By Konstantin von Hammerstein, Christoph Pauly and Christoph Schult
The idea developed by the Euro-crats would force governments to live within their means and to spend only that money which they take in themselves. Only then would they be able to maintain full national control of their expenditures. Should the concept work, it has the potential of transforming the current debt union into a union of stability.
The model sounds almost too good to ever come true. So far, not even Germany -- which enjoys extremely low interest rates and a strong economy -- has been able to get by without taking on new debt. It would also mean that even paragons of fiscal responsibility might at some point have to ask Brussels for help in the case of rising interest rates or an economic slowdown.
As a result, a significantly watered down version of the plan is already making its way through Europe's capitals. Accordingly, only new debt which exceeds 3 percent of a country's economic output would have to be rubber-stamped by the finance minister group.
A further chapter of the concept developed by the four Euro-crats addresses the need to inject more democracy into European resolutions. Commission President Barroso has highlighted the need to outfit a political union with democratic legitimacy. One such idea envisions the European Commission president being elected directly by European citizens. Another concept under consideration, say sources in Brussels, is that of turning the office of commission president and European Council president into one -- a kind of "European president."
Some ideas have already entered the public discussion, such as a European-wide deposit guarantee. The proposal calls for the creation of a deposit insurance fund to be developed over the period of 10 years whose size would be the equivalent of 1 percent of all European savings accounts -- or roughly 100 billion.
A powerful, EU-wide bank supervisory body is also envisioned. They would not only keep an eye on systemically relevant financial institutions, but on all banks. Recent years have shown that in Europe, it was the seemingly unimportant banks that created some of the largest problems. That was true of the IKB Deutsche Industriebank in Germany and the same phenomenon can now be seen in Spanish savings banks.
Even before it has been officially presented, however, the new Euro Pact faces extremely high hurdles. National parliaments would have to be amended across the continent and several countries would be required to hold referenda. Such a poll might even be required in Germany, as hinted at by the Constitutional Court ruling on the Lisbon Treaty. Should Berlin seek to transfer more power to Brussels on financial questions, according to the most common interpretation of the ruling, then a referendum would become necessary.
It would be a momentous decision for German voters. Were they to vote no, it would likely mean the end of the euro and the entire continent would be plunged into a deep recession. Were they to vote yes, future German financial policy would be made in Brussels.
It would be the beginning of the United States of Europe. And Germans would likely only be able to approve the plan if it could credibly guarantee that the new political construct would commit to emulating Germany's culture of stability.
As such, the four European architects are aiming at establishing a new European consensus. Germany would have to take on additional risks within the euro zone. In return, southern Europeans would have to grant Brussels control over their national budgets -- according to German principles.
It would be an experiment with uncertain results. It could, in the end, be the savior of the common European currency -- or it could mean the implosion of Europe. Such a plan could very well calm international financial markets. But it could also be that Europeans wouldn't accept it. Still, it might be the last chance to prevent a collapse of the euro.
Next Monday, heads of state and government of the world's largest economies are meeting in Mexico for the G-20 summit. It begins one day after parliamentary elections in Greece -- and the rest of the world will want to know how Europe intends to save its common currency. At the G-20 summit last year in Cannes, developing economies such as Mexico and Brazil lectured Europe on what had to be done. Merkel, Van Rompuy and their counterparts would like to avoid a similar embarrassment this time around.
At a meeting of the European Economic and Social Committee in Brussels last Thursday, Euro-Group head Jean-Claude Juncker said that partners in the US and China often tell him that Europe is "behind the curve." He warned that "we are behind the developments." It is time, he said, to consider steps that have thus far been considered unthinkable. "The world has to know that we are absolutely determined."
Translated from the German by Charles Hawley
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