Europe at a crossroads: Deeper union or disintegration?

posted at 3:21 pm on February 27, 2013 by Ed Morrissey

Eight days ago, Der Spiegel reported that Eurozone supporters wanted to learn a lesson from Alexander Hamilton on how to use national debt to unify and strengthen a monetary union.  I argued at the time that if they look to Hamilton, they would miss one key to his success — namely, a unified central government in control of monetary policy, which replaced the 13 sovereignties that couldn’t handle their debt individually.  After the shocking-yet-not-unexpected defeat of austerity in Italian elections this week, Bloomberg’s editors come to the same conclusion, if not to the same scope:

Italy’s rebellion against austerity — egged on by Berlusconi’s populist pledge to reimburse property taxes — bodes ill for other euro-area countries. Some have much further to go than Italy to get their finances in order. Spain must still cut spending or increase revenue by almost 6 percent of gross domestic product to stop its debt burden from growing. That’s more than seven times the across-the-board spending cuts that are set to take effect March 1 in the U.S. Polls in Greece, which still has a lot of belt-tightening to do, already suggest that the anti-austerity Syriza party would triumph in a new election. …

The way out isn’t easy. Austerity measures will never be popular with voters unless they are convinced the pain is widely shared and short-lived.

That’s not just a Eurozone problem, either.  Americans seem to believe that either (a) we don’t have a structural fiscal problem that’s barreling toward a Greece-like conclusion, or (b) we have a problem, but hiking taxes on the rich will solve it.  Our political class is as susceptible to populism and denial as Europe’s, but we have two advantages.  One, we’re not as bad off as the Eurozone is (although we’re certainly getting there), and two, we have one unified central government to control monetary and spending policies, even if what we have isn’t doing so at the moment.

The big question for any democratic republics is this: will voters who have spent their entire lives in a government-spending bubble willingly endure austerity for long enough to right their fiscal structures?  That may be difficult in a single-sovereignty environment like the US, but it’s going to be impossible in a multi-sovereignty environment like the Eurozone:

What’s more, countries with such divergent economies can’t share a currency unless they put in place some risk-sharing mechanisms. The best way to deal with both shortcomings is through a system of fiscal transfers. This would involve sending money from growing economies to those in recession, easing the difficult adjustments the latter must make to recover. We have demonstrated that such a mechanism, if properly designed, need not entail a permanent subsidy from Germany to governments in the euro-area periphery.

The euro area also needs a better way to keep its members’ borrowing in check. Jointly issued and collectively backed euro bonds, for example, have the potential to lower borrowing costs while giving a central authority significant control over individual governments’ ability to run budget deficits. Interestingly, this idea is supported by German Chancellor Angela Merkel’s main opponents in elections scheduled for September.

All the best solutions to the euro crisis have one thing in common: They involve the creation of a much deeper union. It’s up to Europe’s leaders — and particularly Germany’s — to convince their constituents that such a union is in their best interests.

They’re right, and that’s the problem.  As much progress has been made on the shared currency, it seems impossible to believe that Italian voters who just rejected austerity will embrace a devalued sovereignty to the level of, say, California.  German voters might not like the idea all that much better, even if it did mean greater influence on keeping Spain, Italy, and other debt-crisis EU nations from tipping over and ruining their own economy.  Without that central political control over monetary policy, the Euro is a project with a very bleak future.

Update: Speaking of bleak futures, Italy will have to pay more to borrow money in the immediate aftermath of their election:

Italy saw its borrowing costs jump in a pair of bond auctions Wednesday after an inconclusive election that has raised fears Europe’s government debt crisis will flare up again.

The country sold 4 billion euro ($5.2 billion) in 10-year bonds at a yield of 4.83 percent, way up from 4.17 percent last month. The yield on five-year bonds rose to 3.59 percent from 2.94 percent, as ?,?2.5 billion was auctioned.

Bond interest costs are a key measure of Europe’s effort to keep its debt problems in check. Higher rates mean more skepticism about an indebted country’s ability to pay.

That will make the need for austerity even greater, especially in the long run.


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The majority of American voters are nothing but EuroWeenies, anyway. And the biggest one of all is in the White House.

I don’t give a shit about Europe.

I don’t give a shit about sequestration.

I don’t give a shit.

