The continuing European turbulence, and the bad idea for easing it

Europe’s financial and sovereign-debt crises continue to grow, sending stock markets tumbling again Monday as they have been doing off and on for about a month now. What once was only whispered among certain European elites — creating a central taxing and spending authority for the euro currency zone — is now being spoken out loud very plainly. It would mean the birth of what I’ll call a “suprasovereign,” as a New York Times article describes:

The idea is to create a central financial authority — with powers in areas like taxation, bond issuance and budget approval — that could eventually turn the euro zone into something resembling a United States of Europe.

Or, as British lawmaker Sajid Javid writes in the Wall Street Journal Europe:

Let’s be clear what that would mean: a single treasury, tax regime, welfare system and public-borrowing function.

And it would fail spectacularly. Pay attention to this unfolding story, because it could have a huge impact on the 21st-century economy and geopolitics.

The comparison to the early United States of America under the Articles of Confederation is a handy but miserably simplistic one. If nothing else, the newborn American states shared a common language and a common triumph over their former colonial masters, the British. The Europeans have neither — only a shared interest in not reverting back to the centuries of warfare that ended with the defeat of Hitler and Mussolini.

They built three primary edifices to protect against such a retrogression: social-welfare states to keep their populaces happy; a military alliance dependent on America; and the free-trade sphere that became today’s European Union.

The 27-member EU — which contains but is not limited to the currency zone created at the turn of this century, which now has 17 members — was conceived by its founders as a supranational government that potentially could host such centralized functions as taxing and spending (indeed, it already spends billions of euros drawn from national treasuries each year). But the other two legs of the stool have prevented it from doing so.

First the social-welfare state. As almost anyone familiar with Europe will tell you, there isn’t a European social-welfare model; there are 27. Their delivery systems for everything from jobless benefits to welfare checks to education to health care vary widely from one nation to another. If you think the Republicans and Democrats are having trouble negotiating changes to Social Security and Medicare here, imagine trying to negotiate changes to 27 different systems spanning 27 different traditions and 27 sets of democratically made promises and more than a dozen languages. Yet, this question cannot be avoided if the point of creating such a central fiscal authority is to resolve the public debts built up by those social-welfare systems.

Then there’s the military aspect. Separate from NATO, the Europeans have tried — and mostly gotten nowhere — building a common defense and security policy. Agreement on priorities and objectives, much less methods of reaching them, has proved elusive. NATO is the glue that holds together the Old Continent’s mostly sub-par militaries, and U.S. tax dollars have paid for that glue. If we were to stop subsidizing their defense, populations that have gotten used to buying much more butter than guns would be in for a rude awakening. And, just when the sticker shock of that tax bill hits, these various nations are going to be asked to pony up for a Europe-wide treasury? I don’t think so.

Even after three decades of electing representatives to a European Parliament, there is nothing approaching a pan-European politics. British socialists and French socialists and German socialists all elect socialist members of the body, but they are socialists that speak to British and French and German issues, respectively — not “European” issues. (The same of course goes for other political ideologies.) Perhaps that would change if there were a pan-European taxing and welfare-providing authority, but that would be doing things out of order. There’s no democratic impulse for such an entity, only a desire of the elites tasked with producing a solution to problems decades in the making.

And if you think the rioters in Greece and elsewhere have been violent so far, just wait until even more foreign people in even more bureaucracies even further away try to force even more changes upon them in the name of bailing out even more foreign bond holders and bankers — which is what this basically boils down to.

The euro currency was a lovely idea, and it still might work. But not in its current form. The way to save the euro is to pare it down to those nations that truly fit in a currency zone together. Then, let the rest re-establish their own currencies, take their lumps, and allow the market discipline that ensues guide them in the wisdom of having Greeks and Portuguese throw their lots together again.

Until that happens, we in the original United States will continue to feel the economic turbulence — while the day of reckoning is only delayed, and possibly made larger.

– By Kyle Wingfield

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18 comments Add your comment


September 6th, 2011
6:09 am

You are correct, sir!

