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Published on December 15th, 2011 | by David Christie
Image © [caption id="" align="alignleft" width="240" caption="David Cameron shakes hands with European Council President Herman Van Rompuy. Was Cameron right to reject the fiscal union deal? Image from the President of the European Council's photostream"]David Cameron shakes hands with European Council President Herman Van Rompuy.  Was Cameron right to reject the fiscal union deal?  Image from the President of the European Council's photostream[/caption] Last week I suggested that European fiscal union, appalling as some of its consequences may be, is the only way of preventing a cataclysmic global financial collapse.  However, after further reflection I now wonder if this is not the case, for the simple reason that fiscal union might not work: it is probably a futile attempt to hold back an inevitable financial meltdown.  It could be argued that the single currency never made sense without full political union, and that this, not a mere fiscal union, is the only way of saving the Euro.  However, political union is impossible, because most people in Europe (including in the core countries, France and Germany) don't want it.  Therefore if Merkel and Sarkozy, on realising that fiscal union is insufficent, attempt to accelerate European integration even further, they will be prevented from doing so by European public opinion.  The Euro could then finally collapse once this point is reached. But the Euro could collapse much earlier than this, because the fiscal union as it stands could still unravel.  Nine EU countries outside the Eurozone are still waiting to consult their parliaments before giving it their full approval, and Ireland might hold a referendum on it.  We could also see changes in governments over the next year, with countries that initially accepted the deal deciding to withdraw from it: for example, Sarkozy might lose next year's French Presidential election, and Francios Hollande, the Socialist Party's candidate, says that he will renegotiate the deal if he is elected President.  Alternatively, the gathering storm in the European banking system could knock out the Euro even before that.  There is nothing in the current deal which addresses this, as it did not include a financial ‘big bazooka’: the Germans, with their paranoid fear that printing money will lead to Weimar Republic-style hyper-inflation, are still preventing the European Central Bank from taking a more active role. Therefore it could be argued that David Cameron was right to reject the deal, because it was doomed from the start.  He has been accused of isolating us in Europe, but if the fiscal union breaks down, he could be seen as vindicated.  His stated reason for not signing the deal was to protect the UK’s financial services industry, and he has been criticised for trying to avoid tougher financial regulation.  Therefore Cameron did the right thing for the wrong reasons.  Whatever your ideological perspective, there are much better reasons for rejecting the deal.  Many Conservatives are against it because they believe that it would have promoted even more European interference in British affairs (so Tory Eurosceptics are delighted with Cameron's decision).  Many left-wingers are also against the deal, because it will force aggressive right-wing austerity policies on the weaker Eurozone economies, and could potentially prevent any Eurozone country from using government expenditure to stimulate growth. Eurosceptics of left and right will both surely agree that the fiscal union is a futile attempt to prop up a failing economic project, which has done immense harm to many of the countries involved in it.  So instead of European leaders desperately trying to save it, wouldn't it be better if they admitted defeat and dismantled the Euro?  But this is not really an option anymore, as an end to the single currency is now likely to have disastrous consequences for the global economy.  So what can be done?  The only option left to save the Euro is probably for the ECB to take a more active role, but the Germans are blocking this.  As long as they keep on blocking it, a global economic catastrophe is looking more and more inevitable.

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Will European fiscal union work, and was Cameron right to reject it?

David Cameron shakes hands with European Council President Herman Van Rompuy.  Was Cameron right to reject the fiscal union deal?  Image from the President of the European Council's photostream

David Cameron shakes hands with European Council President Herman Van Rompuy. Was Cameron right to reject the fiscal union deal? Image from the President of the European Council's photostream

Last week I suggested that European fiscal union, appalling as some of its consequences may be, is the only way of preventing a cataclysmic global financial collapse.  However, after further reflection I now wonder if this is not the case, for the simple reason that fiscal union might not work: it is probably a futile attempt to hold back an inevitable financial meltdown.  It could be argued that the single currency never made sense without full political union, and that this, not a mere fiscal union, is the only way of saving the Euro.  However, political union is impossible, because most people in Europe (including in the core countries, France and Germany) don’t want it.  Therefore if Merkel and Sarkozy, on realising that fiscal union is insufficent, attempt to accelerate European integration even further, they will be prevented from doing so by European public opinion.  The Euro could then finally collapse once this point is reached.

But the Euro could collapse much earlier than this, because the fiscal union as it stands could still unravel.  Nine EU countries outside the Eurozone are still waiting to consult their parliaments before giving it their full approval, and Ireland might hold a referendum on it.  We could also see changes in governments over the next year, with countries that initially accepted the deal deciding to withdraw from it: for example, Sarkozy might lose next year’s French Presidential election, and Francios Hollande, the Socialist Party’s candidate, says that he will renegotiate the deal if he is elected President.  Alternatively, the gathering storm in the European banking system could knock out the Euro even before that.  There is nothing in the current deal which addresses this, as it did not include a financial ‘big bazooka’: the Germans, with their paranoid fear that printing money will lead to Weimar Republic-style hyper-inflation, are still preventing the European Central Bank from taking a more active role.

Therefore it could be argued that David Cameron was right to reject the deal, because it was doomed from the start.  He has been accused of isolating us in Europe, but if the fiscal union breaks down, he could be seen as vindicated.  His stated reason for not signing the deal was to protect the UK’s financial services industry, and he has been criticised for trying to avoid tougher financial regulation.  Therefore Cameron did the right thing for the wrong reasons.  Whatever your ideological perspective, there are much better reasons for rejecting the deal.  Many Conservatives are against it because they believe that it would have promoted even more European interference in British affairs (so Tory Eurosceptics are delighted with Cameron’s decision).  Many left-wingers are also against the deal, because it will force aggressive right-wing austerity policies on the weaker Eurozone economies, and could potentially prevent any Eurozone country from using government expenditure to stimulate growth.

Eurosceptics of left and right will both surely agree that the fiscal union is a futile attempt to prop up a failing economic project, which has done immense harm to many of the countries involved in it.  So instead of European leaders desperately trying to save it, wouldn’t it be better if they admitted defeat and dismantled the Euro?  But this is not really an option anymore, as an end to the single currency is now likely to have disastrous consequences for the global economy.  So what can be done?  The only option left to save the Euro is probably for the ECB to take a more active role, but the Germans are blocking this.  As long as they keep on blocking it, a global economic catastrophe is looking more and more inevitable.

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