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