N. 50 April 2009 | Europe’s institutional framework to the test of the economic and financial crisis

The anti-crisis measures implemented by the governments are proving ineffective, and they're undermining the principles of the monetary and economic union. On the contrary, the issuing of eurobonds and the creation of a european economic governance would increase Europe's reactivity, even though they entail giving up a method based on the Member State's acceptance of collective rules.

It is a very long time since the world experienced an economic crisis on the scale of the current one. The present crisis is more severe than the depression of the 1930s (a time when both the area of the former Soviet Union and the whole of Asia were still on the fringes of world trade) and its effects could jeopardise not only the prospects of growth and development for the whole of the next decade, but also those of a whole new generation. Stemming from the laissez faire policies, the excessive speculation and the economic and financial imbalances that, in the1990s, were promoted as the new model of the world economy, it is a crisis that could prove catastrophic for Europe.

Politicians and public opinion in Europe seem to have learned little from the lesson of history. Today, like almost a century ago, the different countries’ efforts to try and save their economies from collapse and society from chaos, far from resolving the crisis, seem to be making it even more complicated. In spite of the considerable advances that have been made along the road towards European integration, the measures being adopted all seem to be designed, primarily, to defend the particular interests of the single nations, and thus end up conflicting with each other. They are creating new hotbeds of commercial and political tension between the states, feeding protectionism and weakening belief in the possibility of re-launching cooperation and development. It is thus inevitable that, practically everywhere, the structure of society, of industrial production and of democracy itself is starting to appear shaky. The Europeans, having been powerless spectators as the seeds of the current crisis were sown, now seem resigned to bearing its brunt.

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Most people can see that, in the face of this crisis, the size of the response could make all the difference, yet they remain trapped by Europe’s current impasse. No one can fail to notice the difference between the huge economic plans introduced by the USA and China and the much more modest ones that the European states – and the EU – are implementing in an effort to shield themselves from the consequences of the recession, the collapse of production and the reduction of global trade. Neither the USA nor China is equipped to solve the global crisis single-handedly, but they do have stronger barriers against its effects: they, at least, can realistically plan for economic conversion and growth in their respective internal continental markets, in the first case promoting a green consumer revolution and in the second a consumer revolution tout court. The divided Europeans, on the other hand, lack the institutions to do this. It is certainly no coincidence that the American and Chinese stimulus plans already exceed 5% of these countries’ respective GDPs and are supported by economic and fiscal policies congruent with the objectives that the Washington and Beijing governments intend to pursue. Instead, what Europe has is not a true European plan, but rather a list of national plans, which, put together, amount to only half the American one. Even more worrying is the fact that, in the euro area, that is to say within the ambit of the European countries that have opted for a greater level of integration in the economic and monetary sphere, the initiatives undertaken to save banks and enterprises, and economic interventions generally, are still captive to the logic of opposing national policies. So much so that the very principles underlying the single market and economic and monetary union appear under threat.

This is a situation epitomised by three paradoxes. First, there is the fact that in the countries of central and eastern Europe, the enlargement of the European Union produced a “euroisation” of the markets and the banks that has exposed all the limitations inherent in introducing economic measures in a setting where, due to the lack of a European government, there is no coherent political framework. Today, the euro area countries are not only struggling with the effects of the crisis internally, they are also running the risk of being dragged down by the collapse of the countries to which they had granted credit, in which they had extensively invested, and on which they had been concentrating in their bid to promote the peaceful enlargement of the European single market area in the wake of the end of the Cold War. Second, the unattractiveness of the European securities market – this market is too fragmented and too conditioned by national policies – together with a growing loss of faith in the stock markets, is prompting private and public investors to buy US treasury bonds, thereby favouring the dollar and bolstering the economic policy of the very country that is at the epicentre of the crisis. Third, there is the single currency and its contradictions. In the financial stage of the crisis, the euro was, for many countries, a factor affording solid protection against the monetary storms that would otherwise have overwhelmed their currencies and national economies, as indeed they did in the not-so-distant past. But precisely because currency leverage, on its own, is not an adequate means of tackling the crisis, the absence of supranational institutions equipped to develop and implement a coherent single economic and fiscal policy at European level is proving devastating, further reducing the member states’ already limited scope for action and ruling out the possibility of a strong and effective single European response. The fact is that, as both Eurogroup president Jean-Claude Juncker and ECB president Jean-Claude Trichet have repeatedly pointed out, neither the European Union nor the euro area constitutes a state, therefore the Europeans, in the current framework, cannot pursue federal policies, but only endeavour, with great difficulty, to preserve the current levels of cooperation.

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In the face of Europe’s clearly inadequate response to the crisis and the realisation that the Europeans’ role on the international stage is, as shown by the recent G20 summit in London, only a peripheral one, many have spoken out in favour of closer European political integration, within the euro area at least. Some have suggested that funds to support the states’ increasing expenditure might be raised through the issuing of Eurobonds, while others have called for the creation of a European economic government. These are proposals and requests that, depending on the extent to which they were genuinely implemented and met, would make Europe better able to react to the crisis. The problem is that they are proposals and requests that cannot realistically be pursued in a framework in which sovereignty in fiscal, budgetary and economic matters is destined to remain in the hands of the nation-states. Added to this, as long as foreign and defence policy also remain firmly in the hands of the national governments, it is inevitable that the single states will be inclined to increase their spending in these sectors, which not only impact heavily on the national budget, but also, precisely because they contribute to sustaining and promoting divergent national interests and aspirations, tend to increase the potential for conflict.

Thus, if the current crisis is to be exploited as an opportunity to re-launch Europe and Europe’s role, it has to be realised that the Europeans today face a choice: either to go on struggling to defend a fragile cooperative framework based on voluntary adherence to collective rules (in which, however, any common institution is bound to remain under the control of the states), or to create the new framework of a European state, which will necessarily mean breaking away from the Union’s current order. It is indeed totally unrealistic to imagine that either political integration, be it among few or among many states, or the creation of an autonomous power with the capacity to impose taxes and issue bonds to fund common public expenditure, can stem from the simple introduction of new rules designed to improve the EU’s cooperative framework. These are innovative steps that imply a strong single political will and they are conceivable only in the context of the creation of a European federal state.

The responsibility for taking these steps rests with the states that first launched the European political project, or at least some of them; it is up to them, through their politicians and public opinion, to take the initiative and enter into a pact founding the first core of this new European state, which will remain open to the other member states as and when they are ready to join it.

Until this happens, no act, declaration or agreement (good intentions and lip service to the ideal of European unity and harmony among the states notwithstanding) will really be able to equip the Europeans to rise to the challenges they face, or shield them from the disasters that are forecast and the next, perhaps even more serious, crises.


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