There was a time, not so long ago, when the German Green Party, governing with Social Democratic Party (SDP), was forcefully advocating a federal EU government to preserve and advance the European project of a political, social, economic and monetary union.
More recently, Martin Schultz, the man leading the SPD in the general elections next September, is championing the same idea – with the fiscal union at its core.
The Greens lost power in 2005, and a German commentator quipped last week that Schultz “will get his bill for federalist ideas in the fall,” anticipating that SDP will be trounced by the center-right Christian Democrats in the forthcoming elections.
Interestingly, calls for the federal Europe tend to be revived at times of crisis. In the aftermath of the last financial debacle earlier this decade, Germany‘s hard-put euro area partners pleaded for solidarity – a short-hand for issuing euro area bonds to finance their deficit- and recession-ridden economies. Germany refused, arguing that the euro area was not a federal state with a unified fiscal policy.
Don’t blame the “populists”
As a result, the only thing Berlin offered was a devastating pro-cyclical fiscal austerity in countries already sinking into recessions, with soaring unemployment, poverty, Caritas soup kitchens, falling governments and changing political leaderships, with more than 120 million Europeans experiencing various forms of marginalization and economic precarity.
The ensuing social, economic and political problems have become the sources of “populism,” “nationalism,” EU exits and people’s alienation from their once cherished dreams of peace, prosperity and brotherhood symbolized by the EU anthem of Beethoven’s Ninth Symphony “Ode to Joy.”
Now what? “More Europe” say those who believe that problems were caused by an inadequate integration process that allowed policy mistakes by incompetent national governments. To avoid similar mistakes in the future, they are now urging a unified fiscal policy to complete the monetary union.
That is what the French call the “fuite en avant” – a semiotic delight roughly translated as fleeing from an unsolvable problem.
Here is what that problem looks like: The fiscal union implies a euro area federal state with a common management of public finances. The area’s budget, public debt financing, tax policies, transfer payments, etc. would be managed by a euro area finance ministry. That would also require harmonization of labor, health care and education policies, and a whole range of other social welfare programs.
Institutionally, this integration drive cannot stop at the finance ministry. There would also have to be a euro area executive and legislative authority to exercise administrative and democratic controls over tax and spend decisions.
If you think that this is “mission impossible,” here is an even harder part to the story.
Shall we dream?
How could Germany, with a budget surplus last year of 0.8 percent of GDP and the public debt of 68.3 percent of GDP, accept a fiscal union with Spain running the euro area’s largest budget deficit of 4.5 percent of GDP and a public debt of 100 percent of GDP?
France and Italy have similar public finance profiles. Last year, France had a second-largest euro area budget deficit of 3.4 percent of GDP and a public debt of 96 percent of GDP. During the same period, Italy ran a budget deficit of 2.4 percent of GDP and a public debt of 133 percent of GDP.
This means that half of the euro area economy (France, Italy and Spain), with serious structural problems of public finances, would become part of a de-facto federal state with a fiscally sound Germany.
Hard to imagine, isn’t it? And yet, that’s the program that the new French President Emmanuel Macron will apparently discuss tomorrow (Monday, May 15) when he visits the German Chancellor Angela Merkel in Berlin.