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European Debt Crisis

Fiscal union could solve Europe’s debt problems

Stephen Beard Nov 28, 2011

Jeremy Hobson: This week is turning into a week of big ideas to solve the debt crisis in Europe. Probably a good thing, because last week was a week of big problems for the eurozone — including Germany’s inability to sell all the bonds it had hoped.

One idea that’s emerging this morning is to create a fiscal union to enforce tighter budgets across Europe. Marketplace’s Stephen Beard reports.

Stephen Beard: Fiscal union could be drastic. In its extreme form it means turning the 17 counties that use the euro into a kind of United States of Europe. A federal European authority would raise taxes and spend the money throughout the eurozone. That would help smooth the differences between weaker countries like Greece, and stronger ones like Germany.

But James Goundry of IHS Global Insight says absolute fiscal union would only work if Europe was more like America with one overall identity across the 17 euro member states.

James Goundry: The citizens of these countries are not happy to be spending money on other citizens from different member states. If there was one European identity , I think it would be much easier to have one absolute fiscal union.

He says the reality is that Germans regard themselves as German first and European second; and the same goes for other member countries. He believes a very much weaker form of fiscal union is under discussion, but because it is much weaker it may not be enough to reassure investors.

In London I’m Stephen Beard for Marketplace.

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