Agreement on a fiscal pact that brings deeper economic integration by making budget discipline legally binding and enforceable by European authorities is a welcome move, so long as the European Central Bank takes the next move: to become a lender of last resort. But even it were to do so, and in so doing solve the debt crisis, there are two other major issues confronting the EU.
First, hiding behind the debt crisis is a growth crisis. The fiscal pact, which mandates radical deficit reductions for all member-states and across-the-board cuts for the Southern European, does nothing to solve this second crisis.
Second, technocratic surveillance of national budgets based on automatic mechanisms agreed intergovernmentally by member-state governments, without public or parliamentary debate at EU or national levels, is a recipe for disaster. Not only does it close off the possibility of new ideas to bubble up through debate, it disenfranchises EU citizens.
While mainstream leaders may not see a problem with this—since they are the ones agreeing to the pact—the extremes on the right and the left will have a heyday with this. Let us just hope that the debt crisis resolves itself quickly, and that growth picks up again soon. If not, scenarios reminiscent of the 1930s come to mind.
Europe’s Leaders Pursue New Pact, Deal Would Bring Closer Fiscal Ties (Wall Street Journal 11/28/11)