October 14, 2011
While closer fiscal union can help solve today’s crisis, the public backlash will cause some Member States to pull away over the next decade. Still, it’s better to separate the currency crisis from the political crisis as simultaneous catastrophes would be unbearable.
The future remains uncertain but key elements of a plan to end the crisis are taking shape.
We already know that Europe’s economic governance will be strengthened. The European Semester and the recently-passed Six Pack mean EU surveillance of national budgets is about to get a whole lot more forensic.
New pan-European financial supervision bodies will play a much more active role in how banks are regulated.
Other ideas in the air include an EU Finance Minister or some kind of Budget Tsar who will have meaningful powers over national parliaments when it comes to matters monetary. The Eurogroup will certainly be beefed up and the ECB’s mandate may be tweaked to make it more like the US Federal Reserve.
Tax harmonisation and other aspects of fiscal integration have also been mooted as Europe attempts to iron out the imbalances at the root of the crisis.
Shot term gain, long term pain
Failure to make these kinds of radical leaps will mean disaster in the near term. But how will citizens feel about it two or three years from now?
Presuming the crisis can be averted, the public will scarcely thank leaders for steering the ship away from the rocks. We will never know how close we came to Armageddon but we will see powers shift from our national parliaments to Brussels where the influence of most Member States appears to have declined of late as the spotlight turned to Paris and Berlin.
When the dust settles, being in the euro will look a lot like living under an IMF programme. Reckless spending will be vetoed and decisions on revenue-raising measures will need the green light from Europe.
So what will happen when, under the much-vaunted economic governance rules, Brussels sends a Member State’s proposed budget back to the national parliament with a note saying “Please try again – this is not good enough”?
They won’t do it unless absolutely necesssary, and they may well be acting in the interests of that country’s citizens, but what thanks will they get? None.
Political opposition to ‘foreign’ influence will rise and the electorate will continue to elect euro-sceptic parties – as they have in Finland and elsewhere. The Europhiles who delivered closer union will lose power.
Ever closer union?
Within an election cycle or two, the political landscape could look a lot different and populist opportunists will win votes by promising to reclaim powers ceded to Brussels during the crisis. England for the English, Finland for the Finnish and all of that.
However, while the road to closer union may ultimately prove unpalatable to voters, there is no choice. Failure to come together now would mean the collapse of the common currency and the European Union, along with the break-up of the single market.
It is difficult to imagine that post-integration backlash won’t lead some Member States to back away from Brussels over the next decade. Yes, this will cause a political crisis – but it’s better to separate that political problem from the currency crisis. Two serious crises spread over a decade will be less disruptive than two serious crises occuring simultaneously.
The coming fiscal union means integration at a pace quicker than most citizens are comfortable with – each for their own reasons. The best chance of limiting the fallout is to help citizens understand the reasoning behind it and to see themselves as part of Europe.
The anti-foreigner backlash can be tamed if citizens come to view Europe as something other than ‘foreign’.Author : Gary Finnegan