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In mid May, 2010, European Union leaders approved a rescue package worth 750 billion euros (nearly $1 trillion) to buttress weaker states such as Greece, Portugal and Spain.  The funds were contributed by state governments on account of resistence to the EU itself raising the money through direct taxation in the states using the euro as their currency. In early 2011, Sarcozy and Merkel proposed greater EU coordination of fiscal policies in states using the euro. The proposal was shot down by Belgium's prime minister as a threat to the social agreement in his state. Whereas such resistence to giving the EU more governmental sovereignty is typically highlighted in news reports, I contend that simply having a common currency inexorably exercises a subtle though gradual force in the direction of further integration manifesting in more governmental sovereignty being transferred from the state governments to that of the EU. It is not always easy to see the changing contours of a forest when one is used to studying leaves.

According to David Marsh, the euro was intended to complete the European program of liberalized cross-border trade, promote the old dream of political unity, rival the dollar as an international reserve currency and — the most complicated objective — prevent an enlarged Germany’s domination of Europe by bringing its currency under European control.”  Before the euro went into effect, Chancellor Kohl of the state of Germany noted that a monetary union without a corresponding political union would be “a castle in the air.” His remark echoed the concerns of the Bundesbank, his state’s statutorily independent central bank, that unless there were greater political and economic anti-inflationary discipline and solidarity among weaker and stronger states, the monetary union would be doomed. I contend that this pressure for greater solidarity or coordination via EU governmental institutions is a pressure that is inherent in the monetary union, whose gravity pulls the EU toward further integration until the equilibrium point (with the monetary union) is reached.

To be sure, the EU was at a precarious place in 2010 amid the debt crisis and the attempt by the EU collectively to come to the rescue. Even though EU institutions had acquired a significant amount of governmental sovereignty, it was less than what was being required in responding to a common currency in trouble. A currency in any federal system requires some degree of fiscal consistency among the governments subject to the currency.  In the want of adequate means, the government representing the system as a whole can over-react out of sheer frustration. Beyond the emergency fund, for example, the EU Commission wanted the state governments to submit their budgets for approval before appropriating funds. This would have represented more political consolidation than is the case in the US. Euroskeptics would have hit the ceiling.

To the Europeans who deny the political or governmental aspects at the EU level (i.e., the ECJ, the EU Parliament, and the EU’s various political offices), fiscal coordination represents an infringement on the “national sovereignty” of the “member states.”  Even so, the need for greater fiscal coordination or consistency for the euro inexorably backs the even the Euroskeptics the uncomfortable position of agreeing to more sovereignty being transferred from the states to the union. The invisible integrative forces in monetary union do not bend to denial; instead, they bend it. So while the skeptics might get the headlines today, the extend of union even in 2010 presaged ever closer union even if the pattern involves fits and starts rather than a linear trajectory. In other words, it is best to have a long-term perspective in evaluating the implications of newsworthy events on the EU.

Source: http://www.nytimes.com/2010/05/18/opinion/18marsh.html?hp

In an article from MSNBC on the public debt crisis facing some of the EU’s states, the reporter writes: “Analysts are also growing more worried about the U.S. budget deficit, which remains higher than that of most eurozone nations. But Greece, Spain and other troubled countries in Europe do not command the kind of economic clout the United States does and, in many cases, have yet to escape the Great Recession.”

I contend that this statement is misleading because it is premised on a category mistake.  Firstly, the EU is not simply “eurozone nations.”  In having a Parliament, Supreme Court (the ECJ) and a Senate or Council representing the states, the EU has a government. Accordingly, some of the governmental sovereignty that used to be held by the state governments has been transferred to the EU, so the governments of the union and its states are both semi-sovereign.

Secondly, of course the respective state governments of the EU do not “command the kind of economic clout the United States does.”  That they should evinces a category mistake. Both the US and EU operate common markets.  That a part of one common market is not equivalent to a common market made of such parts should go without saying (see: fallacy of treating a part as a whole).

