New World Order: Europe hammers out plan for new financial confederacy of Eurozone states

June 3, 2012 – EUROPE – When Jean-Claude Trichet called last June for the creation of a European finance ministry with power over national budgets, the idea seemed fanciful, a distant dream that would take years or even decades to realize, if it ever came to be. One year later, with the euro zone’s debt crisis threatening to tear the bloc apart, Germany is pushing its partners for precisely the kind of giant leap forward in fiscal integration that the now-departed European Central Bank president had in mind. After falling short with her “fiscal compact” on budget discipline, German Chancellor Angela Merkel is pressing for much more ambitious measures, including a central authority to manage euro area finances, and major new powers for the European Commission, European Parliament and European Court of Justice. She is also seeking a coordinated European approach to reforming labor markets, social security systems and tax policies, German officials say. Until states agree to these steps and the unprecedented loss of sovereignty they involve, the officials say Berlin will refuse to consider other initiatives like joint euro zone bonds or a “banking union” with cross-border deposit guarantees – steps Berlin says could only come in a second wave. The goal is for EU leaders to agree to develop a road map to “fiscal union” at a June 28-29 EU summit, where top European officials including European Council President Herman Van Rompuy will present a set of initial proposals. European countries would then put the meat on the bones of the plan in the second half of 2012, several European sources have told Reuters, including a timetable for overhauling EU treaties, a step Berlin sees as vital for setting closer integration in stone. “The fundamental question is relatively simple. Do our partners really want more Europe, or do they just want more German money?” a government official in Berlin said. If European countries go ahead, the steps would represent the most significant policy leap since they agreed to give up their national currencies and cede control over monetary policy 13 years ago. But the hurdles are daunting. “The world is not coming to an end; rather, it feels as if we are on the doorstep to another major European integration move,” said Erik Neilsen, chief economist at Unicredit. “But why do these initiatives only come when we are on the edge of the cliff where the risk of an accident is so much higher?” Spain, whose banking troubles have made it the latest target of financial markets, signalled over the weekend that it was on board with a key element of the plan. Prime Minister Mariano Rajoy backed the creation of a new euro-wide fiscal authority of the kind Trichet sketched out in a speech in Aachen, Germany last year. But other states, including the bloc’s second-biggest member France, have deep reservations about ceding so much sovereignty. –Reuters