It looks like fiscal union will at least be tried in Europe.
From the BBC:
German Chancellor Angela Merkel has said Europe is working towards setting up a “fiscal union”, in a bid to resolve the eurozone’s debt crisis.
She told the Bundestag that a new EU treaty was needed to set up such a union and impose budget discipline.
On Monday she is to meet French President Nicolas Sarkozy, who has also called for EU treaty changes.
EU leaders have been under pressure to do more to tackle the debt crisis, amid concern about the survival of the euro.
In her speech, Mrs Merkel promised “concrete steps towards a fiscal union” – in effect close integration of the tax-and-spend polices of individual eurozone countries, with Brussels imposing penalties on members that break the rules.
In hindsight, perhaps this was always Germany’s favoured course.
The idea [of Euro bonds] was immediately rejected by German Finance Minister Wolfgang Schaeuble, who said such bonds would undermine the basis for the single currency by weakening fiscal discipline among member states.
“I rule out euro bonds for as long as member states conduct their own financial policies, and we need differing interest rates so that there are possibilities of incentives and sanctions to force fiscal solidity,” he told Der Spiegel weekly.
“Without that kind of solidity, there is no foundation for a joint currency,” he added, according to extracts of an interview released ahead of publication.
In theory (ignoring the lack of a economic common culture, lack of labour market flexibility, lack of a common language, etc, etc) this would have made Europe a viable monetary union. In practice, no amount of “budget discipline” can now reverse the ongoing confidence panic — essentially a run on the Euro — stemming from the mediterranean budgetary disasters. Fiscal union might have prevented this mess from developing, but once the mess has developed, it won’t do anything to contain or reverse it. The fact that policy makers seem to be making things up as they go along is not exactly inspiring confidence, either. The only hope for temporarily reversing the run on Europe (and kicking the can down the road into Euro zombification — or, as Obama calls it, “recovery”) is a massive money printing operation.
Will the cathedral of teutonic monetarism (also known as the ECB) allow for it? No — that’s why they’re trying for fiscal union as an alternative.
In any case, such a fiscal union will surely prove deeply unpopular with a Europe growing sick of top-down technocratic integrationism, and frankly seems bound to fail. Why? Because it almost certainly means stern teutonic austerity — a policy which will surely cause yet more economic contraction, more pain, and more of a mess.