EU reforms call for new approach to referendums

OPINION:THE GREEK election result appears to have reduced the immediate threat to the euro somewhat but is far from solving the euro zone’s problems. The euro crisis has come to resemble a Hollywood action movie where a plane faces a ticking bomb, terrorists in control of the plane and the death of both pilots. The Greek election may have defused the bomb, but there are significant further threats before a safe landing can be guaranteed.

The most pressing threat remains that which has been clear from the outset. A monetary union cannot survive in the long term without integration of banking and fiscal policies. In short, saving the euro is going to need a banking and fiscal union of some sort to go alongside a monetary union.

Though the fiscal treaty was arguably not constitutionally significant enough to merit a referendum, the kind of changes necessary to save the euro will involve the pooling of very significant amounts of sovereignty. The cumulative impact of the changes necessary to establish a fiscal and banking union will be constitutionally revolutionary and should be put to a vote of the people.

The problem is that there will not be one single point at which the people can be invited to give their assent.

Angela Merkel has made it clear that there will be no “big bang” solution to the crisis and that measures such as eurobonds will only come about at the end of a process of many smaller confidence-building measures.

Germany benefits immensely from membership of the euro, which has prevented its huge trade surplus from making its goods uncompetitive. However, it is also fearful that by agreeing to stand behind the debts of other euro members or to subsidise peripheral economies, it will end up subsidising the kind of wasteful and profligate spending that characterised Greek budgetary policy up to 2009.

Germany will therefore only be willing to put its money on the table after mechanisms have been put in place to ensure significant European oversight of national tax and spending policies.

The process, as Merkel has consistently stressed, will be gradual. The introduction of each measure of fiscal and banking co-ordination will establish the necessary trust and confidence to move to the next stage.

There will be no single summit that establishes a fiscal and banking union. It is more likely that, given Germany’s concerns, over the next couple of years a series of measures will be proposed. Each measure will build on the previous one, leading eventually to the degree of mutual co-ordination and supervision that gives Germany the confidence to place its financial resources on the table as a guarantee for its euro partners.