IF 200 -- August 29, 2011 -- 14/20

The whole “European Experiment” was built on a dream that economic convergence -- without mandatory fiscal convergence -- would eventually lead to a politically united Europe.    Economic convergence never fully happened.    Even the introduction of a common currency did not set into motion, as hoped, economic convergence within member states.

Worse, the EU is left battling every day with the many fires inflaming its member nations.    And, how the EU firemen deal with the spreading fire infers a highly troublesome trend ...that EU’s member states are now able to unload risks inherent in national dwindling public finances and economic policy mistakes to the entire EU collectivity.    Yet, the basic foundation of the common currency was “reliance” on the fiscal self-responsibility of each nation adhering to the EURO bloc.    Not only Europe is violating its own founding treaty -- “no country is liable for the debts of any other” -- but the European Central Bank overcame the explicit ban, within its own constitution, not to be involved in state financing.    Widely considered a fatal violation of its own charter, the European Central Bank purchases member states’ sovereign debt in the secondary market and accepts sovereign securities as collateral even when they have been downgraded by rating agencies.    Incidentally, the ECB bought Greek, Irish, Portuguese, Spanish and Italian sovereign bonds.    As a result, the ECB holds a substantial amount of questionable sovereign debt.