OhEssYouCowboys on February 27, 2013 at 3:28 PM

Europe hasn’t even begun to gel under Rome rule. Give it a minute.

tom daschle concerned on February 27, 2013 at 3:30 PM

P.S.

I’ve been posting “I don’t give a shit,” a lot, lately.

But I don’t mean to offend you good peeps, with my profanity, when I post it.

It’s just that it’s therapeutic for me.

Be patient with me.

OhEssYouCowboys on February 27, 2013 at 3:31 PM

without that central political control over monetary policy, the Euro is a project with a very bleak future.

Europe has been trying to unify as a single entity for over 200 years.

This will end just the same as all the previous attempts had.

Gatsu on February 27, 2013 at 3:32 PM

Yeah, because being a free and independent country is so over rated. They deserve the cesspool they now call the EU.

D-fusit on February 27, 2013 at 3:37 PM

Europe has been trying to unify as a single entity for over 200 years.

This will end just the same as all the previous attempts had.

Gatsu on February 27, 2013 at 3:32 PM

Yah, but Hitler, Napoleon and Stalin only failed because they didn’t offer quality affordable health care for all!

WitchDoctor on February 27, 2013 at 3:41 PM

Yah, but Hitler, Napoleon and Stalin only failed because they didn’t offer quality affordable health care for all!

WitchDoctor on February 27, 2013 at 3:41 PM

Ummmmm What were all those purges then? I was under the impression they killed 80 million people because they all had the plague.

Greater good and all that…

Gatsu on February 27, 2013 at 3:45 PM

Europe has been trying to unify as a single entity for over 200 years.

Gatsu on February 27, 2013 at 3:32 PM

Socialists just can’t admit it that their notions are failure-methodology.

They continue to struggle to find someone else to bail them out when they fail as individual Socialist if not COmmunist nations.

It’s the same thing when Socialists want borders eradicated and alleged “immigrants” to wander wherever at someone else’s expense.

They’re looking for a sugar daddy, a bail out, someone else’s property to use and depend on…it’s the inherent failure of Socialism and the Socialists who insist on it.

It’ll never function productively. Eventually, they always run out of someone else’s “money” (resources, land, funds, geographical space) and then they go on to demand someone else’s.

It’s Socialism, it always fails.

Lourdes on February 27, 2013 at 3:46 PM

Lourdes on February 27, 2013 at 3:46 PM

No question there.

Also is it me or just like seems whatever unifying body gets around this size (current EU) the whole thing starts to come undone?

Gatsu on February 27, 2013 at 3:52 PM

The EU can never be united. Unity requires a belief in values that transcend the three basic human temptations: Gold, Glory, Girls. Only by having a belief in values greater than these is the US united. Consequently, they will be our undoing.

nobar on February 27, 2013 at 3:52 PM

It’s Socialism, it always fails.

Lourdes on February 27, 2013 at 3:46 PM

And this is why the Soviet Union had Article 58, in their Criminal Code. Because they couldn’t admit the failure of Marxism and collectivism, there had to be a reason for economic decay and collapse.

Take a look at Article 58, below, and see how many of the “crimes” involve an economic excuse and the enemy – bourgeoisie/counterrevolutionaries:

Article 58

OhEssYouCowboys on February 27, 2013 at 3:54 PM

Why, they just have’t spent enough yet. They should raise taxes and hike entitlements. King Barack says that woks.

Warner Todd Huston on February 27, 2013 at 3:54 PM

Italy just gave the EU the “Bunga Bunga”.

WisRich on February 27, 2013 at 3:56 PM

P.S.

I’ve been posting “I don’t give a shit,” a lot, lately.

But I don’t mean to offend you good peeps, with my profanity, when I post it.

It’s just that it’s therapeutic for me.

Be patient with me.

OhEssYouCowboys on February 27, 2013 at 3:31 PM

No need to apologize. There are many of us out there who really, really don’t give a shit anymore. I’ve have come to realize that I am discovering much more about the 2 party system than I care to know. I guess it all ties in with the popularity of the Internet, blogs and the numerous cable shows on the airwaves. There is just too much information out there that is revealing the truth about the disconnect between the “average joe” and the elites in D.C. And it is not just contained in D.C. There are local and state governments running their systems as corrupt as those in D.C.

The sad truth is that the more things appear to change, the more things actually stay the same. Or if they change, they seem to change for the worse. I, for one, thought that staying informed and getting involved might bring about real, honest change in my country for the better, but I was sadly mistaken.

