Friday, July 27, 2012
The Allure of Growth for the Euro Zone
July 27, 2012
A currency union requires strong political leadership, and complete integration of monetary institutions within a single state, to be able to survive. Yet there still seems to be a collective reluctance to acknowledge the scale of the requirements for full monetary and fiscal union in the euro zone.
It would mean the surrender of national sovereignty on economic management, and a pooling of debt. The terms "debt pooling" or "monetary union" are used in an abstract way; in reality it would mean taxes sent from all individuals and organizations in all euro zone states to the center, to be distributed to all others, covering debt repayments as well as hospitals for example. It would mean a single central Exchequer responsible for taxation and budget spending across the euro zone. Are the countries of the euro zone ready for this?
While the official line is that the euro is here to stay, the yield on five-year government bonds is just 0.3 percent in Germany, over 5 percent in Italy and 6.5 percent in Spain. Thus the markets are already assuming a break-up, at the very least into two blocs.