The European Union (EU) is good at writing rules; what it needs to strengthen the capacity to suspend, ignore, or replace rules that are obviously not working or inappropriate in a given situation. In other words, the EU needs to get better at recognizing when following the rules is a mistake. This is not going to be a popular argument. Rules are supposed to be rules, after all. Nevertheless, it is vital. So long as policymakers lack perfect foresight, they will never be able to write rules that work in every situation. They will not be able to anticipate the conditions for every possible exception either. Hence they will always need some mechanism to recognize and respond to unexpected situations in a timely manner. In case of emergency, break glass. They will also need some way to hold policymakers accountable for any exercise in emergency discretion. Successful innovations will not always be rewarded but they will be accepted and used to improve the functioning of the organization; abuse will be punished. That is – or at least should be – the measure of political union.
Tag / European integration
The Trouble with Transfer Unions
The European Union is starting a big debate about fiscal federalism. There are many questions involved. The one I want to focus on is whether a Europe-wide fiscal arrangement with common transfers would help smooth economic performance across participating countries while at the same time helping them to converge on similar levels of income per capita. The line you often hear is that this is how federal transfers work in the United States: rich states like New York and Massachusetts bankroll poorer states in the south and west of the country both when times are tough and in order to foster the whole of the U.S. economy.
In reality, the U.S. federal transfer system does not work that way. The richer states in the north-east of the country get more federal transfers per capita than the poorer states in the south and west. The reason is that the U.S. federal fiscal system was designed to support people as individuals (or households) and not as clusters or places on the map. Moreover, that design reflects important differences across state and local governments. State governments that believe in more redistribution tend to get more redistribution; state governments that do not believe in redistribution tend to leave people to fend for themselves. In this sense, state sovereignty and democratic legitimacy are powerful influences even when the ‘states’ in question are U.S. states rather than national states (or Member States).
Countries Do Not Borrow, They Are Bought
A lot of the criticism of peripheral countries in the euro area relies on an implicit comparison with households or firms. The argument goes like this: these countries borrowed excessively after they joined the euro at the end of the 1990s in order to live beyond their means and then got in trouble when they could not pay back the money. This argument is usually directed at the public sector in countries like Greece and Italy, at the private sector in Ireland and Spain, and at both the public and private sector in Portugal. These countries have all received their comeuppance and–like any firm or household in a similar situation–they now have to live within their means.
This analogy between countries on the one hand, and households or firms on the other hand, is misleading if not completely wrong. The reason is that countries do not ‘borrow’ in any conventional meaning of the term–at least not under normal circumstances. When things are going well, countries do not fill out an application with various lenders. They do not have to provide a business plan or show any bank statements. They do not offer up collateral or enlist the support of co-signers. These things only take place once a country gets into trouble and needs some kind of international bailout. ‘Borrowing’ for countries in a conventional sense means that something bad has already happened; it is the symptom and not the cause.
Sustainable Integration as a Reponse to Mario Draghi’s ‘Imperfect’, ‘Fragile’ and ‘Vulnerable’ Union
When Mario Draghi was asked on Thursday (16 July) whether the recent crisis surrounding Greece had made the monetary union more vulnerable, he gave an astonishingly frank response. Draghi denied that the discussion about Greece made the union more vulnerable; nevertheless, he admitted that:
Rationality, Emotion, and the Future of Europe
This is a big weekend in the history of European integration and it is likely to be a defining moment for ‘Europe’. That significance is easy to miss. The urgent often overshadows the important. And this weekend reeks of urgency. The Greek government has listed the reforms it can deliver in exchange for financial rescue. It has also described how it would like that rescue to unfold. Now the Eurogroup has to decide whether these proposals are sufficient for the start of fresh negotiations. In doing so, Europe’s politicians have to wrestle with arguments rooted in rationality and emotion; they have to weigh the costs and benefits of yet another Greek bailout package while at the same time dealing with the frustration and bitterness that arose during the last set of talks (not to mention the last five years of bailouts).
Erik Jones 