I now look to my much younger daughter and her husband. They don’t get involved with the false fantasy of “getting involved can make a difference.” They care not for Obama and his party, but instead get on with their own lives taking care of their 3 children and their careers. They will not allow the frustrations of politics get in their way of making progress for themselves. In other words, they don’t give a shit about what happens in situations they cannot change. They learned early on that there is no future in getting involved and caring. I’ll toast to that lifestyle anyday!

metroryder on February 27, 2013 at 4:08 PM

The big question for any democratic republics is this: will voters who have spent their entire lives in a government-spending bubble willingly endure austerity for long enough to right their fiscal structures?

This phrase needs to be clarified–most of the countries in the Euro-zone are not republics, but parliamentary democracies, where the Executive branch (Prime Minister and Cabinet) derive their power from majorities in Parliament, which are frequently loose coalitions of two or more parties that may temporarily have enough common interests to share power. This means that the Executive branch can be thrown out if any party in the coalition abandons it and calls for a vote of no confidence. This leads to much more frequent power shifts than in a republic, where the Executive and Legislative branches have separate powers, and can be politically opposed to one another. Italy is famous for rapid power shifts, as it is rare for an Italian government to remain in power more than two years.

It’s unlikely that the Euro-zone can long survive in this environment, where legislatively sovereign countries share a common currency. Socialist countries that run large deficits and have expensive welfare systems can subsidize it by devaluing their currency, making exports cheaper overseas and attracting tourists to cheap vacations, IF they have their own currency.

But in a group of countries with a common currency, the more socialist countries ruin their own economies, while more fiscally sound countries are asked over and over again to bail out the weaker countries, fostering resentment on both sides. There are two possible solutions to the Euro-zone crisis: (1) Either the European Union becomes a single country, with a single elected government controlling fiscal and monetary policy for the entire European Union; or (2) Countries which cannot meet the requirements of the European monetary zone need to mint their own currency, whose value can fluctuate against the Euro, while maintaining fiscal sovereignty.

Option (1) is unlikely, because the national parliaments will jealously guard their sovereignty, and many attempts at a European “constitution” have gone down in flames in referenda. Option (2) is the less painful solution, but it will take humility for any government to admit that it failed the “Euro-test” and will need to re-mint its own currency, with a necessary transition time when people will be confused about the value of the new currency, and scammers may take advantage of the confusion.

Steve Z on February 27, 2013 at 4:26 PM

It’s just that it’s therapeutic for me.
Be patient with me.
OhEssYouCowboys on February 27, 2013 at 3:31 PM

You may not realize.. those posts are therapeutic for a lot of folks.

antisocial on February 27, 2013 at 4:28 PM

Article 58

OhEssYouCowboys on February 27, 2013 at 3:54 PM

That site is virus-infected.

Akzed on February 27, 2013 at 4:32 PM

The majority of American voters are nothing but EuroWeenies, anyway. And the biggest one of all is in the White House.

I don’t give a shit about Europe.

I don’t give a shit about sequestration.

I don’t give a shit.

OhEssYouCowboys on February 27, 2013 at 3:28 PM

I just want half of this country to turn to the other half and say, “I’m sorry, but this just isn’t working out. We need to go our separate ways and find ourselves. Goodbye, and I’ve already changed the locks.”

Daemonocracy on February 27, 2013 at 4:47 PM

Take a look at Article 58, below, and see how many of the “crimes” involve an economic excuse and the enemy – bourgeoisie/counterrevolutionaries:

Article 58

OhEssYouCowboys on February 27, 2013 at 3:54 PM

Now you’ve done it. You do realize that you’ve reminded the Enemy of the next step to take. I’m actually guessing that something along this line will start by the middle of summer.

As far as the EU is concerned, it is going to be interesting. They have a very short period of time to force through a total surrender of sovereignty to Brussels before economic reality takes hold. Not saying it cannot be done, but it cannot be imposed by brute force. It is going to have to involve some really fast tap-dancing and massive bribery of the political class in each country. Not saying at all that it is not possible, just that it is unlikely. These are, after all, European politicians who are arguably as corrupt as ours, and with more practice at betraying their countrymen.

Subotai Bahadur on February 27, 2013 at 4:53 PM

Italy just gave the EU the “Bunga Bunga”.

