David Prosser: The inevitable path to an even greater surrender of economic power

Outlook If you were to harbour a secret desire to torture a eurosceptic, there would not be many better ways of fulfilling your fantasy than forcing them to read the speech made by Jean-Claude Trichet yesterday. The European Central Bank chief, who is on the verge of retirement, thinks the European Union needs a Ministry of Finance.

The EU's very own Treasury would not supercede its members' own finance ministries' right to decide how to tax their citizens, or how to spend the revenues raised. But it would be charged with keeping a close eye on the fiscal discipline of member states – up to and including a right to veto their spending decisions, and other matters of economic policy, should it decide they breached the EU's rules on borrowing and debt.

This is the stuff of nightmares for those who worry about the idea of handing more power to Brussels and goes well beyond what even the most fully signed up members of the European project in France and Germany have so far agreed. And note that Mr Trichet envisages a Ministry of Finance for the whole European Union, not just members of the single currency – the UK would be included.

Still, while Mr Trichet's vision will go down like a lead balloon in many places, it is only the logical consequence of the sovereign debt crisis with which the eurozone has still not got to grips – and the wider financial shocks suffered by all 27 EU member states since the credit crunch.

One reason for the tragedy that is currently playing out in Greece – and the problems we have seen in Portugal and Ireland – is that there has been no European ministry of finance with the power to rein in these countries. In joining the euro, they handed over control of monetary policy to the institution Mr Trichet runs, but retained absolute power over fiscal policy. As a result, they have been able to run up huge debts other members of the eurozone now have little choice but to underwrite.

There were, of course, legally binding treaties that required countries to operate within caps on borrowing as a proportion of GDP (the rules apply to Britain too). But countries have been allowed to break the rules with impunity – and while there is now agreement that the penalties for doing so must be raised, there is little consensus on how to do so.

Mr Trichet's ministry of finance, then, would be no more than a policeman charged with enforcing the borrowing rules supposedly agreed across the EU. It might have other roles, like taking the lead in the regulation of European financial services, which would be controversial too, but it would only have to act on its core duty in the event of a member state falling short of its responsibilities.

It has taken just 12 years to prove right those who warned that the single currency, and other attempts at closer European economic co-operation, would be undone by the failure to ensure consistency of fiscal policy. The current crisis must be resolved, but if the euro is to have a future and if non-euro members wish to continue to benefit from the advantages of the single market, there must be a mechanism for ensuring that everyone plays by the rules. If not an EU Ministry of Finance, then an alternative that eurosceptics will find equally unpalatable.