x Abu Dhabi, UAEMonday 22 January 2018

A flawed euro plan is better than none

The latest efforts to manage Europe's debt crisis do seem promising, but there will be no easy way out after years of indiscipline.

The catastrophe looming over the euro, and over the European Union, is focusing minds dramatically. Germany's Angela Merkel and France's Nicolas Sarkozy are now said to have agreed on a new tool for stability, an inner club of those euro-zone states that agree to accept enforceable fiscal discipline.

Practical difficulties abound, but it could be argued that this is an idea that is long overdue. Indiscipline, after all, is to blame for the debt crisis: the undisciplined spending of reckless governments in Greece, Italy and elsewhere, and the undisciplined lending of big banks, notably in France and Germany.

Indeed the EU as a whole never mustered the self-discipline to stick to the 1997 rules that were meant to prevent exactly this kind of crisis. The Stability and Growth Pact was an attempt to square the circle of 17 governments with 17 different fiscal policies using one currency. Each country promised - emptily - to hold deficits and debt under stipulated thresholds. The Pact failed miserably; Germany was among the first to exceed the covenanted norms, soon most countries followed and fiscal discipline became merely a pious cliché.

Now, as reality reimposes itself, much of Europe clamours for Germany to buy bonds issued by less solvent states, or to allow the European Central Bank (ECB) to do so. Germany, understanding that this would encourage still more irresponsibility while weakening its own balance sheet, refuses; in this Mrs Merkel's spine has been stiffened by fierce domestic resentment of the debtor states.

Accordingly, last week she was calling for a revision of fundamental European treaties so that budget discipline could somehow be enforced from EU headquarters in Brussels. This idea makes some sense, although some would doubt Brussels's ability to coin sound policy. And it would be a long leap towards much tighter European integration that would be anathema to voters and the political class in many countries. At best, treaty revision could take years.

The new approach, of a voluntary agreement by a few financially stable countries, is more promising and may prove to be a useful approach to the crisis. It's a fair point that the last "voluntary" plan was a disaster, but this one would be enforceable in the European Court of Justice.

Even so, this scheme has about it a distinct air of grasping at straws. Decades of indiscipline cannot be put right overnight, or painlessly.