It’s fiscal union, Jim, but not as we know it

Euro leaders hope they bashed together something last night that will avoid finger-wagging from President Obama or President Hu at the G20 in Cannes a week today. But the more you look at the deal the more you realise it is work in progress.

The 50 per cent write-off of Greek debt could translate into a multitude of different number as the banks haven’t agreed interest rates or maturities for the replacement government debt they trade their old bonds in for. It appears that though continental banks have to raise their capital it isn’t clear what counts as “capital” for the purposes of this exercise.

The communique codedly says the European Central Bank will carry out helping out with buying bonds from countries with serious debt problems (“We fully support the ECB in its actions to maintain price stability in the euro area”) and the ECB duly did just that buying Italian debt in the markets today. But will it carry on doing that when the bailout fund is fully operational? Many, in fact most, hope so. But Germany has not crossed that rubicon.

Is Europe now moving towards full-scale fiscal union? There are signs of just that in the communique (the euro group gets its own schedule of meetings and a secretariat with a “strengthened governance structure”). But as Spock might have said: “It’s fiscal union, Jim, but not as we know it.”

There’s no single Treasury, no single European government debt bond planned. But there is closer integration on tax and spend, “better co-ordinated macro- and micro-economic policies” and the possibility of the 17 euro zone countries acting as a caucus, forever more out-voting Britain’s interests where they differ.