Monday, March 21, 2005

Euro Stability Pact (II): Dead, But Not Buried

As predicted in this blog last January, the EU's Stability Pact, designed to protect the independence of the European currency from short-term political considerations, is being consigned to the bin, although the pretence will be maintained that it is still breathing.

This is not good for the long-term strength of the euro, although its current strength means nobody will be too worried about that for the time being.

It shows what opponents of the single European currency always said - that one currency for countries with such different economic and fiscal needs is a recipe for meltdown. For now, the "large, debt-incurring countries", Germany foremost amongst them, have succeeded in "watering down" the sanctions set out for those who overspend. They have overcome the objections of smaller, more thrifty countries who wished for the Pact's strictures to be enforced.

Both sides are fighting against the obvious logic that if national economies are to prosper, they need the very flexibility denied them by the confines of a single currency. There isn't yet a "European" economy, as the manoeuvrings of the national politicians in this argument demonstrate. The only factor that has counted in coming to the "agreement" has been national interest and the threats of national politicians.

The euro's health is now very much in the grip of their sweaty hands.

Germany Leads Pack of Pact Assassins Current Affairs Deutsche Welle

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