It is intriguing to hear how popular the draft new treaty for the 17 is proving with admirers of more EU government. They are often the kind of people who think more government spending and borrowing are a good idea. This pact recommends the opposite. It proposes big cuts in spending and big rises in taxes to get deficits down to very low levels by recent standards. If you do this whilst maintaining the rigid single currency, it will be deflationary. They probably like the tax route more than the spending cut route, which will squeeze private sector demand and encourage more businesses to go elsewhere to carry out their activities.
The aim of the pact is to give legal force to EU control of budgets and deficits. They rightly argue that if you share a currency with your neighbours you do effectively share a bank account with them. The European commercial banks all bank at the ECB. That means your overdraft is a matter of common interest. If one borrows too much, it reflects on the currency and the credit rating of the rest.
Germany has been fighting to preserve her taxpayers from having to finance the overdrafts of the weaker states. The markets are making that harder and harder. The investors who can pay for these deficits are saying they want Germany and the other strong countries to underwrite the borrowings of the weak, if they are going to lend more to them.
Germany cannot accept this huge liability. Instead her Chancellor says that the EU must stop the weaker countries running up such large bills and borrowing so much. There has to be central control of the overdraft, to avoid Germany being drawn into bailing out the weaker areas.
This is all sound logical northern commonsense. It is not necessarily well thought through democratic politics. If they are going to press ahead with the new fiscal controls for the 17, Ireland may need a referendum on these new powers. After all they are fundamental. How can you say you are still a sovereign nation, if your spending, taxing and borrowing plans have to be agreed with the EU? How can you claim you are independent if you diverge from the agreed EU plans, and face a fine or other punsihment for your trouble? What powers do your Parliament and the electorate have left, if these crucial issues are settled by technocrats in Brussels?
So far the EU has got away with putting technocrat governments into Greece and Italy. As EU plans will require higher taxes and lower spending, there will be a need for political salesmanship of the highest order to explain to voters why these measures are needed, and how they are going to work within the framework of the rigid Euro. If the EU has taken away too much national democratic accountability, it will make this important task that much more difficult. Elected governments will be impotent to change the policies, and will spend their time blaming the EU. The EU will stand remote, unable to engage directly with the electors it is having a big impact on.
The EU would be wise to grasp that the Euro crisis is not now just a currency or bond market crisis. It is not just a matter of high stakes economics. It goes to the heart of what a functioning western democracy does. The Euro scheme will come to test and stretch the limits of accountability, and sorely test the patience of voters.