New EU fiscal union forgets the lessons of history

With punitive measures for debt levels above 60 per cent, it seems to be a case of back to the future for member states. Our resident satirist Schadenfreude looks to history for some pertinent lessons on where the EU is headed next

The eurozone and its hangers on are working on a fiscal union. They do not call it so because it sounds too much like fiscal federalism, in which the United States Federal Reserve collects revenue and redistributes it among the states - to make welfare even. Fiscal federalism does not guarantee the solvency of a component state, but creates a moral obligation. For now, the work in Brussels is on one half of a non-fiscal union. The other half is the bail-out fund, the European Stability Mechanism as it will be called from July 1.

The European Union started its stabilisation process in the 1990s with the Growth and Stability Pact. It set limits on national debt and annual deficits. Germany was its champion. And Germany and France proceeded to break its rules, attracting no more than a reprimand. The terms of the pact had to be eased. When several other countries found the going too tough, the GSP was unceremoniously suspended.

Admission to the eurozone used the same rules - annual deficit not to exceed 3 per cent of gross domestic product and debt not to exceed 60 per cent. Belgium and Italy did not meet the 60 per cent rule, but were let in anyway. How could two of the original six not be when they were found to be "approaching" the rule at a satisfactory pace? Italy never had the pace. As to Greece, it is wise to fear the Greeks when they make a gift of their statistics.

Undaunted, the eurozone and its "pre-ins" are in the dangerous game of not learning from history. They call their handiwork "reinforced economic union". It might have been "economic governance", but that scares the horses. A draft treaty uses the same "reference values" as before and the same idea of all being well if the debt is "sufficiently declining" towards the 60 per cent limit. That will be the day.

This time breaches of the values are to incur sanctions, enforced by the European Court of Justice. The idea is that parties to the agreement and the European Commission will get tough with any deviationists. Germany should have a care. Since 2010, its debt has been 83 per cent of GDP and it is not declining. It is not clear to the uninitiated how a fine hefty enough to change entrenched behaviour is of much relevance to a country already heavily indebted. It does not want to be told to do this or that to put itself right.

It will dutifully listen to instructions, but wants the other half - the money. Corrective measures take time and there are none with the markets moving in on well-publicised weaknesses. If several members are simultaneously in trouble, the whole edifice collapses. As was seen. The United Kingdom is not part of the proposed deal – although, it is attending the discussions. Well done Gordon Brown. The Conservative-Liberal Democrat coalition government, in Britain, should be singing your praises. A nice mess you didn't get them into.