Euro Area

[Furunculus]

Any sufficiently large country has different fiscal rules for different regions/state/provinces.

If you think the fiscal policies are exactly the same in each state in the US, you've got another thing coming. If you think that Moscow regions has the same fiscal rules as Kamchatka, think again. If you believe that same rules apply in <insert Chinese interior state> as in Tianjin or Shanghai province, you're wrong again.

So, whoever thought of that "monetary union is only possible with fiscal union" doesn't really know what he's talking about.

and i quote (from wiki, but what the hell):

Under fiscal union decisions about the collection and expenditure of taxes are taken by common institutions, shared by the participating governments. For example, in federal nations such as the United States, fiscal policy is determined to a large extent by the central government, which is empowered to raise taxes, borrow and spend.

A fiscal union being a transfer union, for precisely the imbalances you note above. What merkel proposes, her "fiskal union", is decidely not a transfer union and thus it will not work!

http://blogs.telegraph.co.uk/finance...e-first-place/

There is one further thing. It is possible to take an area which is not an optimal currency area and make it more so. This is what Lord Mandelson is talking about when he parrots the line about a "fiscal Europe". The idea is that if the rich areas send money to the poor areas then the effects of being lumbered with the wrong currency can be mitigated. As indeed they can: London sends vast amounts of money to the north of England and Scotland and this helps reduce the impact of the Pound Sterling itself not quite being such an optimal area.

Over larger areas and numbers of people, the US is regarded as a good example. However, it is worth looking at quite how much money has to be sloshed around America to achieve a single currency. Some would argue that it's the welfare state bit of the Federal government, perhaps plus the military, that does this. That's about 5 or 6 per cent of US GDP. Others argue that it's the whole of the Federal government that does it, around and about (outside current blowout deficit times) some 20 per cent of the entire economy.

Which is fine if that's your sort of thing. But now try and move this over to the European scenario. The US government, all levels of it, takes some 35 to 40 per cent of GDP. That's two fifths of everything that everyone produces in a year. And this is after they've done that fiscal sloshing around to make up for having a single currency.

Here in Europe, governments take 40 to 50 per cent of GDP, two fifths to one half, before they've started to chuck the cash around to pay for the vanity project of the euro. We'd have to take in tax another 5 to 20 percent of everything produced and ship it off to the poor countries to achieve what the Americans have: a single currency that doesn't cripple those poor areas.

Five per cent of the UK's GDP is £75 billion or so: that's more than all council tax and all business rates. Twenty per cent is £300 billion: more than all VAT plus all income tax.

Can we see any possible future in which we (or the Germans, the Finns or the Swedes) agree to pay such taxes so that we can build a Common European Home – or, if you like, to subsidise the countries which we really shouldn't have a common currency with?

No, quite. I can't, either.

Are you my family, whom i trust to look after me and mine in ackowlegement of the same commitment in return?
Or are you merely my neighbour?

Nothing. Else. Matters.