Groucho Marx once quipped that he would refuse to join a club that would have him as a member. It is safe to assume that the European Commission did not have Duck Soup in mind last month when it warned France, Greece, Ireland, Latvia, Malta and Spain to bring their budget deficits back into line. But a club in which nearly half of the members are flouting the rules and are in danger of being blackballed might be to Groucho’s anarchic taste. What it says about the workings of the European Union is less than funny.
The timing of the warning from the rules committee was not exactly gentlemanly. The spread of Spanish, Greek and Portuguese debt over Bunds had just hit fresh records, as had the cost of insuring against Irish default in the CDS market. This has prompted more excited talk about the demise of the single currency. This is wrongheaded. The spreads that countries such as Italy and Greece would have to pay outside the euro would be much higher. Given that, there is little immediate incentive to leave.
The current crisis does, however, expose policy and structural flaws at the very core of Europe’s political and economic architecture.