Interesting news from the WSJ this morning. They’re reporting that a centralized budget is in the works in Europe:
“BRUSSELS—Euro-zone governments have begun discussions about creating a central budget for the currency union aimed at smoothing over some of the region’s economic divergences, after Germany indicated support for the idea, European officials say.
The discussions are part of a push toward a limited “fiscal union,” after the economic crisis revealed fatal flaws in the setup of the common currency. Those limitations have manifested themselves in the recessions that have engulfed countries such as Greece, Portugal and Ireland after the 2008 financial meltdown, while strong economies such as Germany have recovered much faster.
Until now, much of the fiscal-union debate has focused on the prospects for issuing joint euro-zone debt—so-called euro bonds—but that idea has been blocked by fierce opposition from Berlin and the fact that it would contravene a central element of European Union treaties.”
This is the right direction, but we’re still looking at a lot of work to be done here. I’ve said for years now that fiscal union in the form of something resembling the USA was the right move. And it looks like that’s certainly the path we’re taking here. The good news is that the Euro is definitely not going to be allowed to fail. The bad news is that I don’t think we can expect the deep problems in Europe to be resolved quickly. That means more austerity for now, more economic weakness and more uncertainty. But we’re slowly headed in the right direction…..