Eurozone with own government? Is this a good idea?

French President Hollande says: I have proposed taking up Jacques Delors’ idea about euro government, with the addition of a specific budget and a parliament to ensure democratic control. Do you think that some kind of Eurozone government (or at least Eurozone Finance Minister) is future of Eurozone? Should it be future or Eurozone, or maybe not so much? Read few comments.

Frank HägeLecturer in Politics, Department of Politics and Public Administration, University of Limerick

After recent events, I think everybody agrees that the way the Eurozone operates at the moment is not satisfactory. Decision-making based on late-night bargains between governments representing particular national interests risks leading to irreparable rifts among the leaders and people of Europe.

If you want to keep the common currency, there is probably only one effective way forward, and that is further Europeanization. To make the Euro work and sustainable in the long term, we need a common fiscal policy across the EU. Obviously, that means member states giving up further sovereignty. To avoid a loss of democratic legitimacy, whatever supranational structure is put in place in Brussels needs to be accountable to the citizens of Europe in some way. The establishment of a Eurozone Parliament (which could just be the normal European Parliament without members from non-Eurozone countries) to oversee the work of a Eurozone government would be one possible way forward.

In a recent interview, Schäuble has welcomed that France has come around to support the establishment of further supranational structures. With the two largest member states agreeing on the desirability of further integration in this area, we might actually see some concrete progress in this respect in the near future. One of the main obstacles is that it will require changing the treaties, and after the difficulties last time with getting the Constitutional/Lisbon treaty ratified, most governments would like to avoid that. But then again, treaty change might become necessary to keep the UK in the EU anyway, so they might just bundle it all together.

Erik Jones, Professor of European Studies and International Political Economy, Director of European and Eurasian Studies, Paul H. Nitze School of Advanced International Studies (SAIS), Johns Hopkins University

The French proposals are pointed in the wrong direction.  I can only speak about them in broad terms because the details are yet to be released.  The underlying motivation is to build Europe – as though Europe exists for its own sake.  If that is your goal, then it only makes sense to push Europe to look increasingly like the most successful form of political and economic organization that we have managed to develop, which is the nation-state.  That means we should have a Europe with one government, one parliament, and one budget.  Unfortunately, that is not a sustainable option.  If there is a simple lesson to be learned from the recent experience in the euro area it is that you cannot create a political community by fiat.  Democracy is made by people and not by institutions.  The result of creating a new parliament, government and budget would only be to foster distributive conflict at the European level.  You just have to look at the regional (subnational) tensions in places like Belgium, Italy, Spain and the United Kingdom to see that having shared institutions are not an easy matter.  The United States offers another potent illustration.

European policymakers should be focusing on creating a sustainable Europe and not on recreating the nation state at the European level.  A sustainable Europe does the minimum necessary to create benefits; it does not create unnecessary obligations.  A sustainable Europe also defers to democracy as it is rather than trying to force democracy at a level of aggregation that people are unlikely to perceive as legitimate.  I have tried to capture this essence of this approach in a series of recent essays on my website – but that is hardly a new turn in my thinking about Europe.  This notion of sustainable integration is not new to European policymakers either.  Indeed, there was a time when policymakers recognized that it is possible to pursue unity through diversity in a manner that draws strength from the legitimacy of national political arrangements.  I wrote about this in the early 2000s.

Unfortunately, the imagination and creativity to pursue that kind of integration seems lacking in the current generation of political leaders.  That is a great pity.  My guess is that Hollande’s proposals will end up in the same footnote where we mention Sarkozy’s Union of the Mediterranean.  A worse scenario is that someone actually takes these proposals seriously and we end up with a major and polarizing fight over the constitution of a new suite of European institutions.  Fortunately, I do not see the energy for that kind of institution-building – with all the unintended conflicts it would entail.  Unfortunately, I see this as yet another distraction from the important business of shoring up both the function and legitimacy of the institutions we have at the moment.  We all risk losing the many great benefits that Europe has to offer as a consequence.

