Euro Crisis: the Franco-German dream of Fiscal Union

The fate of euro, the single European currency, has become so precarious that comparisons are already made with that of seasonal Christmas lights - in the event of one going off, of course. The chance of its survival was dealt yet another blow on Saturday when Jacques Delors, the architect of the very project, made it clear in no uncertain terms that it was doomed from the start anyway, in an interview with a British newspaper.

Understandably, the Frenchman blamed it on the present European leaders by saying they were doing too little too late, in supporting the single currency. He had an ominous warning for the Europeans: the debt crisis reflects the threat to Europe’s global role and even Western democratic values.

It is clear what Mr Delors meant when you read between the lines: the unstoppable rise in China’s global influence may be one thing that he was referring to; moreover, he seemed to be concerned about the threat to democracy in Greece by its military, which up until 1974 was under a military dictatorship; the worst-case scenario may, in Mr Delors’ view, spill over to Spain and Portugal too by domino effect, which were two other relatively-young democracies.

On political front, meanwhile, the French and Germans want to change to basic treaties in response to the alarming debt crisis so that a true ‘fiscal union’ could be created as a way of addressing the issue. At present, the British show very little enthusiasm for the move which has the potential to undermine their influence over the eurozone.

The most significant development of the week was the warning issued by Dr Mervin King, the Governor of Bank of England. He said that we were on the brink of facing another banking crisis and wanted the bankers to exercise restrain when awarding themselves huge bonuses; instead, he wanted them to strengthen cash reserves before it is too late. In short, he implied that the second Credit Crunch is already on the horizon.

Both the British prime minister and the Chancellor of Exchequer did not duck the issue; they admitted that the situation was much more cataclysmic than previously thought. The exposure of major British banks to debt-ridden European nations seems much bigger than analysts speculate about it. Otherwise, Dr Mervyn King would not have used the language he chose to highlight the danger.

As the debt crisis getting gloomier by the day, the markets react to fluctuating good and bad news as usual, exactly like a toddler in the presence of – or absence of- sweets: good news, however much suspicious, inevitably pushes the indices up while bad news doing the exact opposite. One may argue that markets are always like that – not like that in living memory as far as I can remember, though.

The data of US unemployment – 2% loss – made the markets buoyant by the weekend despite the very bad news throughout the week. Judging by the recent trend, a bit of bad news next week may bring the whole thing back to square one, as it has been the case during the past two years – while treating the independent observers as folks who are borne again.

The West is embroiled in a serious financial crisis, indeed. However, it has to work for an important political goal too simultaneously – to curb the influence of China beyond its borders. The United States is leading the bloc in this endeavour. Hilary Clinton’s historic visit to Burma is, therefore, seen as President Obama’s version of the Great Leap Forward, even if it means a slight compromise on the values that the US proudly uphold.

- Asian Tribune -