Europe needs to get its economic house in order - By Daniela Weingärtner

Now that Greece has hit the wall, even the strongest advocates of national sovereignty in Europe realize the need for a common European economic regime. Germany's chancellor no longer considers the idea taboo.

Europe's new president, Herman Van Rompuy, does not have a government platform. Yet in his invitation to the first EU summit under his direction, he left the 27 heads of state and government in no doubt about his goal over the next two and a half years: closely coordinated economic decision making. "Whether it is called coordination of policies or economic government, only the European Council is capable of delivering and sustaining a common European strategy for more growth and more jobs," he said. He urged the council of ministers to approve the necessary structural reforms, monitor their implementation and keep adjusting the strategy to new requirements.

The outcry that such an attack on national prerogatives could be expected to provoke never happened. Even Van Rompuy's announcement that he wants to see national leaders once a month in Brussels for top-level economic policy meetings apparently failed to upset anyone. This initiative amounts to nothing short of a revolution within the EU, which so far has devoted only two summits a year to economic issues.

Van Rompuy's bold plans found little media attention at the Feb. 11 talks because the Greek financial crisis had hijacked everyone's attention. Yet it is precisely the threat of debt default looming over a eurozone country that has made clear that the previously practiced "open coordination" of economic policies, based on voluntary action, is no longer fit for purpose.

At the next summit in March, Van Rompuy wants to commit the EU states to pledging verifiable economic goals to be enacted as national programs by year's end. The European Commission would then regularly monitor the states' progress. The Council President is convinced that a common market in which some states also use the same currency cannot operate in the long term without a shared economic government.

The members of the EU's constitutional convention already knew that 10 years ago, yet their efforts to anchor the necessary conditions in the constitution foundered on national vetoes - mainly from the big economies. Paris, London and Berlin regarded fiscal policy, pension reforms and social welfare legislation as core elements of their national sovereignty.

The Lisbon Treaty, in force since Dec. 1, includes provisions for a common economic policy that enable closer coordination. Many of these were already possible under the Treaty of Nice but were never invoked.

Greece's spiraling finances, which pre-empted serious debate over the direction of European economic policy at Van Rompuy's first summit, could yet affect a meeting of minds on closer coordination. The alternative, monetary analysts believe, would be the breakup of the currency union and possibly even the common market.

Some economists in less heavily indebted countries such as Germany are demanding that Greece be kicked out of the euro club. Others proclaim the end of the common currency is at hand. The conventional wisdom of a few weeks ago, according to which Europe would never have weathered the global economic tempest as well as it has without the euro, seems long forgotten.

The economics journalist Jakob Schlandt, writing in the daily Berliner Zeitung, recently called the common currency a "grand delusion" - arguing that it has merely whitewashed the enormous imbalances that have built up within the eurozone over the past decade. Whereas most northern states put the brakes on wages and cut back social services, Spain, Portugal, Ireland and Greece were enjoying boom years and saw no need to save. The EU's new members in Eastern Europe were likewise posting double-digit growth, attracting investment through low taxes and generously raising wages.

None of the current problem states resemble each other. Their economic policies are as diverse as the possible routes out of the crisis. Yet in a barrier-free common market with a common currency for many, no state can be allowed to pursue economic policy in isolation.

The EU's massive Structural Fund is supposed to ensure that living standards, infrastructure, social welfare and wage levels gradually converge within the EU. Yet that effort will never succeed if it coincides with huge imbalances in tax levels and pension systems.

The Greek crisis seems to have driven this lesson home, even in countries that do not normally tolerate advice on how to run their economies. A European economic government - as long proposed by the French - was not taboo, German Chancellor Angela Merkel recently said, adding that it would have to include the entire European Union, not just the eurozone.      

Yet it's the eurozone states that are now reacting to the crisis by taking the first steps toward an economic regime. The rigorous budget cuts and reforms imposed on Greece and monitored by the Commission fully exploit the Lisbon Treaty's provisions and set important precedents.

No member country will be able to say in the future that it's nobody else's business whether the government cuts pensions, slashes public sector jobs or hikes taxes. The economic watchdogs now keeping an eye on Greece will, if necessary, extend their gaze to other EU members too.

Still, if the EU wants to stabilize its keel, it must go beyond emergency programs. As Van Rompuy has demanded, it must agree on common goals that are measurable: for example an employment level, a minimum budget for education and research or state expenditures that benefit families. As a second step, every country must make commitments to enact policies commensurate with those objectives - all under the Commission's watchful eye.

Should advisories and warnings fail, transfer payments from the EU budget into national treasuries would have to be cut in a last resort. That is still a shocking idea for many member states. But the alternative would be the eventual dissolution of the European community.