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The push towards fiscal union is inevitable

The Euro has plummeted to a 22-month low against its peers after further indecision emanates from the European Commission conference.

Some hope of relief was revealed by European commission president José Manuel Barroso and the European Commissioner for Economic and Financial Affairs Olli Rehn. The pair said that they are prepared to extend Spain’s deadline for bringing its budget deficit into line by a year. To qualify, Spain must present a solid budget plan for deficit reduction in 2013-2014, if it can do that, Madrid will be given until 2014 to bring its deficit down to 3% of GDP.

“The economic situation in the euro area deteriorated significantly over the last year,” the commission said. “Growth differences among the euro area member states are expected to persist.”

Barroso hinted that the Eurozone will create a closer fiscal union saying; “We intend to look at steps towards full economic union. We remain convinced of the benefits the common currency has delivered and will do in the future… Many member states now argue in favour of a Common Deposit Guarantee Scheme.”

He added that the EC will consider bailing out struggling banks directly rather than going through the sovereign national route. “To sever the link between banks and the sovereigns, direct recapitalisation… might be envisaged. Flexibility and speed are of the essence,” Barroso said. The European Union’s executive body also pushed for more integration through a “banking union”.

Several observers are predicting that the pound will continue to remain stronger compared to the Euro but predict that both currencies are due to weaken to lower levels against the dollar. Next month it could reach the $1.535 level.
The fear that Spain will soon be on the receiving end of an EU bailout fund has seen the countries bonds trading at record high levels above 6.5%, very close to the 7% level beyond which borrowing costs are deemed unsustainable over the long term. The government’s decision to introduce a new bond scheme aimed at funding ailing lenders and debt stricken regions has raised concerns over the country’s already stretched finances.

Everyday has seen a plethora of mess ups by the European leaders and as the markets show, investors are quickly losing faith that the politicians can stem the tide. The call for fiscal unity is growing louder and louder as many people see no way out of the mess.

Then again why would they want to merge when they can’t even decide on the simplest of matters?


The Pound to Euro exchange rate is currently trading at 1.251

The Pound to US Dollar exchange rate is currently trading at 1.552

The Euro to US Dollar exchange rate is currently trading at 1.240

The Euro to Pound exchange rate is currently trading at 0.798

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