Europe needs its own US fiscal union moment

PAUL KRUGMAN reminds us that the problems of southern Europe are not caused by past profligacy. He is right in some sense. It is true that according to any off-the-shelf definition of the government budget, a number of these countries (though certainly not all) were doing fine: running surpluses and reducing the debt burden. Yet it isn't clear that a static, cash-basis accounting concept of the government budget is the most reasonable.

(Reuters) - Fears of a rush for the exits from the U.S. bond market have been greatly exaggerated. Even as the fixed-income sector grapples with a rare negative start to the year, many of the biggest and widely followed bond firms are still attracting new cash to their flagship funds. And it is not expected to stop any time soon.

It has been widely recognized that a critical challenge Europe faces is a monetary union without fiscal union. Yet the Cyprus crisis demonstrates is that monetary union is not complete. 

BRUSSELS – The European Union reached a landmark deal on Thursday to make the European Central Bank the bloc’s top banking supervisor, giving EU leaders greater confidence that they are gaining the upper hand over the eurozone’s debt crisis. EU finance ministers forged a deal on the single supervisor in the early hours of Thursday after marathon talks. Leaders will give their stamp of approval at a summit starting later in the day, their last of 2012, and also discuss closer fiscal ties for their troubled currency area.

I have long stated the eurozone will breakup. Historically speaking, no currency union has ever survived in the absence of a political union. Moreover, in It's Just Impossible I noted

By Scott Minerd: In centuries past, there have been many wars fought to bring Europe under one economic and political union. The Napoleonic Empire, the Prussian Empire, the Third Reich, and even the Ottoman Empire further to the east ultimately failed to achieve this goal. Today, in many ways, Europe is engaged in another war - a war to preserve the hard-fought gains of monetary and fiscal union built over the past five decades beginning with the Treaty of Rome in 1957.

A story is making the rounds that suggests leaders are going to get together and hammer out a "fiscal union". The story appears to have originated on the Welt Online, a German tabloid. The article mentions a Secret Plan for a New Europe.

By The Fair Weather Investor:I try to avoid as much as possible making predictions. However, there is one prediction I am fairly comfortable making, and that is that there is virtually no chance of the EU nations getting together to form a fiscal union.