Eddie

Europe: Why it needs political harmony

There has been much debate about what is wrong and it has taken me time to internalise all the sometimes conflicting theories.

Groucho Marx said “I would not want to be a member of a club that had somebody like me as a member”.

The crisis in the Euro is affecting every European country.  Unlike the previous downturn in 2009, when the world relied on emerging markets to create growth there appears to be contagion now.  Emerging markets have seen their currencies slide and their growth begin to falter.  This is not entirely due to the Euro woes as China for instance is engaging in an internal correction process which was spelled out in the 12th five year plan.

If European Governments were not motivated enough by internal (to Europe) concerns then the prospect of causing a worldwide recession should get the heads up and doing.

There has been much debate about what is wrong and it has taken me time to internalise all the sometimes conflicting theories.

We have a single currency in seventeen countries.  These countries are united in having a common legislative framework; and in having free movement of goods, capital and labour.  More importantly these countries along with the Non Euro members of the EU have a vast disputers resolution methodology that has evolved out of the ruins of World War 2 and been forged by a collective will since.

The EU is the world’s largest market and it faces a crisis which was described by Mrs Merkel at the CDU Conference as “the toughest since the Second World War”. 

She then went on to say “that the task of our generation is to complete economic and monetary union and build political union in Europe – step by step”.

This is very helpful talk.

Currently we have one currency in seventeen different cultural entities.  Countries,  that have different histories, traditions, languages and expectation from life.  Very like the United States, I hear you say.  Certainly from the Bible Belt Tea Party culture to the Kyoto Treaty creators in Washington and from Silicon Valley  to Memphis Tennessee we observe almost as much diversity as there is in the E.U.

But the U.S. has a central bank, the Federal reserve and it is in charge of monetary policy.  Also a tough set of economic rules governing how States pay for their internal services.

We in Europe do not have a properly funded or even agreed central bank.  We have little financial ability to respond to the kind of banking crisis which now engulfs us.

Perhaps more importantly we in the Eurozone are a club with no rules; rules with sanctions.

I am particularly interested in the imagery used by Mrs. Merkel at the CDU Conference. She is the first German leader I remember who referred to World War 2 at all. It must be a painful race memory to invoke.  I know exactly why she did it and here is my take on it.

The changes facing us all in Europe are as profound as they are necessary.  They are certain to involve a further loss of sovereignty.  For us in Ireland this has been one of the central themes in the debate we have had on every treaty referendum.  At the finish of every great debate we decided that loss of sovereignty was a reasonable trade off to pay for the benefits that always flowed.  Whether it was the CAP in the 1970s, the access to EU markets that encouraged 56 multinationals to locate here, or the single currency with its low interest rate, every change led to greater wealth and a higher standard of living for our citizens.

I do not believe that the German citizen ever saw or had to contemplate a loss of sovereignty up until now.  It was all upside for them.  Open access to a barrier free Europe meant more wealth for German business and citizen.  No intense debate happened at referendum time because there were no referenda.  To be sure the German economy paid to modernise Ireland and the other poorer nations but every investment had an eight month payback period to the German economy.

Now Germany is faced with this issue:  We are creating an entity where Greeks, Irish, Maltese, Portuguese are our equal.  It is as plain as the nose on a face that German people are better organised, more disciplined, more environmentally aware, more profoundly industrialised than the rest of us.

So one begins to see the issues Mrs. Merkel face, seen through German eyes.

•    A German sees that the EU as absolutely necessary to their continued societal and business success.
•    To allow this to happen however Germany is going to have to start paying more.
•    More importantly Germany cannot maintain an open Europe without sharing its sovereignty with the rest of us who are not as well organised.  I imagine it would be for the majority of Germans like asking New England in US to join with Georgia and Louisiana today (assuming the US was a collection of regions).

Another issue which Mrs. Merkel and all Europe faces is that of compliance.  In the context of there being a strong central bank, there needs to be absolute agreement on the sanctions that will apply to a nation state that does not comply with budgetary and broader financial criteria.

One has to agree with Mrs. Merkel’s central thesis.  We in Europe need to move toward more political harmony.

If we are to enjoy the stability of economic growth and low interest rates that being linked to the German economy we face serious changes.  Straight up we need to address the democratic deficit.  One big change is the need for a far stronger and more power European Parliament.  In this regard the US model suggests itself.  A House and a Senate.  Two persons would come from each nation state and members of the House would be present in proportion to the populations.

The Parliament would be responsible for a federal European budget with each nation remaining responsible for its internal budget.  The big difference from what exists currently are the rules about what financial scope each nation has to run up deficits.  There would have to be strict guidelines about the risks that each national government was undertaking.

Of course the Federal EU budget would have to be much bigger than it is today.
It would deal with the big common issues:
•    Energy
•    Defence
•    Innovation
•    Common transportation
•    External relations
•    Fisheries
•    Agriculture.

In passing it is important to point out that Ireland for instance would be able to retain its manufacturing tax rate of 12.5%.  It is clear that if Ireland were to lose this tax the industries so affected would not go to France, Germany, the UK or indeed anywhere in Europe.  They would go to India, Bangladesh, or Vietnam.  Europe would be left with a lot of unemployed people which one way or another would decrease the wealth of the EU.
Wealth as expressed in currency value, employment, business startup rate, productivity, etc would be the sum of all the nations which have the Euro as the currency.  A reduction in any state would mean a reduction for everyone.  If we got the alignment right then all states contribute and see life in this way.

In a world where globalisation is advancing by the day, all European member states need one another to compete.

One Response to Europe: Why it needs political harmony

  1. smc November 28, 2011 at 11:35 am #

    Hear hear. Not enough people in Irish public life are saying this. The EU can work; but only if there is an honest attempt at political and fiscal union first. See point 9: http://longtermchange.blogspot.com/

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