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Excellent piece here by Manfred Schepers, vice president and chief financial officer of the European Bank for Reconstruction and Development on the development of fiscal union in Europe.  If recent rumors carry any weight these steps are crucial in understanding how the union will come to be finalized:

“1. The ECB would fulfill the first of these roles, with independent responsibility for safeguarding monetary, financial and price stability within the eurozone. As such it would act as the lender of last resort only to the eurozone banking system, not to sovereigns.

2. A newly created European monetary fund would form the second pillar. It would be responsible for safeguarding medium term debt sustainability and would oversee the fiscal union, by assessing member states’ economic and fiscal performance; providing support programmes; and policing reform and adjustment programmes.

3. The third pillar would be a European debt agency, which would be the sole issuer of eurozone sovereign debt, with responsibility for financing all the eurozone’s member states. The credit standing of the EDA would reflect the eurozone’s overall strength, through joint and several guarantees provided by all its members. This would naturally be reliant on the stronger AAA-rated countries, but in practice would merely formalise the responsibility these have already assumed. The quid pro quo would be that debt could only be mutualised up to a level consistent with medium term debt sustainability, and that reform and adjustment would be overseen by the EMF. This should not be formulaic, but depend on a member state’s future debt profile.”

Of course, this is all speculation at this point, but we’re moving ever closer to the endgame and a collapse of the Euro after all that has been implemented is nearly unfathomable.  Perhaps I am naive in my hope that they will come to some sort of agreement in the future, but I do believe a fiscal union can work and work quite well in Europe.  But if there’s one thing we can be certain of after the turmoil of the last few months, it is that these European politicians cannot be relied upon to do anything rational and proactive….

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