The euro will be saved only if Europe exists
Europe needs to convince the world that its political unity is not in question. Only “federation light,” and a functional federal budget big enough to make macroeconomic stability part of its normal functioning, will convince the markets and everybody else that the EU and the eurozone have a stable, prosperous future.
This article first appeared in La Stampa.
In a climate of impending doom, EU finance ministers are preparing the European Council meeting scheduled for 16 December, which will discuss a number of financial engineering proposals. All aim at the same outcome: to calm the markets. Will they work? Will they get us out of trouble?
If we try to observe ourselves from outside, we will find that the area where we live is not only one of the richest in the world, but also enjoys decent post-crisis growth. It distributes quite equally the income it creates, does not have huge debts that it is impossible to repay and maintains substantially balanced accounts with the rest of the world.
This area, where we live, is the eurozone. It is true that China and India are growing at a more steady pace. However, it still will take them a long time until their citizens’ standard of living will reach ours. There is no reason either to envy Japan, whose economy has been stagnating for almost 20 years and which has a public debt that exceeds its GDP, or even the USA, which suffers from tremendous imbalances internally (distribution of wealth) and externally (balance of payments).
If we succeed in seeing ourselves as just one thing, as a single entity, then our own self-perception, as inhabitants of the EU, and in particular of the eurozone, will be more serene. Moreover, it would seem absurd that somebody could even doubt the survival of our single currency, the euro.
However, the problem is that we lack political unity, and the markets can see that quite well: they do not “calm” for exactly that reason and not, as some think, because of the “too big” diversity that exists between the European countries.
If we consider the credit default swaps, we find that California and Illinois face a bigger risk of failure than Portugal or Spain. Nonetheless, the accounts of California and Illinois do not threaten the monetary union to which they belong, while those of Portugal and Spain do. The reason for that paradoxical situation is entirely political: nobody will ever question the political unity of the USA, while the political unity of the eurozone and of the EU still does not exist.
Political unity means having – apart from a central bank, which we already have – a treasury (finance authority) that manages a federal budget, with dimensions sufficient enough to stabilise the system whenever it deems necessary. It could help states who have difficulties with a fiscal manoeuvre, an ordinary event to which nobody pays particular attention, unlike our continuous summits and our repetitive announcements of stabilisation manoeuvres which, as it seems, do not stabilize anything.
To really get out of this crisis, to really stabilize the euro, Europe should immediately start to convince the markets and the rest of the world that its political unity cannot be put into question. The only way to do this is by moving quickly to reinforce it so as to make it more credible.
But how? For instance by creating a functional federal budget that finances the supply of important public goods, like defence, diplomacy, big scientific research programmes, trans-European infrastructural networks, the security of the commercial traffics and of the movement of persons, just like the American home security model.
We are not talking about the monster that haunts the dreams of the British eurosceptic, the European Superstate. On the contrary, we are talking about a “federation light”, that does not absorb more than five per cent of European GDP with the purpose of assuming the functions of a government, against around 20 per cent of GDP that goes to the federal budget of the USA, and one per cent of the current EU budget, which currently only serves to distribute subsidies here and there.
Incidentally, five per cent of the European GDP corresponds to almost €650 billion, more or less the amount of the current rescue fund.
It is possible to imagine the federation light as the federation of Spinelli, Monnet and Adenauer adapted to the 21st Century, an approach that simply acknowledges the reality: that the existence of national armies in Europe does not make sense any more, as nobody threatens the territorial integrity; that the infrastructure network already exists to support the internal market, though we finance it badly and hither and thither; that the customs union is already an exclusive competence of the Union and it is ridiculous to leave it to 27 different and separated national organisations.
A federation, then, but a light one. If we have the courage to do it now, immediately, the markets and the entire world would have not only a clear and strong signal that our political unity is not in question, but they would also learn that we finally have a federal budget with sufficient dimensions to maintain, as an ordinary administrative action, the macroeconomic stability of Europe.
Right after the launch of Jacques Delors’ project on the single market, the Cecchini report referred to “the costs of a non-Europe”, derived from the persistent fragmentation of the European market along national lines. And because the costs were really high, the idea of Delors received a big impulse.
Today, there is no need for experts’ reports. The costs of a non-Europe are obvious to everybody, and they are represented by the enormous sacrifices imposed on our citizens – an obstacle to the whole European economy – and by the useless co-existence of anxious doubts about the future of the euro and of the entire European project.
Getting rid of these doubts is not only urgent, but is also possible.
Emma Bonino is an ECFR board member.
The European Council on Foreign Relations does not take collective positions. ECFR publications only represent the views of their individual authors.