The European Union agreed, last Friday, to the outlines of an arrangement that might leader to greater unity for the economies of the 17 nations of the euro zone plus six to nine additional members of the EU that are not part of the euro zone.  Only Great Britain has, for certain, demurred.  Leaving aside the question of the legality of the new terms (which arise because Great Britain has refused to go along, preventing the unanimity required by the EU’s governing treaties), what has actually been accomplished?

The EU other than Great Britain has agreed to a financial transactions tax.  This would be a fee that every investor, from an individual to the largest investment bank, would be required to pay on every financial transaction, from brokering a merger of large corporations to any individual buying—or selling—a single share of stock.  Britain couldn’t hack that because the financial industry is 10% of their economy, and they were concerned about the effect of such a large (in the aggregate) tax on their economy.

The biggie, though, was an agreement to more fully integrate the member nations’ economies, to the point of submitting national budgets to EU scrutiny.  Every nation, under this fiscal union, is bound to limit its budget deficit to no more than 3% of that nation’s GDP.  Failure to do so would bring virtually automatic sanctions (the sanctions could be waived on an individual basis, provided 5/6 of the fiscal union members agreed to the waiver).

This raises a critical question, though: what are those sanctions?  As I said, what’s been agreed is an outline, not anything of substance.  The specific sanctions are To Be Determined.  Further, if the negotiations of this (and other) detail hew to the schedule laid out by the fiscal union’s primary proponents, French President Nicolas Sarkozy and German Chancellor Angela Merkel, the deal must be done—and the sanctions identified and agreed—by next March, an ambitious schedule.  Also left unidentified is the or else should the deal not be done by then.  Mr. Market is likely to identify the or else in that eventuality.

There’s another critical question that’s left unanswered, also.  That’s how the fiscal union addresses the present problem of impending rampant sovereign debt insolvency.  The European Financial Stability Facility, the new European Stability Mechanism (which in the end replaces the EFSF; it does not complement it), and the IMF together aren’t enough to bail out Italy and/or Spain (assuming a bailout is appropriate in the first place).  And that’s a problem: the fiscal union sidesteps this question.  The EU is left to hope for the change of heart that will allow the European Central Bank to print euros and/or buy sovereign bonds in quantity and/or sell Euro Bonds.  The wisdom of any of these three ECB options is an open question.  Mr. Market is likely to forcefully express an opinion here, too.

There is yet another question.  How does the fiscal union address lack of homogeneity in the social, economic, and money imperatives of fiscal union members?  It does not; instead, the union attempts a Procrustean chopping and stretching to jam all the nations into a single, ill-shaped bed.

Layered on top of this is the EU leadership’s differing views of the EU’s  and the fiscal union’s role:

• Merkel sees the EU as a political partner of the United States;
• Sarkozy (ignoring the likelihood of Sarkozy’s defeat in next year’s elections) sees the EU as an independent power bloc competing with the United States.
• Merkel sees the fiscal union (I’m reluctant to abbreviate this similarly) as a means of imposing extra-national discipline and control over national budgets;
• Sarkozy sees the (structure of the) fiscal union as preserving an essential national sovereignty—most especially French sovereignty.
• The existing EU governance power structures—the ECB, the European Commission, and the European Council—are allying with each other in order to preserve their own turf, power, and prerogatives against the (apparent) supremacy of Sarkozy and Merkel, of Germany and France, in the new fiscal union.  And they’re attempting to use Euro Bonds as their tool of artifice.

I remain not sanguine about the euro’s long-term survival as the common currency of 17 nations, nor am I sanguine about the long-term survival of the 26- or 27-nation European Union.  I’m also not convinced that a breakup of either is necessarily a bad thing.  A collection of four or five groups, each consisting of truly homogeneous nations, with Great Britain and France back in their traditional roles, and all operating in a grand free trade comity, will serve all the nations, and Europe as a whole, better.

Update: Withdrew an editorial note.