Van Rompuy’s proposal for enhancing monetary and economic union may prevent future crisis but utterly fails to address the current one. It amounts to a futile exercise when Europe is trapped in a deep rooted recession. Following Berlin’s diktat it promotes fiscal virtues and dumps in a limbo financial solidarity. No euro bonds or bills, just a vague promise to put in place a mutual insurance scheme closely linked to full compliance with strict budgetary goals and a wide range of structural reforms to be implemented. Binding commitments would be entered to make sure Brussels can effectively monitor them.
Germany is taking advantage of other partner’s feebleness to impose its credo. It aims to firmly anchor the fiscal compact initiative it has so forcefully battled for, while disengaging itself from any financial contingency. The mutual assistance plan would act as a bumper in case future external shocks emerge, failing to take on board past liabilities. Each partner will have to face a painful deleverage to get rid of the huge pile of cumulated debt.
As this limited support would only be fully implemented after 2014, no emergency kit is at hand should the downturn turn into a free fall over the next months. The odds that may happen seem too high to flatly ignore them. Should the US lawmakers fail to avoid a fiscal cliff or the world economy sharply reduce its growth rate, the EU is bound to suffer a nasty shock. Even if this doomsday scenario fails to materialize, the sluggish European performance will inevitably lead to daunting hurdles in trying to square the public accounts and cope with an ever mounting debt.
The Van Rompuy’s plan simply flunks the test by failing to provide any answer to today’s urging needs. Worst than that: even allowing we disregard the lethal flaw it doesn’t meet current requirements, it embodies a short-sighted policy stance. It focuses exclusively on fiscal imbalances as the key frailty in Europe, imposing an asymmetric discipline bound to further depress overall demand. Budgetary deviations will be harshly curtailed while no pressure would be exerted on countries unwilling to fully use their potential margin to invigorate the economy. The likely outcome will be a marked growth gap for the Euro zone in years to come.
No one seems to pay attention to the compelling demand for a far-reaching growth strategy. This goal certainly requires enhancing competitiveness by enforcing sweeping reforms. But it also badly needs that macro-economic policy conducted across the Euro zone aims at delivering a solid support for early recovery. Instead of concentrating efforts on such a key issue, valuable time is lost on sideline squabbles over the Banking Union and other ancillary by-products. Failing to learn the lessons from the crisis, the EU will take long before it finds the way out from its current mess.