Monday, December 31, 2012

Nouriel Roubini : Either the Eurozone moves toward fuller integration capped by political union or it will undergo disunion

Nouriel Roubini : .......Meanwhile, the monetary union remains an unstable disequilibrium: either the eurozone moves toward fuller integration (capped by political union to provide democratic legitimacy to the loss of national sovereignty on banking, fiscal, and economic affairs), or it will undergo disunion, dis-integration, fragmentation, and eventual breakup. And, while European Union leaders have issued proposals for a banking and fiscal union, now Germany is pushing back. German leaders fear that the risk-sharing elements of deeper integration (the ESM’s recapitalization of banks, a common resolution fund for insolvent banks, eurozone-wide deposit insurance, greater EU fiscal authority, and debt mutualization) imply a politically unacceptable transfer union whereby Germany and the core unilaterally and permanently subsidize the periphery. Germany thus believes that the periphery’s problems are not the result of the absence of a banking or fiscal union; rather, on the German view, large fiscal deficits and debt reflect low potential growth and loss of competitiveness due to the lack of structural reforms. - in project-syndicate
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