The crisis of capitalism is also a crisis of European integration. The fundamental tenet of post-war Europe is that unity between its states and peoples brings stability and prosperity in place of strife and impoverishment. Today that belief is tested as never before. One does not have to be Greek to resent the fact that the frantic efforts by European Union leaders to centralise economic policy around the German model are driving the peripheral countries of the eurozone to the wall. It was not the purpose of economic and monetary union to turn everyone else into German satellites. Nor, to be fair, was it the intention of Germany.
So it is incredible that Angela Merkel, Germany’s chancellor appears to be conniving with French president Nicolas Sarkozy to impose a new system of economic governance on the eurozone which will compound the error of excessive centralisation.
Herman Van Rompuy, president of the European Council, has been asked to come up with a plan by mid-October which will draw the reins even tighter. Mr Van Rompuy may be by instinct a federalist but he does not seem to be strong enough to resist the push from the national leaders towards a form of inter-governmental coordination which will lead inexorably to government by a directory of Paris and Berlin. Under his new proposals, the job of controlling national economic policies will be given to the European Council acting by consensus and beholden to the votes of national parliaments.
Populist nationalism is an increasing danger in recessionary times. The mood among Europe’s national parliaments, as we know, is fractious and unsympathetic to finding joint solutions to the debt crisis. As the political fallout spreads, most EU governments will become shaky coalitions prey to the vagaries of domestic politics far removed from the real demands of EU policy making.
It is increasingly clear that, left to their own devices, Europe’s assorted prime ministers and presidents will be unable to come up with a package of economic governance measures which will in the short term restore both market and democratic confidence. There is even less likelihood in the longer term that their proposals will be able to be codified successfully in a new EU treaty which necessarily requires unanimous agreement.
The alternative route to more futile inter-governmentalism is the one leading to much deeper federalism. Critically, the onus lies on the European Commission and European Parliament to take the federal route, thus pre-empting the Van Rompuy putsch of the European Council.
Today in the parliament President José Manuel Barroso has to give the performance of his life. His ‘state of the Union’ address in Strasbourg may not have the ceremonial touch of the US model, and will get markedly fewer standing ovations, but no one can doubt the importance of this year’s speech.
Mr Barroso should spell out a blueprint for a fiscal union in which the eurozone states agree to share collateral for the lion’s share of each other’s debt. Such a mutualisation of debt will have to be backed by fiscal solidarity among taxpayers, with a larger EU budget than we have at present. New sources of autonomous revenue must be agreed to finance this budget: the Commission has already proposed two new ‘own resources’ (a financial transaction tax and a chunk of VAT), but more are needed. National treasuries will save money this way.
This fiscal union will need a federal economic government. Instead of aggrandising the executive authority of the European Council, it is the European Commission which must be made capable of running a common economic policy, with the power to coerce governments which stray from financial rectitude, properly held to account by the European Parliament. Also today, Parliament can demonstrate its maturity by passing at last the ‘six pack’ of laws which comprise the first building block of federal economic governance. Olli Rehn, the Commissioner responsible for economic and monetary affairs, should become the treasury secretary and ideally chair the meetings of the Eurogroup finance ministers. The progressive development of a large Eurobond market will bring relief for all; and the pseudo bail-out facilities that have recently been invented in something of a panic will best be converted into a permanent European Monetary Fund.
All these changes require the amendment of the Lisbon treaty, a major revision which will be prepared, at the insistence of the European Parliament, in a new constitutional Convention made up of MEPs, national MPs, the governments and Commission. From Mr Barroso on Wednesday we need the outline of a proposal to reach, by stages, fiscal union and federal economic government. The timetable must be definitive and preferably short. A group of wise persons could immediately be appointed to draft a mandate for the Convention – copying the model of the Laeken Declaration exactly ten years ago.
Seldom has there been a moment when the EU faces such a stark choice between two ways to go. The outcome will be grave whatever way is chosen, not least because the UK will never agree to join the federal journey it now urges on the eurozone. So a parting of the ways for the British is inevitable, and Mr Barroso must not get sidetracked by London even as he resists the siren calls from Paris and Berlin. Larger matters are at stake.
Andrew Duff is a Liberal Democrat MEP for the UK and president of the Union of European Federalists. His pamphlet „Federal Union Now’“ by Andrew Duff was published this month by the Federal Trust.