AFAIK the intent is to prevent individual irresponsible governments (aka Greece, Italy) from racking up big debts and then expecting responsible governments (aka Germany, Benelux and Nordic) to bail them out when everything goes south.

This of course ignores structural imbalances within the EU and especially the Eurozone and and reduces the scope governments - who have already lost control of their interest rates and the value of the Euro - have of using Keynesian stimulus to revive a recession hit economy.

All of which wouldn't matter as much if ECB policies were more geared to the needs of struggling peripheral economies or if the EU itself has a greater fiscal capacity to correct imbalances within the Eurozone as a whole. Hence the debate and need for Eurobonds and common deposit insurance etc.

However it would be wrong to characterise this as austerity forever for most countries other than Greece which has a plainly unsustainable debt burden and little hope of escaping ongoing austerity without debt forgiveness.

What it does mean is that the EU, as a whole, has a limited ability to respond effectively to external or asymmetric economic crises and is forever bedevilled by economic imbalances within.

Attempts to complete the banking Union, limit the degree to which sovereign governments/taxpayers can become liable for private banking debts, and create common deposit insurance schemes etc. may improve the situation at he margins, but the bottom line is that (thanks to net contributor intransigence) the EU lacks significant fiscal capacity to help any members in trouble or indeed respond effectively to mitigate the effects of a global economic crisis on the EU as a whole.

Index of Frank's Diaries