The Idea Department

Considering the solution to the Eurocrisis, two Project Syndicate contributors have highlighted the need for considerations of a ‘fiscal council’ (Velasco) or ‘fiscal union’(Davies) to be taken seriously. 

Andres Velasco detailed in his contribution: ‘Eurobonds without Fear’, that though eurobonds were once dismissed as a ‘quacks’ idea, they are now moving to the forefront of serious discussion on the subject, as a serious contender for a solution to Europe’s economic problems.

Velasco writes that the ‘European Financial Stability Facility’ doesn’t cut it, and that although the countries in the most financial trouble at the moment would definitively acquire new debt in the tens of billions, the situation could be kept under the most control with the aid of a fiscal council, rather than individual contingencies attempting to work together. In hopes that ‘But markets would happily gorge on bonds backed by the full faith and credit of the eurozone’, and Velasco ends, ‘Agreeing on the composition of such a council for Europe would be hard, but no harder than it was to agree on the makeup of the ECB’s board.

Howard Davies, who has written ‘Europe’s Financial Wasteland’, presumes that the more so Nationalist parties in Europe would not favour a Fiscal Union, though outlines that certain countries, such as Germany, are running out of alternative options and must come to terms with the realization that ‘their interests lie in preserving the eurozone intact’

He writes that the Eurozone will have to ‘contract’ with the ‘uncompetitive periphery dropping out’, or alternatively the debt of EU member countries will have to be ‘collectively guaranteed’, here, suggesting a fiscal union, which he feels could be the only solution in persuading investors to go near debt issues from the ‘fiscally challenged’ members of the eurozone.