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Europe inching towards fiscal union

In Europe News on September 7, 2011 at 7:26 pm

By The Sidney Morning Herald

The unresolved debt crisis is forcing change, write Louise Story and Matthew Saltmarsh.

As leaders in Europe try to contain a deepening financial crisis, they are also increasingly talking about making fundamental changes to the way their 17-nation economic union works.

The idea is to create a central financial authority – with powers in areas such as taxation, bond issuance and budget approval – that could eventually turn the euro zone into something resembling a United States of Europe.

Officials have been hesitant to endorse such a drastic change. But privately they say the issue has gained urgency, as it has become clear that Europe’s current approach, which requires unanimity on any significant moves, is unwieldy and inefficient. The idea is being promoted by officials who worry about the risks that uncertainty in Europe poses to the global economy.

The lack of strong central co-ordination of the euro zone’s debt and spending policies is a crucial reason Europe has been unable to resolve its financial crisis despite more than 18 months of effort. The lack of progress has contributed to steep declines in European stocks, sending tremors through US markets.

And that is why, despite all the political obstacles, Europe appears to be inching closer to a more centralised approach, and some officials are going public on the issue.

Nothing happens quickly in Europe, however. For the most part, such efforts are still being made behind the scenes. But several central bank officials said there had been a step-up in planning for a closer European fiscal relationship to match the unified monetary union under which the euro zone has operated for more than a decade.

They said an overhaul of the way Europe conducts fiscal policy was likely to take some time and…

Full article…

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