The Economist still advocates a form of debt mutualisation in Europe, that is Eurobonds of one sort or another. While I usually agree with the Economist on most topics, I am really baffled by how stubborn the Economist is in advocating these ideas, rubbish as they are.
Any form of debt mutualisation without control will result eventually in disaster as we can unfortunately see in Greece right now. Since the beginning of the Euro in 1999, the spreads of sovereign debt yields to German debt yield collapsed to virtually nothing within a few short years. The silent assumption was, that once it is do-or-die Europe will throw away its rules and conduct bailouts. Let me phrase that nastily exaggerated: Markets bet that Germans would have to pay for Greek debt. And guess what? We did.
I completely fail to see how any other form of debt mutualisation will avoid problems like these. It all boils down to the fact that one member has to pay for another member, without any democratic checks and balances. And if we implement controls, say fiscal rules without enforcement problems (the question is how), this would change Europe fundamentally from a confederacy to an integrated political union where the budgetary rights of the parliaments are curbed. Don’t get me wrong, I would very much like to see such a Europe one day, when I would be a European first and a German second, but this day is decades away. We see what integration haste has lead us to, there is something we can learn from it, and further debt mutualisation is not the lesson, but sticking to the rules is. But to the Economist this is probably only “German legalism” and “rules obsession”. But there is a key advantage to the German concept of sticking to the rules: It works.