Mr Draghi has recently tried to find a third way. He thinks making Euro member states choose between belonging to a country called Euroland or leaving the currency altogether is too stark a choice. He thinks there is a middle ground where they can have a single currency without a single government and single budget.
So how does he think this can be brought about? He is realistic enough to say the present framework ” left the Euro area insufficiently equipped to ensure sound economic policies and effectively manage crises”. He says there does need to be more common government, but it can fall short of a proper unified state with major transfers of cash from rich to poor.
He seeks, when speaking to the Germans ” true oversight over national budgets. The consequences of misguided fiscal policies in a monetary union are too severe to remain self policed. …we need guarantees of competitiveness… The euro area is not a nation state where persistent cross regional subsidies have sufficient popular support…there need to be powers at the centre to limit excessive risk taking by banks…. there also needs to be a framework for bank resolution…”
When speaking in Spain this becomes creating four building blocks for a “Genuine Economic and Monetary Union”. ” 1) An integrated financial framework, a so called banking union 2) a form of fiscal union that recognises our deep economic interdependence and the need for collective action 3) an economic union that supports the competitiveness of the Euro area as a whole….4) a political union
He is describing the same agenda in different terms to audiences who want very different things. There is, however, at the heart of Mr Draghi’s two versions an inherent contradiciton on the issue of subsidies and transfer payemtns around the union. The language in Spain implies they are on the agenda, and the language in Germany says they are not. “Economic interdependence and the need for collective action implies solidarity payments from rich to poor”, when he is telling the German audience they will not have to make such payments. Which is it to be? The answer will then tell us how tough the budget discipline on each member state has to be. There remains the small issue of how the EU manages to impose the discipline.
The truth is there is no middle way. If the Euro is to work it will take substantial transfers from rich to poor, as well as a common fiscal and banking policy. That means a state called Euroland replaces the member states in very important areas of policy. It also means German surpluses have to be partly taxed away for the benefit of the poorer areas, with the rest transferred by the banking system to where they are needed.