I do not agree that treaty change should be the last resort. I would say it is no resort whatsoever.
The problem is far too urgent to await the machinations of a treaty change which is a long winded process involving ratification by 27 parliaments and in some cases national referendum.
To give an idea of how urgent the situation is I quote from a report issued by Larry Hathaway an economist at UBS when asked about the best investments in a Euro breakup scenario:
"I suppose there might be some assets worthy of consideration - precious metals for example. But other metals would make wise investments, too. Among them tinned goods and small calibre weapons.
Break-up runs the risk of becoming one wretched scenario. Sadly, however, it can't be ruled out, just as it would have been improper to rule out the horrors of the first half of the 20th century before they happened.
But it is very hard to see break-up as a solution. Let's hope Europe's politicians and policymakers agree and take action this week to fix what is broken before it all really breaks up"
What is needed is not a new Treaty. What is needed is firm action within what is already allowed within existent treaties, namely:
- Strict control over how much Euro members can borrow without creation of anything like a fiscal union which would also control what they tax and spend. Taxing and spending should remain national prerogatives but borrowing must be preapproved by a Central agency as borrowing by an individual country, implicitly or explicitly, becomes everyone's responsibility.
- Coordination of fiscal policies so that whilst countries in distress enforce austerity to bring their finances in order, countries that can borrow at extraordinarily cheap rates (like Germany) loosen their fiscal policies to create internal demand and support export growth for countries undergoing internal austerity.
A true solution requires no treaty change. A true solution requires strong countries showing solidarity with countries in distress, whilst countries in distress proving their determination ( as Greece and Italy are clearly doing through their techincians' governments) to stay on the road to fiscal salvation whatever it takes so that the integrity of the Euro can be protected and safeguarded.
With such assurances the European Central Bank will be comfortable with adopting a more active role in its function as a lender of last resort in the knowledge that this will not impair its inflation fighting credentials but will enhance its price stability credentials by avoiding a depression.
The alternative is too horrendous to even contemplate