Roderick Parkes, Scholar, Swedish Institute of International Affairs (UI), Non-resident Fellow, Polish Institute of International Affairs (PISM)

This is a French idea that pops up sporadically – Hollande might equally have said “I have proposed taking up Nicolas Sarkozy’s idea of eurozone government” (championed by the former president in summer 2011). If the idea keeps popping up, no matter whether the right or left is in charge, it’s because it suits basic French thinking. The French strategy on European affairs has traditionally been to keep the Anglo-Saxons out, the Teutons down and the Romans up. And if they succeed in forming a strong centralised eurozone government then this seems to meet all criteria.

Because they don’t belong to the eurozone, the transatlantically-minded British, Swedes and Poles would be out (and any further eastward enlargement by the EU rendered difficult); the Germans, and their austerity-allies in Finland and the Netherlands, would be tied into a so-called transfer union whereby they have to fund the less competitive economies of southern Europe; and the creation of a strong central eurozone instance would suit the heavily-centralised French system better than the federalised Germans, allowing Paris to act as champion of Euro-med countries.

Only, things never quite turn out that way. Whenever the French mention this idea, the Swedes and Poles cling more closely to Germany for protection, boosting its hand. The UK, despiute being more at ease with a two-tier EU than before, also focus on Berlin when eurozone-only matters come up. Similarly the Finns and the Dutch, who would actually much rather side with the British than the Germans, are unwillingly pushed into the German ambit. Meanwhile Italy, under Renzi, has managed to emerge as the real leader of a solidarity-based EU, displacing France, precisely because he tries to be more inclusive.

And then there are the practical concerns. There have already been moves to create a special common body of the 19 national parliaments to deal with eurozone affairs – it’s been chaos. So too the discussions about creating a special body within the European Parliament or a eurozone-only budget. Rather than creating strong lines of political accountability, such moves only exacerbates tensions between eurozone members and non-members. This can be seen in the discussion of British and Swedish participation in the Greek bail-out. Their banks benefit from having their exposure to Greek debt reduced, but politically speaking you can’t demand London or Stockholm participate if you present the eurozone as a closed shop…

Eric de KeuleneerEconomics Professor, Solvay Business School

I think the euro was a political project with 1) a feeble financial objectify ( to get rid of speculation against European currencies in the European Monetary System), 2) no real economic objective and 3) insufficient analysis of the economic dangers (the great difficulty to address internal disequilibria and loss of competitiveness in a member state). The only real objective was political, and both Delors and Mitterand were acting as politicians, and so was Kohl. There were insufficient checks and balances, because of the turmoil created by German unification. Accepting members like Greece only made matters worse, and was done despite the critics of the Commission, again for political reasons.

A closer union and a kind of European government then would have made the whole thing more manageable, but the French refused it because of their obsession with sovereignty. But the credibility and drive of the European project was much more accepted by the people of Europe. Today the credibility of a “European government” project is too low to get it going, in my opinion.

I think today what Europe needs above all is to shift a big part of the taxation and the financing of the social security away from labor income and towards taxes on capital income, consumption, energy, tobacco, etc,… And to reduce the rigidities of the labor market, and in some countries the stifling cost and difficulty of laying off personnel. And to calibrate social benefits so that they do not reduce the incentive to work. European harmonization would be good, even sometimes necessary, to make progress on that.

European governments could not even agree on the objective for a political union : the French and some others would want it to increase the welfare state, and consolidate the burdens on labor contracts, while many others would want to do the contrary.

So I think Hollande’s posture is purely that, a posture. He very well knows that a euro-government is impossible, but he gets the message of the Greek episode: solidarity will only go so far, and countries that cannot implement necessary reforms will get in trouble. And Hollande is unable to implement the reforms which France needs, not only to reduce unemployment and reduce its deficit, but to stop its dangerous decay. But the French Left and Hollande engage in incantatory pleas for an impossible European government to deflect criticism that they are, in fact, doing nothing to cure their ills.