Thirdly, in treating the US public deficits and debt as equivalent to those of the EU’s state governments, one ignores the fact that many of the US’s state governments also face daunting public deficits and debt.  In other words, comparing the US debt to those of the EU’s state governments is misleading.  Because the EU government does not have a significant debt (that I know of) and some of the US states do have such debt, the comparison understates the debt on the US side.

In general terms, the presumed comparison assumes that there are no significant differences between a union of states and a state of such a union with respect to political or economic functions.  It might be, for instance, that because an empire-scale union is further from the people, accountability with respect to running up debt might be different than in a state.  I suppose it could be argued that the political entity composed of the states could be expected both to buffer public demands for more spending and to be more profligate than what the people want.  In any case, my point is that different dynamics come into play at the empire-level. Ignoring the qualitative differences in going from a kingdom-level polity to an empire-level policy made up of kingdom-level polities results in the kind of statements I have critiqued here (i.e., as if the US merely has more economic clout than a state of the EU, rather than that the US is not comparable with a state in another union). 

I think we moderns tend to skip over category mistakes when they have become the default in our societies.  This makes us susceptable to relying on erroneous results from comparisons based on such mistakes.  In other words, we take too much for granted in what we read (and hear) in the public square.  Although we don’t realize it, we desparately need Socrates-like writers (and speakers) to point out to us that we don’t know as much as we think we do.  This goes for such writers ourselves.  My thesis on the EU and US is of course merely a theory or argument…far from perfect, perhaps wrong, and doubtlessly improveable by others.  One way out of our epistemological presumptuousness is to subject taken-for-granted assumptions in the public square , including my own, to critique.  We simply do not go far enough, which permits vested interests to get away with too much.

Socrates, where art thou?  You should have slipped out when you had the chance. You were aiding Athens…not corrupting the youth.  Your detractors were just jealous (they owe you a written Apology).  Please come back. Spit out that hemlock.  We need you!

Source: http://www.msnbc.msn.com/id/35268117/ns/business-washington_post/

Washington’s seeming willingness to print money rather than tackle tough debt-cutting measures is in sharp contrast to the approaches to relieving the public debts in Europe.  Ireland, for example, plans to nearly double its package of spending cuts and tax increases to try rein in its huge deficit.  Even so, borrowing costs in Spain, Portugal and Greece spiked upward again in late 2010 as investor concern re-emerged that those EU states would be hard-pressed to bring their deficits under control and avoid defaulting on their bonds. In short, the public deficits on both sides of the Atlantic are intractable problems—they being so deep.  Perhaps the only thing that can be said is that relying solely on tax increases or spending cuts is insufficient, and that beginning or continuing tax cuts is foolhardy.  It has been shown that Reagan’s tax cuts did not make produce more revenue for the US Government than it lost from the cuts themselves.  Some combination of tax increases and spending cuts seems inevitable in the West.  The trouble is, the problem is not just economic. “The scale of the deficits are just so big,” said Philip R. Lane, a professor of international economics at Trinity College in Dublin. “The issues are political as much as they are economic.”