Several countries have been and continue to be in violation of the Euro treaties by not bringing their spending more in line with their revenues. The problem is that there’s nothing in the treaties about how a country can leave the Euro. And there’s little taste amongst the current “elite” for breaking up the union… so a new elite will eventually get elected as voters in economically strong countries realize they’re dumping money to help subsidize economically weak countries.


September 6th, 2011
6:43 am

Kyle, I keep reading from some quarters that the Republicans have invented a U.S. “debt crisis,” to scare people as a fake political ploy. They say the government needs to unleash a bigger stimulus than the earlier one. To me, it doesn’t pass the smell test. I believe we need less government spending, plus modest revenue increases to pay down our debt to avoid the European situation. Is our “debt crisis” not real? Thanks.


September 6th, 2011
7:24 am

Three comments , whats up with that?

JF McNamara

September 6th, 2011
7:25 am

Do you understand why they are fighting so hard to save the Euro?

The reason is that it has the potential for mutual assured destruction. The reason why all of those “weak” countries are in the Euro zone is because they give Germany (and other exporter nations) a way to cheaply export their goods. If everyone had different currencies, German products would be too expensive in other countries and would devastate Germany’s economy. Merkel understands this, and that is why she keeps bailing countries out. Germany isn’t just being noble.

What this new government would do is essentially allow the big governments to control the spending of the smaller countries but leave export relations intact. Its the perfect storm to implement the model that the big governments preferred anyway.

Besides, that, we only have two options, and both of them are pretty hard too.

1. We can keep going with our strategy of rotating easing by central banks to centralize the currency market which is the only thing holding the markets up. (Thank God there is no Tea Party in Europe or Asia or we would already be sunk.)

2. We can let it fail and the global economy (including the U.S.) crashes.


September 6th, 2011
7:43 am

It’s the same idea the liberals have here. If their ideas don’t work, it’s not because they were bad ideas, it’s because we didn’t go far enough. That’s always the answer, if X doesn’t work, well maybe 10X will. And if that doesn’t work, let’s try 100X!


September 6th, 2011
7:55 am

The U.S. has had over 200 years to develope its “democratic republic”. The European Union less than 20 years. In time they will grow stronger and work their way through their issues just as we had to. And hopefully they will do it without a “War Between the States”. Liberals are much more responsible for the buildup of the U.S. than the neo-conservatives of today. Neither Ronald Reagan nor Barry Goldwater would be conservative enough for Jimmy62 and his compatriots today.

Ayn Rant

September 6th, 2011
8:00 am

Kyle, your comparison with the European situation today and the situation at the founding of the US is faulty. The European Union is being forged in modern times in which literate, well-off people live in densely populated areas; sophisticated regulatory structure and extensive social support is needed to maintain the minimum acceptable standard of living for all citizens.

In contrast, the US was formed in the 18th century in a sparsely populated land with a few literate, prosperous people living in a small towns like Boston and Philadelphia; most citizens were illiterate subsistence-level farmers. Transportation and communication relied on wind-powered wooden boats and horses driven down rutted dirt roads. Wisely, for the time, our nation was founded as a federation of 13 states. As civilization progressed, the population increased and states multiplied. Our federal structure has became unwieldy. The US states are ill-proportioned and superfluous, constituting a burdensome, expensive, wholly unnecessary level of governance between the national and local governments.

The Europeans realize that a federal system of government is inappropriate for modern times, and have the long-term goal of subsuming the powers of the member states into a European government. They have already made progress in structuring the overall government, rationalizing regulations and trade agreements, implementing a single currency, and fostering a European identity among the citizens. At present, progress is hampered by the effects of the world-wide economic meltdown in 2008, and the age-old economic irresponsibility of the member states of southern Europe. Still, the member states in the north maintain sound economies with world-class business establishments, favorable trade balances, acceptable unemployment levels, and excellent social support for all citizens.

The primary obstacle to the European union at present is the irresponsible and ineffective governance of the troublesome southern member states. The long-term solution is to replace the troublesome member governments with responsible governance from Brussels (or better, Berlin).

