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Eurozone should form ‘fiscal club’ says HSBC chief

Stephen King, Taimur Ahmad and Athar Hussain

This report of the CJA debate on 11 October 2011 was first published on

More about the event here.

Eurozone countries should form a new “fiscal club” which would see them surrender sovereignty to Brussels if they end up requiring a bailout, according to HSBC’s chief economist.

Stephen King this week urged EU governments to adopt a plan he has drawn up to help save the single currency and avert a fresh recession or even depression.

Under his plan, Brussels could decide on how emergency loan funds are distributed, and how best to impose restructuring on a failing economy.

Eurozone countries at the outset would choose to opt in or out of the club. However the risks of opting out would be such as to deter only the best managed economies to go it alone, according to King.

“It’s a kind of fiscal variant of the Maastricht treaty of 1992,” the group chief economist said, speaking in a personal capacity at a panel debate hosted by the Commonwealth Journalists Association in the Palace of Westminster, London, on Tuesday night.

The debate featured Athar Hussain, director of the Asia Research Centre at the London School of Economies, and was chaired by Taimur Ahmad, editor of Emerging Markets magazine.

King continued: “The punishment for countries that suddenly find themselves unable to raise funds in global capital markets if they misbehave fiscally is not a financial punishment, it is a political punishment.

Eurozone crisis – how will it affect the rest of the world? by will_henley

“During the bailout that they would require from other European countries, they would then lose their sovereignty temporarily.”

King’s proposal comes as the troika this week confirmed that Greece was unlikely to meet strict readjustment targets laid down  as part of the conditions of its international bailout package.

It lent the country another €8bn ($10.8bn) tranche of funding to ensure Greece averts a potentially catastrophic default.

The economist argues that rules put in place by the European Council and Eurogroup, such as the EU stability pact as well as existing bailout conditions, are “more or less self-defeating” owing to the interest rates paid on the loans.

Exorbitant interest rates make it extremely difficult for a country to return to growth, he argues.
According to King, a form of pooled sovereignty would ensure that taxpayers in Germany and elsewhere are given greater control over how their funds are spent.

“Rather than having fiscal transfers from the Germans to the Greeks for example, which is what happens currently, where you give them money and say please spend it wisely, you have Brussels running that particular country.”

He added: “Brussels decides what the tax and revenue levels should be in that country. Effectively you establish a principle across the eurozone – a contingent principle – of no European taxation without European representation [in the bailed out country’s finances].

“So Europeans as a whole have a say in how the money is spent.”

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