03 August 2015

Financial Times: European federalism is not dead yet

One conclusion of the Greek crisis seems clear: the dream of moving harmoniously towards a federal Europe is dead. The rancour incited by the crisis has pitted nation against nation and revived some of the continent’s worst stereotypes. Rather than hastening Europe’s historic integration, the introduction of the euro may have only led to its slow-motion disintegration.

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That is certainly one interpretation of Alexis Tsipras’s decision to accede to the creditors’ main demands. In spite of calling a referendum to reject the creditors’ deal, Greece’s prime minister concluded that leaving the eurozone would be more painful than remaining in it. Having peered through the gates of Hell, he realised the attractions of Purgatory. Regardless of the political cost, Greece could not abandon its European destiny.

As some of the more clear-headed — or cynical — federalists have argued, the creation of the euro would serve as a means of reverse engineering a federal Europe. They have often drawn inspiration from US experience and the remarkable debates about the nature of federal government contained in the Federalist Papers. These were published in the late 18th-century as the infant republic grappled with what it meant to forge a common political entity.

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Functioning federalism is a process that needs to be reinvented every day, not a constitutional flat pack that can be assembled overnight.

A dispassionate analysis of the eurozone’s options published last year by the Centre for European Reform concluded that a strengthening of fiscal federalism represented the best way of completing the eurozone’s ramshackle edifice — even if at the time that appeared to be politically impossible.

The report sketched out three other possible scenarios: a German-led Europe run by creditor nations; a technocratic currency bloc run by Brussels bureaucrats and central bankers; and a more flexible, decentralised eurozone. It argued that all these alternatives were less economically viable than fiscal federalism — and in different ways might prove just as contentious. Some European officials have reached similar conclusions. In an interview with the FT last month, Pier Carlo Padoan, Italy’s finance minister, argued that the eurozone ought to respond to the Greek crisis by moving towards political union.

“To have a full-fledged economic and monetary union, you need a fiscal union and you need a fiscal policy,” Mr Padoan said. “And this fiscal policy must respond to a parliament, and this parliament must be elected. Otherwise there is no accountability.”

Such talk will strike many politicians, especially among the anti-euro populist parties and British eurosceptics, as madness. We need less Europe, they argue, not more. They highlight the profound differences between the US and Europe, arguing it is impossible to forge a United States of Europe from so many diverse nations when there is no popular support to do so.

But there are many types of federalism, and many paths to a destination. By almost any measure — political, economic, social, religious, ethnic — India is more diverse than the eurozone, yet it remains bound by a common idea. Its federalism has often served as a rough-and-ready means of mediating differences rather than exacerbating them.

It will require a Herculean effort of persuasion. But if they want the currency bloc to survive, eurozone politicians may need to make the case to voters that flexible federalism remains the least bad option.

© Financial Times