If Not Eurobond: What?

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Tyler Cowen mounts some convincing arguments as to why a German taxpayer wouldn’t want to find himself on the hook for some newfangled eurobonds as part of a eurozone wide consolidated fiscal structure. And I agree. There’s absolutely no reason you would want to do this. Unless, that is, you had a deep-seated ideological commitment to a highly ideological project of European integration.

Do German voters have such a commitment? They certainly don’t seem to. And yet the monetary union itself is precisely a highly ideological project of European integration. As brass tacks practical economic policy, it didn’t make sense in 1999 and it doesn’t make sense in 2011. It was vulnerable to failure in precisely the way that it’s currently failing, and it was known to be vulnerable to this failure at the time it was launched. As I recall, on this side of the Atlantic, most economists warned Europe not to do this. But they did. Presumably for ideological reasons. But if you’re in for the project, then you’ve got to be in for the steps to make the project workable and that seems to me to mean some kind of eurobonds. You can almost imagine Helmut Kohl and Fran├žois Mitterand leaving a note in some office in Bonn below a sign that says, “Break glass in case asymmetrical macroeconomic shocks lead to Eurozone sovereign default risks.” The note says that you can’t have an enduring monetary union based on budget rules alone. You either need to ditch the project, or you need to move forward with the project.

Ever closer union is not just a slogan, it’s a threat.