The US has had, and continues to have a similar problem with its southern states. The most costly war in our history was waged to put down a rebellion of the southern states. Before and after World War II, our federal government has conducted a massive transfer of wealth from the prosperous north to the impoverished south. The southern states are unappreciative of the efforts to bring them up to national levels of literacy and prosperity, and persist in sabotaging our national government by supporting a right-wing political party that demands “smaller” government and supports the rights of individual states to suppress the constitutional rights of their citizens. With the exception of Texas, the southern states are a continuing political and financial burden on the nation.

So, that’s why the European Union does not seek a federal structure in the long-term.


September 6th, 2011
8:25 am

Jimmy62: It’s the same idea the liberals have here. If their ideas don’t work, it’s not because they were bad ideas, it’s because we didn’t go far enough.

Kinda’ like the conservatives’ “if tax cuts during the last decade didn’t create jobs, we just didn’t cut them enough!”


September 6th, 2011
8:28 am

Kyle, for once I agree with you. Europe has a very long history of brutal and bloody wars and, as is human nature, many Europeans hand down this hatred from generation to generation. A United States of Europe is actually not a new idea. However, old memories, old history and old distrusts make it very unlikely.


September 6th, 2011
8:51 am

I would concur that the European nations will need to pick up the cost of their defense. The US no longer has the resources to be the world’s Nanny. If we cannot afford to take care of our own citizens I am not big on taking care of some other countries citizens.

We are beginning a major debate in the US on the future of our Social Security and Medicare/Medicaid programs. And I am a proponent of reexamining both programs. But I will not support cutting back on our programs to spend the savings on supporting any other nation’s defense or welfare programs.

ragnar daneskjold

September 6th, 2011
9:12 am

An essay worthy of Stratfor, which had a mirror high-quality essay last week, discussing why the US had a manifest destiny. If anything, Kyle, you understate the “social-welfare” argument that has created a continent of EuroWeenies – maybe not the Dutch, and mostly not the English, and mostly not the East Europeans, but a large swath of the continent is either cowardly or indolent. I fear that is the US trend also.


September 6th, 2011
9:39 am

The Americans do not take it gladly when a European tries to tell them how to run their economy. Thankfully, they do not do it often. Why do you think you or others here should advise them or make predictions about what they will or will not do?


September 6th, 2011
9:40 am

The american politicians will learn nothing.

Moderate Line

September 6th, 2011
10:40 am

If nothing else, the newborn American states shared a common language and a common triumph over their former colonial masters, the British.
Considering that Europeans were the colonial masters of most of the world it would be very difficult for them to triumph over their colonial master.

There are many countries which do not have a common language in other words multiple languages. Belgium speaks three different langauges. Spain speaks four different languages.

The Ottoman Empire lasted for several cenuturies without a common language or culture. It seems the analysis is weak.

As almost anyone familiar with Europe will tell you, there isn’t a European social-welfare model; there are 27. Their delivery systems for everything from jobless benefits to welfare checks to education to health care vary widely from one nation to another
Isn’t this ideal of states rights? That states actually determine these policies.

Moderate Line

September 6th, 2011
10:48 am

If nothing else, the newborn American states shared a common language and a common triumph over their former colonial masters, the British.
This concept did not work in Latin American or Central America or Africa. It seems like the US was actually a unique case where it actually did work.

Hillbilly D

September 6th, 2011
11:10 am

The European Union will only last until the Germans realize that they’re toting most of the load.

One of the reasons the American experiment worked is because in the 1770’s, when things hit the fan, the Colonists already had better than 100 years of experience in self rule. They didn’t have total control, of course, but they had been running things on the local level for a long time. It wasn’t new to them, when they went out on their own.

Road Scholar

September 6th, 2011
11:25 am

Jefferson:The American people will learn nothing! Look at their recollection of history and ability to solve basic problems! Add that to the 80% who don’t have a clue about anything….it’s too hard to think things out, let alone research history except for what the press thinks we need to know!


September 6th, 2011
5:04 pm

“It would mean the birth of what I’ll call a “suprasovereign,…”

Anyone who understands Germans knows they’ll have their sights set on being the eventual suprasovereign. You can bet Germany, and to a lesser extent France, didn’t foresee themselves becoming the welfare nannies for the likes of Greece, Portugal and now Italy.