The Euro is at a fork in the road; either the Eurozone must become a full fiscal union, or it will have to break up.

I believe George Osborne is wrong to suggest that full fiscal union in Euroland is preferable.  It is in neither Europe’s interest nor our own.  Faced with a choice between a) full fiscal union or b) a return to different currencies in different parts of Euroland, the second option is the least worst for Britain and Europe.  

For all the dark warnings from the Chancellor and others about how disastrous the break-up of the Euro would be, there is one thing certain to be even worse - and that is the Euro’s maintenance at any price.  As long as millions of Europeans continue to live in countries that have currencies designed for the needs of others, their economies will continue to stagnate, their debts will grow, and their children will be forced to seek work elsewhere. 

Fiscal union in Euroland dooms many of our nearest neighbours to economic sclerosis for a generation or more.  

We ought instead to have the courage to spell out to other EU leaders that a currency exists for a people, not a people for a currency. 

Quite apart from the very real dangers of Britain eventually getting drawn into a fiscal European Union (see how the recent Euro bailouts saw the UK forced to be part of the Euro debt union), creating this monetary monster will not solve the debt problem any more than the bailouts have.  Europe will still have crippling debt.

When American debt on subprime mortgages was repackaged as Collateralised Debt Obligations, it did not stop being debt.  However much we repackage Europe’s debts, its toxic effects will have to be dealt with eventually – with or without fiscal union. 

Far from solving Europe’s problems, Eurozone bonds and full blown fiscal union will merely instititutionalise the kind of bailout arrangements we have already seen. The bailout-and-borrow mechanisms will be made permanent features of the European political economy. In other words, the taxpayers of Germany will be left to endlessly picking up the tab for southern Europe’s fiscal fecklessness.  Endless beggar thy neighbour economics rather than the sort of far-reaching competitive reform Europe needs. 

Fiscal union might mask the symptoms of what is wrong in Euroland – but it will not fix it. Merely repackaging the debt burden and putting it on to the shoulders of the taxpayer simply passes on the toxic package.  Worse, it allows the cause of the debt – many Europeans living beyond their means – to carry on with La Dolce Vita, oblivious to Europe’s relative, and perhaps absolute, economic decline.

Britain should instead be advocating the return to different currencies in different part of the Eurozone. There are practical things we could be doing to help new fledging currencies off the ground. Tagging along with the Euro consensus is not helping Europe cope with the mess she is in.