If you fight for a cause and you don’t achieve it, at what point do you accept defeat? We want to keep fighting for some things, for example for human rights or against climate change.
But does European integration also belong in this category? Not for me. My biggest difference from other European federalists is not what is desirable. Where we disagree is where the dividing line is between realpolitik and wishful thinking.
This weekend was a good example of that. The fool whose crime it was to say what everyone in the SPD thinks is Kay-Achim Schönbach. The head of the German Navy had to resign after telling the world that Russia is Germany’s natural ally.
Germany is also playing an uncooperative game in the EU monetary union – with an economic model that relies on high budget surpluses. Regardless of whether it is an economic or foreign policy issue, other member states are reluctant to challenge Germany.
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The sovereign debt crisis in the euro zone has robbed me of my last great European illusion, namely the idea that crises make us stronger. This particular crisis has made us weaker.
This also applies to the pandemic. I see no way for Italy to achieve the productivity growth needed to service its external debt.
The only way the ECB can avoid catastrophe is to hedge Italy’s debt forever. She could do that. But then the central bank would embark on a disastrous path that could have some dire consequences. On the other hand, the euro zone would probably not survive an Italian debt default unscathed either. plague or cholera.
Many other pro-Europeans will not have come to the same conclusions, and probably never will. Some tend to celebrate their own fallacies – like the creation of the European Stability Mechanism, which they see as a precursor to a European debt agency.
The ECB continues to defend its loose monetary policy. ECB President Lagarde says inflation is not out of control.
(Photo: Getty Images)
Some are hailing the EU recovery fund as the start of fiscal union, without mentioning that it lacks any cyclical component. They also don’t like to admit that its value represents only 0.3 percent of EU GDP per year.
The only way to get higher numbers is to add grants and loans together, but that wouldn’t be a good idea. That would only be effective if we limit our ambition to glossing over statistics and grabbing headlines.
The objective measure of the recovery fund’s success or failure will be how much it can boost growth. This will become visible in the raw data in the coming years. Even in the unlikely event that the fund is extended, it will remain below the threshold of macroeconomic success. And the fund also has nothing to do with a fiscal or economic union.
Incidentally, impatience is not the reason for my skepticism, but here opportunities for Europe will be lost forever. Let’s take the bond purchases by the ECB. Between 2008 and 2015, when the ECB’s expansionary monetary policy program began, there was a short window of opportunity for real euro bonds.
After that, the ECB bought up trillions of dollars in national government bonds and converted them into euros. That’s what loose monetary policy does – it swaps debt for money. Money is a liability similar to bonds, except the maturity is shorter.
Euro bonds would further strengthen the ECB
The idea behind true euro bonds could not be more different. It would not have been about monetizing government debt. Real eurobonds would be debt instruments of a federal fiscal union with limited tax collection powers.
In this scenario, the ECB could still have been able to buy debt, but only at the EU level. The volume would inevitably have been much less. The national debt would have become regional, sub-sovereign debt. They could have failed without jeopardizing the stability of the Union.
A federal European state need not have been a big construct. It could have included defense procurement – around 2% of GDP – and investment programs, for example in the areas of climate change and digitalisation. It would have provided a variety of reinsurance services against economic shocks and financial crises.
With a budget of around five percent of GDP, it could have been one of the leanest countries in the world. That would have been enough to fulfill its core economic tasks. Had. Would. Could.
I’ve come to the conclusion that this train has left. Becoming aware of this has far-reaching consequences. If a genuine economic union is the first best option, it does not follow that a dysfunctional economic union is the second best choice.
The ECB continues to defend its loose monetary policy. ECB President Lagarde says inflation is not out of control.
(Photo: dpa)
Perhaps you believe that economic union is still possible. That is only right and proper. But if you don’t, you have some pretty disturbing questions to ask yourself.
I’ve reached this point. One of the questions is this: even if the European solution is optimal, is it possible that the national alternative is superior to the poorly functioning hybrid?
I ask this question knowing that the greatest threat to European integration comes from the areas where it is performing poorly. The internal market and customs policy are successful. The same applies to trade and competition policy. But macroeconomic policy coordination is a persistent failure. And foreign and security policy goes in the same direction.
Perhaps the greatest failure of all is the inability or unwillingness of the most ardent supporters of European integration to tell the truth to incumbents and to treat integration as a belief system. This is how you lose the fight for a united Europe: with an economic union that fosters division and a European army that never fights.
The author is director of www.eurointelligence.com
More: What euro bonds really cost Germany