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Towards European Fiscal Union

Is fiscal union really necessary for a single currency to work...?

IT'S HARD to know where to start—and even harder to keep up – with what is going on in Europe, writes Sean Corrigan for the Cobden Centre.

Life not only imitates art, but frequently surpasses it with every screen refresh of the modern 24/7 news cycle.

One feature among this whirl of comment and counter-comment which does exercise your author is the irritating penchant for talking heads and gurus manqué to adopt the soundbite of the moment and then to repeat it mindlessly as if it were some profound coinage of their own.

'Kicking the can down the road' is a particular disfavorite of the moment, but at least its overuse is an easily forgivable lapse for those speaking impromptu, if not quite so pardonable for those writing and having the benefit of a second look at what they are saying.

But the one that really gets one's goat is the mindless mantra of 'no monetary union without fiscal union' since this is not only larded with an ersatz gravitas, but actually propounds a false economics. Worse, it insinuates a Bernaysian programming into the user's mind in favor of the gross imperialism espoused by the worst One World Government vipers in our nest.

In truth, this infernal mantra is a complete canard which perhaps deserves a moment's further examination.

When you and I, as neighbors, do business with one another, we are effectively co-members of a monetary union, too, yet we seem instinctively to manage without ever having to agree to pool our household finances—that is, to engage in an interpersonal fiscal union—as a way of ensuring that we can both continue to accept the same medium of exchange.

So, if it works for individuals, why is it any different if one clan trades with another, or one village, one canton—or one whole nation?

Can we not be honest enough to stop parroting this latest Newspeak which the bien pensants have cooked up in order to serve their masters' hidden agenda and to say, candidly, that:

'It is highly likely that the European leadership will chose one of the two, following alternatives, since they believe these to exhaust all possible ways of trying to address their self-inflicted problems.'

'One, they will engage in the OVERT fiscal union of a federal budgetary control exercised far from the scrutiny of the concerned citizen—even though this may be in contravention of the rule of law and will undoubtedly take place absent any democratic mandate.

Or, two, they will indulge in the COVERT fiscal union of massive, central bank inflation injected via the indiscriminate purchase of government bonds, weighted to those IOUs issued by the most abject profligates, the one responsible for getting us into this mess in the first place'

The first, the irresistibly acronymic FU, is presumably the elite's first preference since it suits the collectivist dream which informs the whole project of erecting an Unholy Roman Empire (or an EUSSR if you are even more cynical) – and it also reduces the scope for the sort of tiresome, bottom-up, locally-chosen, social arrangements to flourish within each of the national polities, different visions which might therefore compete within the Union—a central planner's nightmare, if ever one existed!

For the second, that also speaks to the mainstream fetish with top-down 'fixes' and also with the (non-Teutonic) boys' room envy of the unfettered Fed which undoubtedly prevails in the dark corridors of the ECB. So, at some point, this could well become a complement to the former approach, if only over the metaphorically dead bodies of a few more Bundesbankers.

Note, however, that if Snr Draghi emulates his ineffable predecessor in office and adds meaningfully to the size of the ECB's balance sheet expansion and to its credit exposure, it may quickly require a near-consummate degree of FU to backstop it in any case.

If asked to opt for a choice, we think this latter is still a second choice—if an achingly tempting one— since it raises a host of opposing issues far too emotive and far too easily sound-bitten to be palatable to a German electorate which must be lulled or scared into acquiescence with the power transfer and with their implicit underwriting of most of the associated costs (witness the recent furor over a putative IMF smash'n'grab to replace Buba gold with their SDR dross).

Just this last week, there has appeared—almost out of nowhere—the kernel of an idea of following a third, previously unthinkable route: viz, that of pushing the recalcitrants and the feckless out of the single currency, if not out of the Union itself.

Transitional difficulties aside, this is almost something we would be inclined to endorse as a lesser of many evils were it not for the sneaking suspicion that it is nothing more than a gambit aimed at scaring the ne'er-do-well, Latinate nephews with the prospect that their stern, Northern European, maiden aunts might not continue with their allowance if they do not promise to do better in future. Time will tell.

Which particular road to perdition is followed is still very much moot at the moment, but while we wait to be informed of the choice, we might while away the time in contemplation of the fact that the deliberately constricted menu which the world's leaders have set before themselves does not actually list all the available options.

Just as a completely whimsical Gedanken experiment—with no practical relevance in the world as it is today, alas—let's just suppose that we write down/off the Greeks' (and all the others') insupportable sovereign debts; that we shut those among the 7000 (sic!) extant EZone banks which can't cope with the reality check; that we recap those who can, but who are now impaired—by appeal to private means for strong preference. 

Then, the Augean stables cleansed, we then insist on a proper degree of sanitation, henceforth, meaning that we balance budgets by reducing government spending to a bare minimum while kick-starting growth through offering (generalized and simple, not falsely-ingenious and dirigiste) tax incentives to promote entrepreneurship and to foster capital formation.

This latter may never, ever fly among today's global Jacobins, but that's not to say that we cannot wonder whether such radical thinking might point to a way out of the false dichotomy posited by the powers-that- be. Nor, even if we wearily admit defeat as a matter of pragmatic politics, do we have to deny ourselves the chance to offer up a critical analysis of the half-truths and quack thinking they are offering up as a rationale for their blind Flucht nach Vorn.

The dismissal of the platform encapsulated in the shibboleth of 'no common money without a common treasury' is a classic case in point. What do those who solemnly rehearse this formula think happened during the long millennia when real, tangible, specie money flowed freely across borders and between sovereignties everywhere?

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Stalwart economist of the anti-government Austrian school, Sean Corrigan has been thumbing his nose at the crowd ever since he sold Sterling for a profit as the ERM collapsed in autumn 1992. Former City correspondent for The Daily Reckoning, a frequent contributor to the widely-respected Ludwig von Mises and Cobden Centre websites, and a regular guest on CNBC, Mr.Corrigan is a consultant at Hinde Capital, writing their Macro Letter.

See the full archive of Sean Corrigan articles.

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