EU Fiscal Union Is Highly Unlikely

Phil Arena was fishing for a post from me on Europe in response to this:

Europe appears to be inching closer to a more centralized fiscal union that would eventually turn the euro zone into something resembling a United States of Europe.

Today we have news that a German court has ruled that Merkel's actions to bailout other European countries were not illegal -- good news for Merkel -- but that any new funding must be approved by the German legislature -- very bad news for Merkel. And yet even Merkel does not approve of the sort of measures that would create a "more centralized fiscal union" in Europe. Her joint statement with Sarkozy on August 16 repudiated eurobonds, as well as an extension for the European bailout mechanism, the EFSF. Meanwhile voters in Finland (and other countries) are starting to assert themselves by demanding increased collateral from Euroborrowers before they approve of new funding. Any one of the 17 EMU members can veto any agreement, and it looks increasingly likely that one or more of them will. And not just the creditors... the debtors are angry too. (Most recently Italian workers went on strike to protest a new austerity package, following similar protests in Greece, Portugal, and Spain.) The EU banking crisis looks like it's spreading, placing even greater burdens on public sector balance sheets and economic growth rates.

Meanwhile, where is the constituency for a greater fiscal union? Perhaps Sarkozy wants that, but Merkel does not. Voters in the Eurocore do not, and it's not even clear that voters in the Europeriphery do either, at least if that comes with supranational authority to set budgets and intervene into macroeconomic policymaking. Which it surely would.

So I just don't see how a fiscal union is politically possible. And I don't even see why it's desirable. Or more precisely, I don't see who would desire it. So I don't see it happening.