A European Fiscal Union


New York, the day before Thanksgiving 2010.


Money talks.

When you run out of money, you lose your voice.

I wish Paul Krugman could learn this.

Today, however, it is the Irish who are being taught this lesson.


The Irish debacle has huge implications.

It does not mean the end of the euro.

At least not in the foreseeable future.

It is worse than that: it allows the eurocrats to start building their fiscal union.


Ireland did not get into this mess because of its pro-business policies so hated in Brussels.

Instead, Ireland got fooled by its bankers.

A retiree quoted in the Wall Street Journal today puts it best:

“The government is incompetent. It believed everything the bank told them and then wrote them a blank check.”

Unfortunately this is also the case in many other countries.

Politicians are still under the spell of the bankers.

But why is it so important to save their bonuses?

When did we decide bankers were talented, irreplaceable people?


Ms. Merkel is a lone voice today in calling for bond investors (bankers and their foolish clients) to share some of the pain in European bailouts.

She is right.

But she is also now in a position to enforce a German long term goal: fiscal union.


In 1992, Euroland became a large market where goods, people and capital were allowed to flow freely.

This took away countries’ ability to protect their markets with tariffs and non-tariff barriers.

Then came the Maastricht Treaty that took away Euroland countries’ monetary independence.

Margaret Thatcher was on board in 1992.

The Brits were more uncomfortable with the second step.

They joined the monetary union for a short while, before being not so reluctantly forced out.


I always believed a monetary union between sovereign countries was a marvelous thing.

Besides education, talent and risk taking, countries were able to compete with fiscal policies.

This set in motion a virtuous circle.

How else does anyone explain Euroland’s constant reduction in corporate and income tax rates?

This was a trend the politicians and the eurocrats had to stop.

Already a few years back did tried to strong arm Ireland into higher corporate tax rates.

Ireland balked.

Today, in spite of what the disgraced Prime Minister claims, they have lost the battle.

Ireland’s 12.5% corporate tax rate is on its way out.


Fiscal Union is now marching in.

This means eurocrats will set the rates.

Which means rates are going back up.

Prime Ministers will now be like US governors.

Their roles will be limited to setting the levels of parking tickets.

A couple of heads of government will be just a bit more equal than others.


Unlike the US, there will not be an elected president.

This is heaven for bureacrats.


It is a sad day for Europe.

Damn you, Mr Cowen.


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