WisRich on February 27, 2013 at 3:56 PM

The EU courts tried to force Italy to remove God (Crosses) from their public square…literally…

Italy’s PM at the time Berlusconi told the EU Court to take a flying leap…

I’m not surprised by this recent turn of events…

workingclass artist on February 27, 2013 at 4:57 PM

The Italian people never wanted to be in the European Union. They detest the Euro and the Marxists running the EU.

If you knew anything about the history of Italy you would know how difficult it was just to unite Italy. Italians are only loyal to their campanile (bell tower in their home town.)

There is a total distrust for ANY strangers.

Mental midgets suggested that Italy should join the EU. It was guaranteed to be an epic fail.

The Italian politicians also wrote the book on crony capitalism. In Italy any politician is lower than scum.

Jayrae on February 27, 2013 at 5:14 PM

Mama mia!

hillbillyjim on February 27, 2013 at 5:19 PM

Be patient with me.

OhEssYouCowboys on February 27, 2013 at 3:31 PM

After the gut-punch of last election, it’s been my mantra. I just don’t care anymore.

John the Libertarian on February 27, 2013 at 5:29 PM

Yes, the EU electorates are quite like our own.

The questions we all must ask are, “If not us, then who?” and “If not now, then when?” To which the universal answers seem to be “Somebody else” and “Later, baby!”

It’s not so much they don’t recognize the need for austerity, but that they – Look! Shiny squirrel!

The industrialized West (and Japan) have spent unprecedented sums on government-directed education of our citizens, resulting in masses of undereducated, self-centered, immature, lazy brats who want to be waited on hand and foot with no responsibilities which cannot be passed on to “someone else,” ever more dependent on ever bigger government.

Why am I not surprised?

Adjoran on February 27, 2013 at 5:31 PM

Update: Speaking of bleak futures, Italy will have to pay more to borrow money in the immediate aftermath of their election:

If you can believe it, this has actually been touted as good news because the bond rates aren’t even higher!

MJBrutus on February 27, 2013 at 5:41 PM

After the gut-punch of last election, it’s been my mantra. I just don’t care anymore.

John the Libertarian on February 27, 2013 at 5:29 PM

I’m much the same way. I’m pretty much just a spectator of this bizarre circus.

MJBrutus on February 27, 2013 at 5:42 PM

Increase revenue, increase revenue, #@*& off…it’s called “increase taxes” idiots.

royzer on February 27, 2013 at 6:08 PM

Without that central political control over monetary policy, the Euro is a project with a very bleak future.

The best solution has always been not to join and if you were foulish to join, the sooner you leave the better off you will be.

burt on February 27, 2013 at 6:27 PM

All this could have been avoided if they had just let Kaiser Bill have his way….

ScottG on February 27, 2013 at 6:32 PM

So 3 years of austerity and 2 ECB bailouts later and the Eurozone is getting worse. Not to mention the only thing this is based on is a 2010 study that nations with a >90% debt-to-GDP ratio would have spiraling interest rates. This was based on only Italy, Greece and Japan, with only 2 of those countries having anything to do with each other. In fact, as we approach the magic 90% number, our borrowing rates are ~dropping~, contrary to the call of every deficit hawk. We should also consider that this study is not peer-reviewed, and can’t be (they just show 3 correlating countries and don’t even try to draw causation).

So with the IMF linking increased austerity to slower economic growth (and worse long-run debt thanks to investment cuts), can someone explain what the economic reason is to worry about the debt, instead of doing what we have historically always done and just grow the economy until it goes away? How does slashing spending/jobs help when there’s no sign that low rates are crowding out private money?

Lord knows Ed can’t produce anything to back up his claim.

Rainsford on February 27, 2013 at 9:18 PM

OMG Rainsford out GetALife’d Touchdownbuddha.

I almost lester’d muh pants.

tom daschle concerned on February 27, 2013 at 9:25 PM

Another slander of the much maligned General Hamilton. What he said was that “a well managed debt” would be a blessing to the country. Anyone who thinks that the debt either here or in Europe has been “well managed is delusional.

LCT688 on February 27, 2013 at 11:11 PM

A united Europe under Napoleon would have been something that would have something to behold. Hitler and Stalin were pure evil.

SC.Charlie on February 28, 2013 at 7:57 AM

Great article

api on March 14, 2013 at 3:26 PM