Hugo Dixon warns the EU against going for ‘more Europe’, and in particular fiscal union, if the UK votes to Leave, on the grounds that doing so would provoke a populist backlash.Looser fiscal policy is desirable instead, he writes.
However, those countries who could most benefit from looser fiscal policy (at least within the umbrella of a credible policy framework), such as Greece, Portugal, Spain, France and Italy, don’t have the option of pursuing it.
And the one major country that can afford or act independently to enact a large fiscal stimulus, and would probably benefit from it, Germany, doesn’t want to do it.
So ‘looser fiscal policy’ means providing the resources, either transfers, or at the very least, fiscal guarantees, [eg pooled Eurobonds, at one extreme], for those who can’t afford it to do it, and compelling those who don’t want to provide these to give them. Looser fiscal policy is not currently possible without elements of fiscal union.
The EU needs to make the Euro sustainable and that means enacting as much fiscal and banking union as possible. It can’t purchase political acceptability amongst the Eurosceptic constituencies with fiscal disunion, without undermining the future of the Euro.
Some other way of purchasing political support needs to be found. It might be hoped that the experience of better counter-cyclical fiscal policy would cool populist angst, which tends to prosper in the aftermath of recessions.
Failing that, the EU could look to other aspects of political union that were not necessary for the Euro, or for other institution building, or to issues of Commission or European Parliament governance.
It could even, perish the thought, revisit the decision to allow the ECB to effectively set its own monetary policy goals; or to narrow the discretion it has over matters of financial stability in its member states, a matter that aggravated the handling of the crises in Greece, Portugal and Ireland.