Fiscal Unification of Euro

The concept of Euro bond was never discussed because never was the difference between Monetary union and Fiscal union so amplified. The way Euro zone was created and members were added, this was already waiting to happen. This discussion could have been triggered in the past, but it was waiting for the recession and debt crisis. Good times always discount warnings. Euro Zone consists of economically dissimilar countries. Consider this; In 2010 GDP of Germany was 2.5 trillion USD, while another Euro member Estonia’s GDP was 14 billion. In 2005, GDP growth of Ireland was 5.3%, while Germany’s GDP growth was 0.8%. To think that with such economic disparity - leading to varied fiscal policies - there could still be a ‘Monetary’ union was always a crisis waiting to happen.

Now when this crisis has come to fore, this is the opportune time has to achieve that fiscal union. Euro bond is that Fiscal union. Just like Ireland could not cool its economy by raising the interest rate of Euro because Germany needed growth, similarly Germany, and France can’t turn away from Greece now. That is if Euro zone has to survive in the present form. If there could be a fiscal union, then there will be truly one Euro, with the member states having co-relating economies. Growth in one would help slowdown in other and crises in one member state will have lesser effect on health of Euro.

Today Greece is being blamed for not shoring up its economy. Even after the first bail out capital and tough austerity measure, there hasn’t been much change in the economy, nor is it predicted to be. Euro is also to be blamed for this. Greece can’t become competitive because it can’t devalue Euro! The strongest evidence in support of this argument comes from the situation of another European country that was not part of Euro zone. We should not forget Iceland, which has gone out of news sheet. The reason Iceland could fend for itself and in few years will be back in shape was only because it could devalue its currency. This can’t be said about Ireland which is still languishing or about Greece.

If Greece can’t change Euro, then Euro zone should change itself to accommodate Greece or let Greece go out of this monetary union. I would be pleasantly surprised if we could have any other resolution to the present debt crisis. It is as much a test of political resoluteness now.