Trichet's Solution for an Imperfect Union

by Simon Nixon

Wall Street Journal
June 3, 2011

It was one of the most significant speeches by a European policy maker for years. Jean-Claude Trichet's call for the creation of a European ministry of finance only articulated what the market already has concluded is essential to save the euro.

But in speaking out so forcefully the president of the European Central Bank has pushed the next stage of European integration so far up the agenda it's hard for euro-zone politicians to ignore.

His call for a "new type of confederation of sovereign states" is an acknowledgment Europe's institutional structures have failed. The Stability and Growth Pact was supposed to ensure fiscal prudence and economic convergence. It proved utterly toothless. The replacement already has been watered down and may not be adequate to ensure peripheral countries comply with the conditions attached to any fresh bailout loans. That has left a vast moral hazard at the heart of the euro-zone financial system.

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