... at the moment is that the power to deficit spend as a sovereign economy resides at the level of the currency unit. A state within that unit must treat deficits as borrowing.

Now, the mainstream conventional foolishness obscures this, because it pretends that a sovereign economy must treat deficits as borrowing, which is ... well, foolish, hence the name. So under the mainstream conventional foolishness, there is no change of category for the individual states of a currency zone.

In reality (cf. billy blog, Clowns to the left, jokers to the right), a sovereign economy can deficit spend if it has sufficient domestic unemployed resources that the residual inflationary pressure from outbidding already employed resources is on the order of ongoing productivity growth. There is no finance constraint ... but a state within that sovereign economy does face a finance constraint.

So the flaw in the policies to agree to restrain government deficits of EU members to a certain level is not the agreement per se, but rather the lack of a facility at the Eurozone level to create deficits corresponding to the size of the unemployment gap to be transferred to the member states in the event of an economic downturn.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.