See: http://www.nytimes.com/2010/11/08/business/global/08debt.html?_r=1&hp

In December, 2010, E.U. leaders agreed to propose an amendment wherein the financial emergency rescue fund would be replaced with a permanent crisis-finance program. The amendment would permit the States having the euro as currency to establish a "mechanism" if it is "indispensible" for the health of the euro.  Interestingly, all of the 27 State legislatures would have to ratify the amendment, though no referenda would be required on account of the amendment being of insufficient scope to trigger them.
According to Marcus Walker and Charles Forelle of The Wall Street Journal, longtime "supporters of European integration are pushing for bold political action to demonstrate Europe will do whatever it takes to defend the euro. A failure of the currency could presage the collapse of the EU itself." (p. A8)  This asseveration is a bit too dramatic; the E.U. existed before the euro and thus can exist apart from it.  The symbolism of the failure, however, would doubtless slow further European integration. So E.U. leaders have responded to fortify the currency. Besides the proposed amendment to provide for a permanent program, the ECB bought E72 billion in government bonds issued by Greece, Ireland, and Portugal. The central bank is as of December, 2010, set to double its capital base, to E10.8 billion from E5.8billion by taking in contributions from the euro zone regional banks. Germany has resisted the E.U.'s attempts to issue or guarantee debts collectively, which would prompt markets to view the euro zone as a single entity. One would think that the EU's common market would be sufficient for the E.U.'s economy to be viewed as one entity. In any case, by acting at the E.U. level, the State leaders could "put this crisis to bed," according to Simon Tilford of the Centre for European Reform in London (Walker, p. A8). Tilford adds that this is a political rather than an economic crisis. Economically relative to the 50 U.S. States, the 17 E.U. States that have the euro had a combined deficit of 6.3% of GNP (11.3% in the U.S.), and a public debt of 84% (92% in the U.S.). Furthermore, unlike the U.S., those E.U. States have a negligible trade deficit. It can be said that the political challenge facing the EU dwarfs even the financial problems. This is not on account of the political fallout from the euro; rather, the way in which the E.U. responded to the financial problems in 2010 points to political problems in the E.U. itself.

According to Timothy Garton Ash at Oxford University, if the euro ends, the question would be "what the European Union then is." (Walker & Forelle, p. A8)  The political existential problem surpasses the financial crises even if the latter pack more of a punch at the pocketbook. Responding to the political problem, fiscal union has been said by some to be necessary for the E.U. In December, 2010, when Greece and Ireland were "under virtual stewardship" of the EU and Spain and Portugal were not far behind, German Finance Minister Wolfgang Schaeuble said, "In this crisis Europe will find steps toward further unification."  While Spain's unknown losses in its banking sector amid the deflation of its housing bubble seem to be more baleful, it can be pointed out that the residential mortgages are 60% loan to value (whereas in some States in the U.S. this figure is over 100%). Furthermore, only 2.6% of the residential mortgages in Spain are more than 90 days past due (though this does not count forgiveness periods). The need for further European <i></i>political<i></i> integration may not be as flashy, but it could well be more important to Europe. I am not arguing that the banking crisis is not significant and should not therefore be attended to; rather, I am suggesting that the most immediate fix may be overshadowed in even the medium run by the need to balance fiscal and monetary policy by having at least a share of both at the E.U. level.  Moreover, federalism itself requires balance; too much power at the State level can lead to dissolution just as too much consolidation at the union/empire level could suffocate the inherent diversity within the union. E.U. leaders could engage in a balancing act wherein they simultaneously shift more governmental sovereignty from the State governments to that of the E.U. while fortifying buttresses protecting Europe from the E.U. eventually consolidating power like what happened in the U.S. through the twentieth century.  I submit that fixing the E.U.'s political/existential problem is much more difficult than fixing the banks.  Adding to the problem here is the relative invisibility  and the lack of apparent urgency of the political problem.  What is the E.U.?  This is not as hard to answer as one might suppose.  The E.U. is a modern federal system on the empire-scale. That is, the E.U. has a government, which is dual-sovereign with its State governments--popular sovreignty being the unity transcending the governmental duality.  The political problem given what the E.U. is, is more difficult to define and solve. Creating a new fund will not cut it. 

Sources: Marcus Walker and Charles Forelle, "Bailout Deal Fails to Quell EU Rifts," WSJ, December 17, 2010, pp. A1, A8' Marcus Walker, "Closer Fiscal Union: A Collective Guarantee," WSJ, December 17, 2010, p. A8; Brian Blackstone, "ECB Seeks Funds for Capital Base, WSJ, December 17, 2010, p. A10.