David Cameron, the British Prime Minister, has been vindicated in his keeping his country outside the European Union fiscal compact agreed to nearly unanimously last week – or at least, his position is no longer isolated. The Prime Ministers of Hungary and the Czech Republic, Viktor Orban and Petr Necas, have now said they will not sign a new fiscal treaty if it includes a tax harmonization regime.
It is difficult to see how a fiscal compact that would commit the member countries to balanced budgets or small surpluses could possibly refrain from restricting taxing policies. Consequently, Mr. Necas’s and Mr. Orban’s condition can hardly be fulfilled.
Britain, the Czech Republic and Hungary are all outside the euro zone, while the real purpose of the fiscal compact is to co-ordinate the policies of countries that share the euro – so as to avert (for the future) the intractable problems of balance-of-payments crises within one currency area.
The notion that all EU members, inside and outside the zone, should adhere to this compact was a misplaced technical scruple. The reasoning has been there cannot be an EU treaty to which not all member countries are parties (echoing Canadian controversies about asymmetrical federalism). Mr. Cameron should not have been treated as a heretic or a political deviant – even by his own coalition partner, the Liberal Democrats – for holding to his common-sense view.
It may not be a coincidence that Mr. Orban’s and Mr. Necas’s countries were once part of Austria-Hungary, which from 1866 to 1919 was composed of two autonomous states with a single currency. The monetary union worked well enough until, when five independent countries emerged, it came to a very messy end.
José Manuel Barroso, the President of the European Commission, says the fiscal compact will all be sorted out in the Danish presidency of the EU, in the first half of 2012 – unlikely, since Denmark itself is not a euro zone member. The Danes, the Poles and the Swedes are not promising to sign a treaty until they see an actual text of an agreement instead of what is now a skimpy draft.
The criticisms of Mr. Cameron were ill-founded. No wonder other European leaders are now openly agreeing with him.