In a financial crisis, policy makers improvise, and in the process set all manner of precedents. In deciding to create a fund of €750 billion (about $1 trillion), European authorities are likely hurtling toward creating a more perfect political union, whether they realize it now or not. It is just as unlikely that the citizens of those 16 separate nations on the Continent appreciate the forces put into motion by their leaders.
The initiating problem was a misperception by investors that provided an opportunity for politicians. Bond buyers apparently assumed that monetary union implied fiscal union. That is, because Greece issued debt denominated in euros, the story runs, all Europe would ultimately stand behind repayment. There was nothing in the Maastricht Treaty about such support. Indeed, the weak discipline that was supposed to be imparted by the treaty had been dealt with “flexibly” as the need arose, leaving local fiscal authorities considerable leeway to follow their own course.
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