THE BLOW TO the European Union's Stability and Growth Pact in November 2003, with France and Germany ignoring the demands of the European Commission to lower their budget deficits, has shaken the EU just as it prepares to welcome new members. On May 1, 10 accession countries will join a union in which the EC is locked in a bitter legal battle with member states. As Ilmars Rimsevics, governor of Latvia's central bank, says: "People are asking: 'Why are you joining a union that is dying?' The biggest pessimists are already saying that monetary union is dead."
Monetary union may not be quite dead. But fiscal union certainly seems to be in a critical condition after the French and Germans rejected a demand that they reduce their budget deficits closer to the 3% of GDP level required by Maastricht Treaty criteria. Ecofin (the council of EU finance ministers) decided not to...
