8 may 2010, ignore now, pay later; later has arrived

The lessons of most events are often known long before, but never acted on. So it is with greece, the lesson being that monetary union without deeper fiscal co-ordination is ultimately unsustainable. This doesn't mean that the euro area is going to collapse, but rather that you cannot avoid closer co-operation on the fiscal side - meaning tax and spend. Will the new euro area "peer review" of budgets be a significant step in that direction ? Unlikely: although this in-house "imf article 4" mechanism may be valuable, it won't be enforceable and the commission already does something similar. The real action being taken is more of a "euro area v. the markets" type, with ideas for an eu rating agency being fastracked and the development of an emergency standing (crisis) fund, possibly by expanding the reach of the existing balance of payments facility. Pressure is also being applied to the ecb to copy the fed and bank of england and start dabbling in quantitive easing, which they will stoutly resist. The ever-excellent bruegel are talking of some before-the-act debt restructuring agreement. As well as the lesson being there before though, so is the remedy. The stability and growth pact was minted more than a decade ago. What is needed is not to reinvent the wheel, but to put the rubber on the road and make those difficult but timely course corrections as they arise, rather than junking the system because it hurts a bit and then searching for a new one when the consequences of that come home to roost.