Since the end of World War II, the nations of Europe have been evolving toward unity. The most dramatic manifestation of unity came in 2002 with the adoption of a single currency (The Euro) now shared by 17 countries.
The biggest obstacle to unity in Europe is the desire for sovereignty in each nation to continue to control its internal affairs, such as national budgets, bank regulations, and debt financing. Many experts now agree that the financial crisis in Europe is getting worse instead of better because the European Union has not gone far enough to create a complete federal union with a European Treasury Department that has the authority to manage union-wide debt by issuing Euro bonds. Today, there is no such thing as a Euro bond. There are German bonds, French bonds, Italian bonds, etc., but no Euro bonds covering all 17 countries.
Although far from perfectly, the U.S.A. is recovering from the recession with much greater effect than Europe; this is because the U.S. Treasury strategically finances our national debt. If the Euro Zone is to survive, it will need to become a federation, not just a union with little central authority.
At a summit meeting held on June 29, Euro-zone leaders announced a decision to create a new bank authority. This is an important step toward a federation that will be effective at managing the financial affairs of the Euro Zone. Currently, there are 17 banking supervisors with 17 different sets of rules in each country, and it is not working.
Germany and other strong economies in Europe view the establishment of a single banking authority with a single set of rules as essential before sharing more resources with other Euro-zone countries. This new banking agency will likely be created within the European Central Bank and could lead to a Euro-zone deposit guarantee fund similar to the Federal Deposit Insurance Corporation (FDIC) we enjoy in the U.S.A.
Most of the so-called summit meetings in Europe have been disappointing without any effective results. The June 29 summit actually decided something worthwhile with regard to the new banking agency. This is the formation of a federation, one step at a time. More to come.
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