Both ‘More Europe’ and ‘Less’: Some Thoughts on ‘Political Union’ and the Eurozone Crisis

lindsethProf. Peter Lindseth

Below is an excerpt of remarks that will be delivered at the conference ‘Political, Fiscal, and Banking Union in the Eurozone?’, taking place on April 25 at the European University Institute. EUI’s Department of Economics, the Robert Schuman Centre for Advanced Studies, and the Wharton Center for Financial Institutions at the University of Pennsylvania are the conference co-sponsors. Prof. Lindseth will take part in ‘Panel 3: Political Union in the Eurozone?’

The conference organizers have asked me to reflect on various possible meanings of ‘political union’ and whether there might be a tension between ‘de jure’ and ‘de facto’ dimensions of the concept. More specifically, they asked me whether there might exist any ‘barriers to real political union within the Eurozone and what the sources of those barriers might be’.

Of these three tasks, I suppose I am least comfortable with the first, on the various possible meanings of ‘political union’.  We all know the concept is slippery, with a meaning that may differ depending on the person you ask.  Just to take two examples, we know that Angela Merkel has expressed support for ‘political union’ on any number of occasions.  But her conception is notoriously limited, at least for the present.  She speaks of ‘more Europe’ in terms of increased supranational surveillance of national budgets, combined with a single supervisor mechanism for a segment of the European banking industry (the very largest), and perhaps some kind of European bank-resolution mechanism.  But any kind of jointly financed deposit-guarantee scheme, much less debt mutualization or, God forbid, any significantly supranationalized taxing, spending, or borrowing capacity in European institutions, are simply beyond the fault-line she is willing to consider.

Hard-core European federalists, on the other hand (for example, Andrew Duff), also argue for ‘political union’ and, indeed, see it as the only possible solution to the Eurozone crisis. But someone like Duff would define the concept in much more ambitious terms.  Duff would include in his conception precisely the dramatically expanded taxing, spending, and borrowing capacity that Merkel would reject.  Moreover, Duff calls for a deep legal and political transformation of the European Parliament and European Commission into an autonomous legislature and government of the Eurozone, in order to legitimize this expanded authority in autonomously democratic and constitutional terms at the European level.

No surprise that my guess is that the likely outcome of the Eurozone crisis will be much closer to Angel Merkel’s conception than Andrew Duff’s.  But this is so not just because Merkel is Chancellor of Germany, Europe’s ultimate paymaster, which gives her slightly more power than Duff in his position as MEP or as President of the Union of European Federalists. Rather, the Merkel understanding of political union is likely to prevail because it is much more in line with overall process of institutional change in the history of European integration, something I trace in my most recent book, Power and Legitimacy: Reconciling Europe and the Nation-State (OUP 2010).  Even if functional demands of the crisis may indeed push Angela Merkel further in the direction of outright German transfers (say, to finance a European bank resolution scheme), it will come nothing close to pushing her toward the conception of ‘political union’ favored by Duff, with a dramatic shift of political authority toward the supranational level.  There are simply formidable political-cultural and legal obstacles, not just in Germany but in Europe as a whole, that would prevent such an outcome.

Instead, the much more likely institutional outcome will be one combining ‘more Europe’ and ‘less’.  The functional demands of the crisis may well push Germany to accept a European deposit-guarantee scheme, or perhaps some transfers to deal with ‘legacy costs’ of the crisis.  But those concessions will be combined with European ‘reforms’ in the direction of free-trade, flexibility, and competitiveness to which David Cameron, as well as her increasingly ‘Euro’-sceptical right-flank at home, will be no doubt sympathetic.

The full remarks will be published following the conference.

2 thoughts on “Both ‘More Europe’ and ‘Less’: Some Thoughts on ‘Political Union’ and the Eurozone Crisis

  1. Since I think you read german, I’ll just add a link to an arch-federalist, ex-foreign minister Joschka Fischer, castigating Merkel’s crisis-handling along the usual lines.

    http://www.sueddeutsche.de/politik/folgen-der-krise-europa-zerbroeselt-1.1662826

    I have to say, I read it and kept thinking “yes, Joschka, but this “solidarity” you keep mention didn’t prevent the Greens from supporting the cyprus bail-in, did it?” And there were some reasons for that, since the cypriot banks were seen as an enabler of tax-flight.

    But certainly, “solidarity” means very different things to different eurozone countries.

    I think Cyprus (and Ireland and Spain before it) make the case for eurozone-wide banking regulation and resolution.

    Europe-wide Deposit Insurance? That’s just viewed (in german banking circles, at least) as a subsidy by prudent banks to rash banks and an incentive to risk-taking. Something one can look at again when the regulatory framework is in place and working. But it will take decades to build up enough funds for any such deposit insurance to play a meaningful role.

  2. Richard,

    First let me thank you for commenting — I owe you and Klaus Kastner a response here as well (http://klauskastner.blogspot.com.es/2013/04/crime-punishment-and-guilt-in-eurozone.html), and also one on my Cyprus post (https://eutopialaw.com/2013/03/27/cyprus-or-why-the-no-demos-problem-defines-the-policy-response-to-the-eurozone-crisis/#comments) — I’m a little behind.

    Second, in the interest of full disclosure, my German is terrible. I like to say that I decipher it rather than read it, though I’m improving.

    Finally, as to our friend Fischer and the invocation of “solidarity,” I couldn’t agree more. The functional demands of the crisis intersect with other, often unspoken conceptions of legitimacy (e.g., “no demos”) in interesting ways. Best to watch the money, as you implicitly suggest.

    Hence the difficulty in establishing a Europe-wide deposit-guarantee scheme, which I carefully avoided positing as a likely outcome, for precisely the reasons you suggest. On the other hand, I could envision some kind of shared funding for a bank-resolution mechanism, on the basis of the “fault, not solidarity” principle I’ve described here (https://eutopialaw.com/2012/07/30/fault-not-solidarity-a-normative-argument-to-save-the-eurozone/) and here (https://eutopialaw.com/2012/12/20/interdependence-political-will-and-morality-banking-union-version/). In my view, there’s a compelling argument (both functional and normative) for all the EMU states, most importantly Germany, to share in paying the “legacy costs” of the crisis, whether through continued structural reforms (the periphery) or some outright transfers (the core).

    Thanks again for chiming in, and all best, -Peter

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