Strong central government in Europe could force spending cuts

French President Nicolas Sarkozy and German Chancellor Angela Merkel will meet this coming Friday with the hope of making important decisions regarding the future of Europe.

JEREMY HOBSON: The markets are watching Europe, where there's talk this morning of creating a fiscal union so that a central government could force member countries to cut their budgets. It's the latest idea to solve a crisis that seems to be getting worse by the day.

For more, let's bring in our regular Monday guest Julia Coronado. She's chief economist with the investment bank BNP Paribas and she's with us live this morning from Montreal. Good morning.

JULIA CORONADO: Good morning.

HOBSON: So Julia, a fiscal union-- is this the answer to Europe's debt problems?

CORONADO: Really -- in one form or another -- it is the only answer to Europe's debt problems. But getting there is not as simple as it sounds -- it requires ratification of every member country, so we've still got a long road ahead of us.

HOBSON: Well what about this idea though that European countries are going to be more difficult -- it's going to be more difficult to put them in a situation like this where they have to listen to a central government, because let's say, they're, for instance, Germans first, and Europeans second?

CORONADO: Well, what Germans are starting to realize, and French, and other countries, is that it is in their best interest to stay together. They're starting to feel the economic pain from the recession that's resulting from the recession that's coming from this crisis. So as they understand that holding together means they're all better off, I think the political will starts to develop to move in that direction.

HOBSON: And Julia, is this a grand plan that can work, or is it sort of too little too late like many of the others have been?

CORONADO: Well, that's the big risk here is that it's yet another solution that falls through. So the credibility pretty stretched at this point, I'm hopeful -- but certainly cautiously optimistic.

HOBSON: Julia Coronado, chief economist with the investment bank BNP Paribas, thanks as always.

About the author

Jeremy Hobson is host of Marketplace Morning Report, where he looks at business news from a global perspective to prepare listeners for the day ahead.

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