EU Punts on Creating Timetable for Fiscal and Banking Unions

Those looking for a step in the right direction today can find it in the Financial Times Live Blog which announces "EU drops timetable for creating eurozone fiscal and banking union".

EU heads of state and government have started gathering in Brussels even though their summit isn’t scheduled to begin until 5pm. Last night, however, Herman Van Rompuy, president of the European Council, circulated a final draft of the summit communiqué, and we got our hands on it.

The 12-page document differs from a version circulated last week in several significant ways – most notably completely dropping a timetable for creating a fiscal and banking union in the eurozone.

Van Rompuy’s pet idea of getting eurozone countries to commit to signing binding contracts with Brussels on economic reform programmes – essentially forcing upon all euro members the kind of detailed plans now only agreed with bailout countries – has also been significantly watered down. In the original version, EU leaders would have explicitly endorsed the idea. In the new version, they are simply cited as an idea that “could” enhance ownership of reform programmes.

Rather than come to any conclusion on the issue, the draft says it will be addressed again at a March summit “after an informal process of consultations with Member States”.

Similarly, Van Rompuy seems to show somewhat less ambition towards creating a eurozone budget, once one of the cornerstones if his reform plans. In the previous text, he explicitly talked about creating a so-called “fiscal capacity” sometime after 2014. Now, that language is removed entirely, and the draft says any discussion of “a shock absorption function” – the new, more limited eurocratese for what was once a eurozone budget – are to be put off indefinitely:

“These issues will take more time and will require in-depth consultations with the Member States.” Even though José Manuel Barroso, the European Commission president, has vowed to introduce plans for an embryonic eurozone budget sometime next year, Van Rompuy’s draft suggests it won’t be taken up until “after the election of a new European Parliament and the appointment of a new Commission” – which will not happen until the end of 2014.

Baby Steps

This is a step in the right direction, but only a baby step. What's really needed is a plan and timetable to dismantle the eurozone. Don't count on that any time soon. In fact don't count on it ever.

Regardless, a eurozone breakup is in the cards anyway. This baby step, although it will not lead to plans to do what is necessary, is nonetheless symbolic of the insurmountable problems to get agreements from all the players.

The structural problems and unemployment are so bad now, that even if the key players agree, some politician will eventually stand up, proclaim debts and the treaty null and void, and be elected.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com