As the Euro falls to a 2 year low today against the U.S. dollar and the European Union undergoes an identity crisis with the possibility of Greece leaving the Euro, calls are growing for a new fiscal authority and euro bonds across the euro zone.
The details of these two new proposals are still in their infancy stage and need more time to be debated ahead of the European Summit in Brussels in late June.
Over the week-end at Sitges, Spain conservative Spanish PM Mariano Rajoy spoke about the need for greater fiscal integration in the European Union and the establishment of a central authority that would oversee and coordinate fiscal policy in the euro zone.
“The European Union needs to reinforce its architecture,” Rajoy said. “This entails moving towards more integration, transferring more sovereignty, especially in the fiscal field” he emphasized.
“And this means a compromise to create a new European fiscal authority which guides the fiscal policy in the euro zone which harmonizes the fiscal policy of member states and enables a centralized control of public finances,” Rajoy said.
Germany has long been committed to the implementation of fiscal unity across the European Union which would create a central European fiscal authority with the power to centralize finances on behalf of other member countries, especially ones that have overspent their fiscal budgets.
During the past several months, Germany advocated for greater fiscal discipline to be anchored in euro-zone treaties.
Chancellor Merkel has also argued that the Euro zone needs strict new rules to ensure budgetary discipline.
Over the week-end, Chancellor Merkel has made it clear that she is adamantly opposed to the implementation of Euro bonds.
Merkel said over the week-end that she would agree to jointly issued euro zone debt “under no circumstances”.
Germany has refused to support any jointly issued euro zone debt (euro bonds) until there is greater fiscal integration in the euro zone, while France and England are leading the move towards euro bonds.
Sacrificing a country’s sovereignty with budgeting and policy making powers may prove to be a daunting task for a politically divided Europe that is already weary about taking orders from Brussels and Frankfurt.
Over the week-end, Syriza party leader Alexis Tsipras removed all doubts about the direction that he plans to take Greece if his party is successful at the June 17th elections and wins the majority in Greece’s parliament.
“I want to make clear that the first act of a government of the left, as soon as the new Parliament is sworn in, will be the cancellation of the bailout and its implementation laws” Tsipras said.
Syriza is opposed to the austerity measures that are contained in the EU and IMF bailout package which makes large cuts in pensions and government spending. The austerity package includes cuts in wages, pensions and jobs amounting to almost $4.5 billion this year alone.
It will amount to a 22% cut in minimum wage, 150,000 jobs cut from the state sector by 2015, pension cuts worth 300 million euros ($370 million) this year, laws to make it easier to lay off workers, health and defense spending cuts.