The Great Debate UK
–Laurence Copeland is a professor of finance at Cardiff University Business School. The opinions expressed are his own.–
You will often have heard it said that the euro zone cannot ultimately survive without fiscal union. This is complete nonsense. The truth is that, even with a full fiscal union, it cannot survive – at least, not with any form of fiscal union that one can imagine all the members signing up to.
This may be culturally difficult for Germans to understand. It is not that they lack experience of the problems of controlling spending by sub-central governments, because German Lander certainly do get into financial difficulties – three or four are virtually bankrupt at the moment, including the City of Berlin, no less. The problem is that this experience is not relevant to the euro zone for two very important reasons.
First, the willingness of frugal Lander such as Bavaria to subsidise a spendthrift like Berlin may not be unlimited, but it is undoubtedly far greater than the willingness of Germans (or Dutch, Finns or Estonians) to subsidise South Europeans. Secondly, on the whole, Germans are people who accept almost unquestioningly the categorical imperative to obey the law, even when, as in the case of the internal finances of the Bundesrepublik, the law is so complex that nobody except the experts understands it.