The idea of a federal Europe has become more salient in recent years. European political figures have called for ‘more Europe’ and some have even referred to and advocated ‘federalism’ (http://www.federalists.eu/media/gallery/pictures/federalist-outing/). It seems that with an ongoing global financial and European sovereign-debt crisis, the time is ripe for a federal solution in Europe. What this might mean in more concrete terms has already been discussed in JEF and is going to be elaborated on in our discussion group in the next two phases. For now, the question has been what the problem exactly is that might call for a federal Europe. Federalism is not only a ‘good’ principle worth supporting. It is a solution to a fundamental, structural weakness in Europe, the consequences of which we are experiencing in the form of the current crisis.
The current crisis is mainly affecting the Eurozone countries. Some of them experience the crisis more directly: they need to implement – sometimes drastic – austerity measures to cut their deficit and manage their debt, and they need to rely on external financial help. Others experience the crisis in the form of participating in various bail-out packages which, in turn, raise their deficits and liabilities. While the weakness is one of the Eurozone, and is, thus, mostly affecting this area, countries outside of the Eurozone are potentially affected in the long-term. Immediate neighbours, but also global trading partners suffer from the negative effects that the crisis has on the economic prosperity of the Eurozone countries. And those EU members that are not part of the Eurozone also suffer from the political instability and damaged credibility of the EU at large.
Many causes of the current crisis have been identified. Some of them are external and have to do with the global financial system as well as global trade imbalances. Most of them, however, are internal, and, from our perspective, they are more relevant, principally because it is up to Europeans to tackle them. We are able and capable to do so now, we – simply – need the political will.
High public debt levels have been and remain the focus of policy-makers. They are seen as the main causes for the crisis, and are consequently the main concern; if the assessment is right, then reducing that debt must be the main solution. We share the concern with high public debt. After all, it essentially amounts to a burden on the young generations. But high public debt in and of itself is not at the core of the problem. If it were, we would see similar problems in countries all over the world (think of high debt in the United States or Japan).
High public debt becomes a problem when governments, firstly, do not have the means to manage it, and, secondly, when lenders lose confidence in governments. These two points are linked. Without the means to effectively manage not only public debt, but a common currency, policy-makers appear helpless, and their purported, piece-meal solutions are not convincing. Of course, even with effective instruments there is enough room for bad leadership that may create a loss of confidence. But even more so will a lack of confidence arise without effective instruments and with bad leadership.
“Effective instruments” does not mean creating new forms of coordination or having more regular meetings of finance ministers or heads of state. The backdoor intergovernmental method is a short-term answer. To effectively prevent or manage such crisis, a structural solution is needed. To put it in a nutshell: a common currency needs a common fiscal and economic policy. How this fiscal and economic policy, or an “economic government”, could look like and how it can be democratically controlled is the subject of the next two phases of our group discussion. For now, we repeat the analysis made by many economists who criticized the Euro currency system at its inception: a common currency without a common fiscal and economic policy is unsustainable. We do not share the criticism directed against the currency itself, because we welcomed and applauded the introduction of the Euro while at the same time pointing out that this could not be the last step.
A final problem arises when we think about the implementation of such an economic government. Is it going to be an economic government of the Eurozone or the EU? How do we ensure democratic control of such a government? If it is limited to the Eurozone, what role will the European Parliament play? Do we need to distinguish between those Parliamentarians who can speak for citizens of the Eurozone and are, thus, allowed to vote on such policies, and those Parliamentarians that represent citizens outside of the Eurozone and who are thus not allowed to vote on such matters? Do we need a separate Eurozone Parliament? These are difficult issues that arise, because, as things are, it is unlikely that all EU members would want to further integrate in these policy areas. And these issues necessarily arise, if we want to achieve both effective governance and its democratic control.