describes? After all, Issing is not arguing for the euro to be abolished. In fact in his last sentence, he describes it as "the most successful project of economic integration in the history of mankind."
...This type of political union would not survive. Its collapse would be brought by resistance from the people. In the past cries of 'no taxation without representation' have brought war. This time the consequence would be to threaten the collapse of the most successful project of economic integration in the history of mankind."
Issing describes the euro as a "depoliticised currency" based on "rules enshrined in international treaties" and "entrusted to an independent central bank with a clear mandate to maintain price stability." This could very easily be characterised as the wider German rule-based view of how the euro (and many other things in life) should work.
But what about the countries who haven't been able to survive within the rules? Alright Greece broke them from the start but the likes of Spain and Italy are clearly struggling to cope within the euro's one-size-fits-all straitjacket and played by the rules in good times.
Issing doesn't offer an opinion on how this should be addressed but surely the logic of maintaining this rules-based view is that those that can't stick to them will have to leave.
Of course, Issing is far too diplomatic to even hint at this possibility but once you acknowledge that going down the current path of collectivising debt in the eurozone, and saving the fiscally irresponsible, will cause the euro to "collapse" and "further alienate people" what other alternative is there to showing the rule-breakers the exit door?