Fiscal union would hit eurozone credit ratings

There is predictable euro-rage today at Standard and Poor’s warning that there’s a 50/50 chance that the six AAA eurozone countries could see their credit rating downgraded. But if the eurozone does push ahead with fiscal integration, it will — obviously — have an impact on the credit worthiness of the stronger eurozone economies.

One of the reasons that the German bund auction went so badly on November 23 was because of concerns that Germany would end up having to backstop the debts of other European countries. Fiscal union would require Germany to do just that for now and evermore.

No ‘good solutions’ to the eurozone crisis exist. We are in the land of least worst options. But it would be a folly almost as immense as the creation of the single currency in the first place to imagine that fiscal union will solve all of the eurozone’s problems.