Oct 2011 27

After extensive negotiations, European leaders have now announced another desperate attempt to save the euro and tackle the sovereign debt crisis. Allister Heath in City AM describes the packages as “barely a draft blueprint” and “not a plan that will save the Eurozone”. George Osborne has joined eurozone politicians in their belief that the answer to their problems is a common fiscal policy.

It is a convenient answer for politicians deeply committed to political integration in Europe but it raises some pretty difficult questions. If one of the problems is that the Greeks evade their taxes, will German tax collectors be dispatched? If the challenge for Italy is a combination of high debt and low expected growth will the Estonians take on that massive debt or be let loose to impose supply-side reforms?

Economist John Kay wrote a pretty comprehensive demolition of the idea a common fiscal policy was the way forward for the Financial Times yesterday:

“Conventional wisdom holds that the eurozone problem is the adoption of a common monetary policy without a common fiscal policy. But a common fiscal policy is not necessary for a successful monetary union. No such agreement existed under the gold standard. Nor does one exist now between the US and the several countries – including China – which have pegged their exchange rate to the dollar.

Nor is a common fiscal policy sufficient for a successful monetary union. Neither the European Commission nor the German government can put tanks on the streets of Athens. The only mechanism the European Union has, or can have, for imposing fiscal discipline in any country or region is to refuse further payments to that country or region. This is precisely the mechanism that has been deployed, with limited success.


The eurozone’s difficulties result not from the absence of strong central institutions but the absence of strong local institutions. A miscellany of domestic problems – rampant property speculation in Ireland and Spain, hopeless governance in Italy, lack of economic development in Portugal, Greece’s bloated public sector – have become problems for the EU as a whole. The solutions to these problems in every case can only be found locally.”

It is worth reading the whole article. Instead of supporting their vain attempt to fight reality, George Osborne should be telling eurozone leaders they need to face up to the currency’s failure. He certainly shouldn’t let even more of our money be staked on fresh bailouts through the IMF.

Matthew was the Chief Executive of the TaxPayers' Alliance, author of Let Them Eat Carbon and editor of How to Cut Public Spending (and still win an election)

  • Christopher Tolmie

    will the Eurozone hold together?  History suggest not . . . 
    Remote parts of the Soviet Union (USSR) suffered from low economic growth under currency and political union, it has now been replaced by a looser, co-operative, confederation (CIS).Yugoslavia, too, fell apart despite Serbian attempts to keep it together as regional wealth varied.
    The only union to succeed so far did so through force when the Union troops defeated the confederates in the US.
    Now to the EU.  How German taxpayers can be expected to continually fund Greece is one question.  The second is, will the people of Greece and Italy want Brussels to control their income taxes and state pensions?
    As to the Greek bail out?  Banks are expected to take a hit.  Well, those same banks look after our savings, investments and pension funds.  These personal savings are what will quietly take a hit in trying to prop up the Euro.