European leaders nudged forward plans for a fiscal union with discipline as its leitmotif at last week’s summit. But such a “Disziplin union” is neither desirable nor necessary. It may not even be politically feasible.
The consensus among the euro zone political elite is that fiscal union is needed to complete the crisis-ridden monetary union. There are two rival views of what this should consist of: a panoply of rules to prevent and punish irresponsible behaviour; or financial payments to help weaker economies. The former view, espoused by Germany, is in the ascendant. It involves lots of sticks but not many carrots.
The summiteers’ main achievement was to give further impetus to the idea that the European Central Bank should act as the zone’s central banking supervisor from the start of next year after Berlin dropped its insistence that its own savings banks should be excluded from the regime. That was an important political concession. It’s also conceivable that the new supervisor will be better able to clean the cesspits in parts of the euro zone than the current often-conflicted national supervisors.
However, banking supervision is only part of what the experts call “banking union” which, in turn, is only part of a planned fiscal and political union. Just looking at banking union, what has been agreed is the stick. Back in June, when the plan was first agreed, there was also supposed to be a carrot: the euro zone would inject capital directly into struggling banks in countries such as Spain. But Angela Merkel, Germany’s Chancellor, made clear after the summit that this would not happen retroactively.
Full banking union would also include a common deposit guarantee scheme. But there was no mention of this carrot in the summit’s communiqué. There were, though, more sticks to ensure budgetary discipline and economic reform.