Merkel, Sarkozy to Europe: shelve your sovereignty, save the euro

An end to sovereign control over European budgets. That was the big idea that Germany's Angela Merkel and France's Nicolas Sarkozy outlined in a letter to European Council President Herman Van Rompuy Wednesday. 

The call for bracing, immediate change should lead to a fascinating day today, when European leaders gather in Brussels to discuss ways out of the euro crisis.

The Daily Telegraph is also reporting that Mr. Van Rompuy has written a paper to be discussed tomorrow on fiscal union, which calls for a "higher degree of surveillance and discipline in the conduct of national policies.”

The meat of the proposal

A lot of the language around this issue has been indirect – not least among the European politicians who favor giving Brussels control over the budgets of member states like Italy and Spain, whose struggles with sovereign debt and slow growth have terrified investors and economists about the potential for a cascade of European defaults.

Reuters said these European politicians are calling "to toughen up fiscal governance via treaty changes." But the proposal amounts to offering Europe a choice: Give up domestic political control over how much you spend on social welfare and defense (for instance) or risk the demise of the euro.

The fact that the eurozone would have a single monetary policy and 11 different fiscal policies was the elephant in the room when the currency was created in 1998 (the eurozone has since grown to 17 states.) Critics pointed out that this was a recipe for potential disaster, with countries able to borrow at lower rates than their ability to repay would indicate. Proponents argued that rules governing how much debt as a percentage of GDP members could take on would mitigate any risks. But most national politicians simply flouted the rules, attendant to their voters' demands that money be spent and aware that the European Central Bank had no power to compel compliance – or remove them from office.

Merkel and Sarkozy want to address this structural flaw. "The current crisis has uncovered the deficiencies in the construction of [European Monetary Union] mercilessly. We need to remedy those deficiencies," they wrote.

But the reason this wasn't dealt with in the original treaty – public unease at giving up national control to a supranational body likely to be dominated by the continent's biggest economies – is as true today as it was then.

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