Monetary Policy

In Light of the Euro Crisis European Foreign Ministers Propose More Economic and Monetary Integration


Unsurprisingly, the euro crisis has put something of a dent in European integration. Resentment between countries and regions is becoming increasingly pronounced, and what exactly the "European Identity" is remains a mystery to many Europeans. In response to the crisis in confidence Europeans seem to be having in the European project the Future of Europe Group has a plan, more integration.

The most recent meeting of the Future of Europe Group in Warsaw included the Foreign Ministers of eleven European countries who produced a report that proposes changes that will help promote integration. The report accepts that not all of the recommendations reflect the exact thoughts of each of the group's members.  

The first recommendation is the introduction of a more unified monetary policy:

The Euro has profound economic advantages and is the most powerful symbol of European integration. Our proposals provide concrete input for the process of EMU reform launched by the June European Council. In doing so, our focus lies on initiatives within the scope of the existing treaties. However, we should not exclude the possibility of treaty changes if this proves to be necessary.

Of course monetary union is not possible without economic union: 

We need to overcome the fundamental flaw of EMU – monetary union without economic union. This does not mean that all economic policy measures should be decided at European level. But for certain key economic policy issues of particular relevance for sustainable economic growth and employment and the sustainability of the Eurozone we need the right mix of effective and binding coordination at European level and healthy competition of national systems and more effective ways of exchanging best practice.

It is not all bad news; the report does have at least one half-decent proposal, namely allowing the European Parliament the power to introduce legislation. As it is only the unelected European Commission can introduce legislation, which the European Parliament then debates and amends.

A report I mentioned yesterday showed that only 26 percent of French and 44 percent of Germans feel that "European Identity" means something to them. The euro crisis has done nothing to help foster a pan-continental identity, and it is doubtful that a push for more monetary and economic integration would help. The integration the Europeans have had so far hasn't seemed to have worked

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  1. why is the answer always more control, more regulation, and more government?

    1. Because the other option is returning power to individuals.

      1. When ever politicians fail, the next step is always more, bigger, harder. Actual learning is beyond them.

    2. As opposed to “doing nothing”?

      Why do you want to “do nothing”?

      You like things the way they are?

      You want things to get worse?

      Lead, follow, or get out of the way!

  2. What a dumb idea. This would be like the US looking at the utter failure of the Bailout/Stimulus and suggesting a second, bigger Bailout/Stimulus.

    1. See what you did there.

  3. European Union going under . . check
    Middle East going up in flames . . check
    Trade war initiated with our #1 loan shark . . check
    Smuggling weapons to drug dealers south of our border . . check

    Looks like our most successful president ever on foreign policy matters; I would imagine the Obama campaign is cranking out the TV advertisements right now.

    1. In MA, it’s all War on Women and Romney Hates the Middle Class stuff. HUZZAH

  4. That coin on the left looks like a condom. Sort of.

    1. I’m glad I’m not the only one…

  5. European Union going under . . check
    Middle East going up in flames . . check
    Trade war initiated with our #1 loan shark . . check
    Smuggling weapons to drug dealers south of our border . . check

    Looks like our most successful president ever on foreign policy matters

    To be fair, the first one was pretty much inevitable, and the second has been the de facto situation for a few millenia. Items 3 and 4 — those are on Obama.

    1. Presidents always take credit for the random events that occur during their term of office. So, I have no problem crediting Obama with the failure of the European Union and the current conflaguration occuring in the sandbox.


    Let’s kill the patient, then we can make him better.

  7. We need to overcome the fundamental flaw of EMU ? monetary union without economic union.

    Still not getting it (or at least not willing to say it out loud).

    The fundamental flaw with a single currency for multiple nations isn’t a lack of “economic union” (whatever that is).

    Its the lack of political union. If the Euro experiment has taught us anything, its that a currency cannot work if individual nations using that currency are free to issue debt denominated in that currency without the responsibility (in every sense) for managing the currency itself. IOW, if you want to share a currency, you get to share sovereignty, too, or it will all fall apart.

    1. Agree. Though I think “economic union” really means “union of political control over economic policy”. In other words, you have federal control of the member states economies.

    2. I am sure drug dealers give out loans in the form of drugs that will be payed back in US dollars all the time.

      Oil is probably traded in this way all the time again in US dollars.

      Also i can create a real estate contract with another person (essentially printing money) without the FED having one word to say about.

  8. Related: My favorite story of the day.…..leId=25764

    Not sure how Gresham’s Law fits in with that. One currency for savers and another for borrowers perhaps. At the very least it would be nice if Treasury started using its own notes again to compete with Fed notes.

  9. If you assume that the EU is headed towards eventual political union, it’s not a bad idea.

    IMO, a big chunk of the problem is that they attempted to unify a currency amoung a group of people with completely independent fiscal and economic policies. This isn’t like California and the United States. The US is internally already a completely level free trade zone. Labor can move about easily. State governments tax level are small compared to the federal level, and state powerover the economy is weak compared to federal power.

    So when one state in the EU blows up it’s fiscal policy, the status quo government of Europe can’t do much about it. Thus the consternation. Now imagine if we had a central currency, but virtually no federal government. At that point there’d be no federal transfer payments to bail out CA. Texas and Colorado would have to pull the money out of their asses and set up some sort of fund to do it. And then, you can get they would want to establish some sort of federal institution to deal with these issues before they get out of hand in the future.

    On the one hand, a free trade zone with a level playing field is a necessary component of the free market. But you can only really have a free market with uniform laws and regulations, and you can’t get that without some kind of dcentral authority at some level.

    Even in a Nozickian meta-utopia, there has to be one central meta-authority to stop all the states from warring and erecting trade barriers.

    1. PS. Keep being burned by the 1500 character limit. If you want people to have substantive discussions, you should really raise it.

  10. Of course monetary union is not possible without economic union:

    Foreign states and organizations (some of them black market organizations) don’t seem to have all the much trouble using the US dollar. Isn’t the US dollar the universal trading unit for oil? It has been in the past. Of course if there was a switch from US dollar the replacement would be Euros.
    Seems like it is pretty easy to create a monetary union without an economic union.

    Anyway I am calling bullshit.

    The integration the Europeans have had so far hasn’t seemed to have worked

    This is also bullshit. The free trade provisions of the EU as well as allowing workers to move across boarders has been a huge boon to European states. As a vehicle to foster a European identity it is a failure but as a vehicle to generate wealth it is a success.

    Of course the intent of EU was always to create an economic union not a political and cultural union.

    I should point out NATO has not created a political and cultural union between the US and Europe either…obviously because NATO was a military alliance and not a political and cultural union to begin with.

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