Thus coming back on the Euro, I think what is needed is

1) intelligent rules for those who are in it and want to stay. More intelligent than the pure macro rules of today. Some economic convergence might help. If we want an harmonization of carbon taxes, excises and vat, capital income taxation,…, we do not need a European government for that.
2) simple and intelligent procedures for those who do not want to apply the rules, or who obviously cannot cope. It should be possible to design a simple mechanism whereby a ” canxit” ( candidate for exit) progressively introduces a new currency, while keeping all financial commitments in Euro, amongst other bank deposits and existing debt. See my letter to the FT of August 25, 2012 (banks made a Greek drama) on that.

Miguel Otero-Iglesias, Senior Analyst, Elcano Royal Institute

That the President of France now, finally, proposes the creation of a Eurozone government and a Eurozone Parliament is excellent news. For too long France was absent from the debate on how to strengthen the Eurozone’s governance. Traditionally France has always advocated an intergovernmental arrangement, but with the increased power of Germany (shown in the last deal with Greece) they have realised that this framework is asymmetric and democratically illegitimate. This is why a more supranational structure is absolutely necessary. As many commentators have argued, ultimately, for the Eurozone to survive it needs to become a fiscal and political union. For this to happen, France and Germany, combined, need to take a leading role.

Doreen Allerkamp, Post-Doc Researcher, Mannheim Centre for European Social Research (MZES), University of Mannheim

I would not at all exclude that common economic governance – in whatever precise form – is in the Eurozone’s future. There are sound economic arguments for why it may be needed. However, since those arguments touch the core of what has hitherto been considered state sovereignty (including budget authority), I do not expect this to happen any time soon. The French position is not really new – they’ve always been in favour of common economic governance along with currency union – but if it happens, it’ll be incrementally, and slowly, I expect. I am not enough of an economic expert to tell you how this may be achieved in stages, or how long it would take, what intermediate arrangements there might be, and so forth. There will also be renewed concerns about legitimacy, and it may widen the gap between the Eurozone and the rest of the EU members. So I expect evolution – which is indeed part of the intrinsic nature of the EU, which is continuously evolving, rather than having a precise, pre-determined teleological finality – rather than revolution. But the EU has always been about the process more than the end result.

Dennis Novy, Associate Professor, Department of Economics, University of Warwick

Economic history tells us that a common currency and a monetary union are not viable in the long run unless they come with a certain degree of political and fiscal union. As we have painfully seen with Greece over the last few years, the Eurozone does not have the right degree of political union. Instead of automatic stabilisers between deficit and surplus countries and fiscal coordination, we have seen old-school self-interested behaviour of national governments. If the Euro is to survive, at the very least we need more coordination at the EU level. The Eurozone is bound to fail if it does not reform.

A Eurozone finance minister might be one way of achieving this aim, but there are alternatives such as making debt payments contingent on economic growth or allowing for higher inflation in surplus countries. In the end, the choice will depend on the political process. Again, if history is any guide, it took the United States well over 100 years to achieve a reasonable degree of monetary and fiscal union.

Alexander Apostolides, Lecturer of Economics and Economic History, European University of Cyprus

For me as a periphery national that is idiotic to the extreme.  The issue is narrow interests and those will exist in national and hyper national government structure. The issue is not the lack of a supergoverment but of political decisions where what is best for group A wins. That will still be the case in a larger euro government.

Anyway the actions of the Euro “family”  makes us all hate the idea. It had turned the south of Europe very euro sceptic. So who is going to support this plan?

Lastly politicians of Europe always tell us that treaty change is not possible. That’s why did came up with this barely legal ways of bailout such as efsf ect. And now the call of Euro government being more feasible that treaty change?  I don’t buy it!

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