Europe is an unhappy family. And like all unhappy families, its diverse forms of competing miseries, afflicting differently its different members, are the reason it cannot regain its poise. Divorce is looming. Only in Europe’s case, and this is where my analogy with families breaks down, divorce can never be cathartic. It stands no chance of leading us to satisfying new relationships and to a future in which we can find peace, tranquility, and a calm state of mind from which to reassess our failed marriage. No, the disintegration of the Eurozone is bound to lead to a deconstruction of the European Union which will, in turn, spawn a postmodern version of the 1930s. The best we can hope for is that, this time round, the fallout will be more farcical that what ensued back then.
The problem is that Europe is not ready for the equivalent of committing to cohabitation ad infinitum; of living under a Federal structure; of paying for things from a common (federal) purse. And it won’t be until and unless we are ready to envision a common army; an electoral system where Greeks may vote for Germans (and Germans for Portuguese officials) to rule over them; of pictures on our euro notes that are images of really existing monuments (as opposed to fictitious gates and bridges that only serve as a reminder of our incapacity to share symbols). And there’s the rub: For we now know that without such unification Europe will unravel with hideous consequences not only for Europeans but for the global social economy as well. Europe, after all, has managed, twice in the last hundred years, to drag the planet into despicable mires. We surely can do it again!
But if Federation is out, at least for now, and the present confederacy is disintegrating before our stunned eyes, is it time to throw in the towel? Certainly not. Thankfully, there is an alternative path on which we can embark swiftly and which leads to a speedy resolution of Europe’s Crisis. The idea is to reconfigure existing European institutions in a manner that, at once,
(a) imposes no demands on the taxpayers of the surplus countries to finance the debts of the deficit nations,
(b) requires no new Treaties (since Treaty changes will, at best, come far too late in the piece),
(c) resolves the three interconnected, yet distinct, crises that are eating away into Europe’s foundations: our debt crisis, the crisis of substandard investment (especially in the indebted regions that need it the most), and, of course, our banking debacle.
Can these three objectives be achieved simultaneously? I submit that they can. To give you a flavour of how this can be done, let’s push the family metaphor a little further. Suppose that a young couple, with terrible credit-worthiness, is struggling to meet its mortgage repayments, due to high interest rates. Rather than having the rest pitch in, an aunt with good credit ratings could take out a loan (at much lower interest rates) to repay the youngsters’ expensive loan, on an agreement (supervised by the whole family) that the youngsters meet the monthly repayments. To safeguard the nice aunt, in case the young ones cannot meet these repayments, the rest of the family can buy out insurance that will repay the aunt if things go badly wrong. This way the young couple manages to make ends meet without having the rest pay for it. In Europe’s case, the equivalent is for the European Central Bank to issue its own bonds for the purposes of servicing member-state debt on condition that the members redeem these bonds in the fullness of time (but at the low interest rates secured by ‘auntie’, the ECB, on their behalf). Additionally, the current bailout fund (the EFSF), rather than bailing out member-states with the money of the surplus nations’ taxpayers, can simply provide insurance services to the ECB (in the remote case that some members do not redeem its bonds in the distant future).
Notice that such a scheme at once ends the debt crisis and relieves the German taxpayer from having to pay, or guarantee, the Club Med’s debts. And that it does so without any new institutions, without federal moves, without all the commitments that the European family is not ready for. In my Modest Proposal the reader can find two more ideas of how to deal with the other two major crises: investment and banks. But these are details. The gist is that Europe can be saved without cohabitation under some, hastily assembled, oppressive, Federal structure. All it takes is a rational re-assignment of existing institutions. The burning question, however, remains: Are we prepared to accept that neither divorce nor the current confederacy are decent options for our troubled family?
(*) A piece written for The Globalist, where it will appear next week.