02 May 2012

Ferguson/Barbieri: Merkel can achieve fiscal union in Europe

Writing for the FT, the authors say they prefer to see the compact as a first step on the long road to joint and several liability for eurozone sovereign debt, and the deeper fiscal union that the monetary union always implied.

As Tom Sargent recently argued in his Nobel Prize acceptance lecture, Europe is now where the US was under the 1781 Articles of Confederation. The next step is fiscal federalism, which means giving a federal Treasury some responsibility for the past borrowing of the Member States, as happened with the adoption of the 1787 Constitution.

German governments cannot avoid a referendum on fiscal integration indefinitely, given the requirements of their own constitution. But with the strong support of German business – riding high on a favourable exchange rate and dynamic economy – a federalist “Ja” campaign can win.

More than most, Germans are invested in the European ideal. It has given their country a route back not just to prosperity but also to political respectability, to successful reunification, and now to a dominant economic position. Small wonder no credible German politicians are against “more Europe”.

Europe’s monetary union is neither the joint checking account of a dysfunctional family nor a latter-day gold standard. It was always meant to be a staging post on the road to a federal Europe. Today the biggest threat to its survival is no longer the economic consequences of austerity; it is the political consequences, in the form of populist, anti-European, usually xenophobic fringe parties. Almost everywhere but Germany, such parties are gaining support.

The only way to counter peripheral depression and protect reforming governments is to move towards fiscal union. The time has come to remind disillusioned voters that – to borrow from the Spanish philosopher José Ortega y Gasset – “Europe is the solution”, not the problem.

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