Extinguishing the eurozone blaze

The euro is on fire. George Soros’ proposals last week to extinguish it – finally going far enough to convince the markets – are essential and all to the point.

Given the magnitude of this crisis, however, one is allowed to try and look a little further. If Soros’ ideas became reality – as we all hope – the EU would be a very strange animal indeed, if not an outright monster. Through the issuing of the Eurobonds, for example, the EU would be an entity with no real function of government outside the economic sphere, no treasury, and a miniscule budget of one percent of Europe’s GDP – but with a currency that rivals the dollar, a Central Bank and some sort of “agency” in charge of a gigantic public debt in the range of 70-80 percent of Europe ’s GDP.

It would be the biggest techno-economic subject in history, but utterly incomprehensible to European citizens. And would it be manageable? How? Through consensus? Through majority voting? Through voting rights reflecting the economic weight of the different member states?

It is perhaps time to at least try and put the process on its feet rather than on its head. It’s perhaps time to stop Europe’s economic and fiscal policy driving the political process and do things the other way around.

Citizens pay taxes everywhere to have basic functions of government in return (let’s call it the social contract): law and order, justice, security, health, education, welfare, social security, a currency as a neutral means of payment. Taxing and spending to provide some of these public goods then also allows a government to perform macro-economic stabilisation and redistribution.

We cannot go forever on doing things in reverse order – the EU provides only financial stability and a stable macro-economic framework and member states provide all the other public goods. It does not work this way. It cannot work this way.

Eventually, the EU too should work in the logical way: taxing and spending to provide some functions of government and on this basis having a treasury to accompany its Central Bank. To use Soros’ own words: “something like a European finance ministry that has political as well as financial legitimacy”.

This is the gist of our idea of a Federation Lite. Which is not at all incompatible with Soros’ proposals, only a step further.

Emma Bonino is vice-president of the Italian Senate and a former European Commissioner. Marco De Andreis is Director of Economic Research at Italy's customs agency and a former EU official

This article first appeared in Il Sole 24 Ore (Italian)