Monetary union was never about economic logic.
Rather than admit that the euro was a mistake, EU leaders are preparing the mother of all bailouts. One-off grants are no longer enough.
What Euro-federalists now plan – what, indeed, they have been demanding for years – is a single eurozone bond market.
Holders of junk national bonds will be invited to exchange their debt for new EU-backed bonds. The European Central Bank, or perhaps some new legal entity, will assume the bad debts of some of the stricken governments.
Such a scheme will be expensive: it’s hard to see it costing less than a trillion euros. It will also be colossally unpopular: taxpayers in the donor countries will resent being made to pay for more profligate governments, while voters in the recipient countries are already protesting about the loss of economic sovereignty.
Most serious of all, it will be illegal.
Article 125 of the European Treaty could hardly be clearer:
“The Union shall not be liable for or assume the commitments of central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of any Member State.”
No one even pretends that such bonds are permitted under the existing rules. As Angela Merkel put it last year: “We have a treaty under which there is no possibility of paying to bail out states.”
Now, though, she is taking a different line. “Europe,” Mrs Merkel declared on Tuesday, “is unthinkable without the euro.”
One wonders what existed at the western tip of the Eurasian landmass before 1999, but leave that to one side. The Chancellor’s point is clear. The survival of the single currency is a political goal for which she is prepared to pay any economic price – or, rather, to make her people to pay.
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