Financial Times
January 29, 2012
I recently had a conversation in which everybody seemed to agree that the new European fiscal pact was quite mad. The conversation was overheard by a former policymaker, who turned to us and said that he agreed in principle – but he then added that if the treaty encouraged the European Central Bank to become more flexible, it might still be worthwhile. Later I spoke to a central banker, who also agreed that the treaty was irrelevant, but he was nevertheless in favour of it because it served as a signal to the financial markets. When I spoke to my contacts in the financial markets, I was told that the treaty was quite mad.
The best thing that one could say about the treaty is that it is not necessary. Everything we are likely to see in the final version is either in existing treaties or in legislation, notably the so-called “six-pack”, a set of policy surveillance measures passed earlier this year. The rest could easily be introduced through new secondary legislation.
While I have yet to meet anybody who can explain what good the treaty will do – except as part of some circular logic – the damage it will do is more evident. Just think of the entirely unnecessary fight with David Cameron, UK prime minister. But the British problem pales in comparison with the treaty’s truly destructive powers. It will encourage eurozone member states to adopt extremely pro-cyclical policies.
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