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‘What Price for Fiscal Union?’, by Sheila Lawlor

What Price for Fiscal Union?

Sheila Lawlor

Friday 30th January 2012: This week Europe’s leaders move a step closer to financial union, with plans to centralise budget control for the Eurozone in a new fiscal compact. This means that in future tax and public spending decisions would be finalised centrally. Individual Eurozone parliaments would no longer be sovereign when it comes to tax and spending policy. No prizes for guessing this is a ‘made in Germany’ plan with a little help from the French. If Germany is to pay bail-out bills, its voters want tighter control of budgets in the bail-out countries.

Though the Eurozone leaders have indicated they’ll sign up to the final treaty, will their people support them? The initial signs are that they will not. Working people have taken their battle against budget cuts to the streets, from Athens to Dublin. At Monday’s summit, public transport in Brussels was paralysed by a strike. The Greeks, who have served as guinea pigs for the centrally-set budget, are rebelling. The second bail-out is conditional not just on the stringent terms set centrally, but on Greece agreeing to a Brussels ‘budget commissioner’ to run its troubled finances. But Greek Ministers are warning that sovereignty is a red line not to be crossed. They refuse to be told by someone else how to spend their own money.

That’s the problem: it’s not entirely their own money, indeed not near it. George Osborne says the transfer of wealth from creditor countries like Germany to those struggling with debt such as Greece and Portugal is a necessary step. But he’s wrong to suggest it’s the same ‘as moving money from London to the North of England’.

Here in the UK people accept the fact that transfers take place within the same country as the price paid for decent standards of living, social stability and support, owing to the sense of shared national ties, interests and history. For the same reason Germans paid a huge price to unite Germany, after the Soviet Union fell and left the future open for East Germany. But transferring huge sums to other countries by government fiat can only be done with the tight controls along the lines of the proposed new fiscal system. And even if that goes ahead (a big if), few popular leaders would long survive the wrath of their own people once livelihoods seem to be disposed of by a distant country over which they have no control.

Eurozone leaders want the Euro project to continue and to survive. To do so they must restrict the freedom of member states and control budgetary policy. They need a system that that stops the politicians bribing voters with their own money – or that of their fellow citizens.

That’s the theory. It’s one Mrs Merkel has introduced into German budgetary policy and the Coalition has adopted in embryonic form in the UK’s Office for Budgetary Responsibility. Indeed, a far stronger model is proposed by Michael Bordo and Harold James in Politeia’s new study. They see it as an important step to restoring fiscal sanity in a world racked by debt, insolvency and instability.

But while Greek or Italian, German or British voters might vote in a national system to police their own politicians, they are less likely to accept a foreign policeman, or for that matter another taxmaster.

*Dr Sheila Lawlor is the Director of Politeia

Dr Sheila Lawlor

Dr Sheila Lawlor is Politeia’s Founder and Director of Research. Her background is as an academic historian of 20th century British political history, having started her working life as research fellow at Sidney Sussex College, Cambridge and Churchill College, Cambridge. Her academic publications include Churchill and the Politics of War 1940-41 and for Politeia she has written on social, economic and constitutional policy.

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