Monday, August 27, 2012

Beyond the European crisis

Despite their formal unity, EU governments think and act nationally looking first at their narrow, short term interest.  Above all, Germany lacks a vision for Europe which in turn nurtures a growing anti-European sentiment. At best, it tries to manage the crisis in a  context of high uncertainty but not to resolve it . The Greek debt crisis was originally set to cost 50 billion ; now it is out of control despite harsh austerity programmes. Germany's selfish attitude tends to create further divisions in Europe between the North (supposedly more virtuous) and the South (supposedly more laxist). Instead of creating a space of solidarity, it has widened the competitiveness gap (in terms of labour costs per outpur unit) making southern countries uncompetitive and therefore forcing them to implement deflationary policies by reducing wage costs and public spending.

The Euro is not just a symbol of the unity of Europe. It has been beneficial for Germany more than for any country. It would thus be logical that it pays for European economic recovery. In recent history, how many times has Europe paid for Germany? We should not forget that at the London conference (1953), the German external debt contracted between the two World wars was settled by writing down half of the overall German debt.

 In this context, there are three possible options. The first is to improve the existing sructures and instruments but it would be an illusion to think that this will lead to a durable solution to the crisis. The second option is the return to the old D-Mark - a thesis now supported by the liberals and the Bundesbank hawks- whose consequences are unthinkable. Finally, the third option is a common responsibility for debt with Eurobonds, common fiscal rules and harmonized social policies.

The issue is whether Europeans still want to take their destiny in their hands. The idea of a federal Europe has been mentioned by the German chancellor but its contours are still vague. Will it look like the United States of America? The first Treasury secretary, Alexander Hamilton who elaborated the 'voluntary compact' which gave rise to the creation of the Federal State is becoming popular in Berlin. In fact , he defended the idea that debts accumulated during the war of Independence. 
Is Ms Merkel thinking about a Philadelphia convention? 

Such a political project will be opposed by States not belonging to the euro area such as the United Kingdom and Poland but also by other States such as France which would resist any transfer of sovereignty. But it is clear that Europe needs to go beyond the tortuous mechanisms of the Funds put in place to rescue heavily indebted countries. The current agenda includes complex issues: the modalities of the ECB intervention on sovereign debt; the final 'harmonization' of the Treaty on fiscal compact depending on the German Court's judgement, which will raise difficult issues of interpretation and compatibility between different legislative acts (for example, the norm on debt reduction by 1/20 per annum laid down in the 'fiscal compact'); the banking Union and the set up a European regulatory authority; the political Union. 

We need to redesign the European institutions to a new reality. Let's imagine what these reforms inspired by great Europeans such as Altiero Spinelli could look like . First, a European parliament elected on a genuine European basis. Second, referenda on relevant European issues should concern all European citizens not single States. Why not ask citizens if they want to stay in the euro area and what kind of project they want for Europe? Third, the structure of the Federal union should be based on an elected president who appoints the federal government; a European Parliament which controls the federal government and approves the federal budget; a Constitutional Court which guarantees the respect of the federal constitution.

If a European State has the dimension of a continent in a global world, the democratic system has to ensure at the same time legitimacy but also effective decision making, political leadership and true participation of citizens. The foundation of such a federal system builds on the division of powers. As a matter of fact, these objectives will be achieved in the long term, but it is important to raise awareness among the public opinion in order to ensure an informed discussion and prepare their eventual realization.

Nicolas Boileau, a French poet and critic, also called the 'Législateur du Parnasse', wrote : "N'en déplaise à ces fous nommés sages de Grèce, En ce monde il n'est point de parfaite sagesse : Tous les hommes sont fous, et, malgré tous leurs soins, ne diffèrent entre eux que du plus ou du moins. "

1 comment:

  1. Nouriel Roubini on Eurozone future : either Europe moves forward or there is going to be disintegration " There are two options for Europe and the Eurozone either you move forward or you move backward , moving forward means to implement policies that are gonna restore growth restore competitiveness restore external balance restore debt sustainability and gradually bring greater integration ...