The EU has issued a political pledge to rescue Greece – and by precedent, all Club Med – without first securing a mandate from the parliaments of creditor nations.This is why a common treasury is essential to any currency union. Imagine Texas refusing to allow its tax revenues to flow to the union-laced Michigan economy. Or the state of New York not allowing its taxes to support the bigoted folks in certain parts of the country. The dollar currency union would be in trouble too. Fortunately, there is a federal treasury. In Europe they are not so fortunate. Here is Evans-Pritchard:
Holland's Tweede Kamer has passed a motion backed by all parties prohibiting the use of Dutch taxpayer money to bail out Greece, either through bilateral aid or EU bodies. "Not one cent for Greece," was the headline in Trouw. The right-wing PVV proposed "chucking Greece out of EU altogether".Germany's Bundestag has drafted an opinion deeming aid to Greece illegal. State bodies may not purchase the debt of another state, in whatever guise.The EU is entering turbulent waters by defying these irascible and sovereign bodies...
The last two weeks have cruelly exposed the Original Sin of monetary union: that EMU was launched without an EU treasury or debt union. This will be tested again and again by bond vigilantes until such a mechanism is created.I have my doubts about a EU Treasury being created. It is possible, though, that this crisis could be the catalyst that makes it happen. Finally, here he is explaining why the Eurozone is not an optimal currency area:
Europe's leaders still refuse to face the awful truth: that monetary union is unworkable as constructed. That different labour markets, different sensitivities to interest rates, different economic structures, have caused the gap between North and South to grow ever wider...Sometimes a one-size-fits-all monetary policy does not work.