Centralisation-Without-Representation: A reply to Frances Coppola, Simon Wren-Lewis and Niall Ferguson

03/10/2014 by

euro crisis[This post was later published by Open Democracy]

Behind the European Union’s official ‘line’ that the worst of the Euro Crisis is behind us, a flurry of proposals for institutional changes reveal a deep-seated anxiety about the Eurozone. Indeed, in recent weeks, even the German finance minister, Mr Wolfgang Schäuble, went public with an op-ed in the Financial Times (1st September 2014, co-authored with Karl Lamers), presenting a proposal for a Eurozone Parliamentary chamber that would legitimise, and stand behind, a new office of Euro ‘Czar’ with the capacity to veto member-states’ budgets.[1]Screen Shot 2014-10-03 at 4.57.39 AM

In an earlier article (published last June in Open Democracy), James Galbraith and I surveyed the various plans for reforming the Eurozone and charted their history and theoretical heritage. Our conclusion was that, essentially, there are two camps. One we described as Federalist Austerian. This camp includes, naturally, Messrs. Schäuble and Lamers but also two influential groups of economists; namely, the Glienecker Gruppe[2] in Germany and the Piketty Group[3] in France. Despite significant differences between these proposals, there is a strong common thread binding them together: it is the triple proposal for

  • a fiscal Leviathan to be situated in Brussels whose remit focuses primarily on keeping national budgets within the agreed ‘rules, and with no substantial budget of her own;
  • a Euro Parliament or Chamber that affords this Leviathan political legitimacy;
  • a mechanism for encouraging member-states, mainly of the periphery, to employ their own resources (including public assets) in order to pay down public debt until the latter falls below the original Maastricht Treaty’s limit of 60% of GDP.

This combination of recommending further centralisation of political power [see (i) and (ii) above] with a continued emphasis on public debt consolidation (despite some other interesting ideas[4] that have been thrown in for good measure) motivated us to refer to this ‘school of thought’ as Federalist Austerians. And to juxtapose it against our own Modest Proposal for Resolving the Euro Crisis which falls in what we referred to as the Modest Camp (which includes also the Progressive Economic Initiative’s Call for Change[5]); a camp modest only in terms of its ambition to refrain from proposing further centralisation or even changes to existing treaties and charters.

In short, our argument was that, as long as the Euro Crisis is continuing to unfold, the Federalist Austerians’s promotion of closer political union is bound to reinforce Europe’s prevailing austerian mindset which, in a never-ending circle, guarantees that the closer political union (if it is to go ahead) will be authoritarian and, ultimately, the saboteur of Europe’s economic development, as well as the forger of an iron cage for the peoples of Europe.[6]

In two recent articles, Frances Coppola and Simon Wren-Lewis, commenting on our article, concurred with our main point and added some of their own. The following sections address their well-taken points, arguing once more in favour of our Modest Proposal, before concluding with a lament about the gross complacency of Europe’s ‘official spokespersons’ (as demonstrated, for instance, by Niall Ferguson’s latest intervention in the Financial Times).

  1. Political union is not tantamount to federation

In her reply to our article, Frances Coppola makes an excellent point: Europe’s de facto leadership (national politicians and Brussels bureaucrats alike) will never voluntarily consider our Modest Proposal. The reason is that they are only open to discussing plans for resolving the Euro Crisis “that further the political objective of closer union.” Their explanation is that there is no alternative way of combating the crisis; that it is time to complement monetary with political union. Undoubtedly, if by political union they meant a fully fledged democratic federation, I would probably concur. However, a democratic federation is precisely that which they do not mean.

Looking at all the proposals for closer political union on the proverbial table, it is clear even to the untrained eye that what is being proposed is certainly not a United States of Europe. The latter would require a common parliament or congress vested with all legislative power and in accordance with a constitution authored by a properly convened pan-European constitutional assembly. It would also require federal ministers that are either elected directly, on a one-person-one-vote basis, or who would have the consent of a working majority of the common parliament or congress and whose powers would be fully defined by the said constitution. Additionally, a proper federation should feature a second chamber composed in a manner that prevents the tyranny of more populous nation-states over the smaller ones. None of these features of a democratic federation are anywhere near the top of European leaders’ minds. Rather, as I have argued here, the political union on ‘offer’ is a cloak of respectability with which to adorn failed austerian policies and thus to make them more palatable and less obviously illegitimate in the eyes of Europeans.

Screen Shot 2014-10-03 at 4.36.48 AMCoppola describes, as we did, the plans for further political union “fundamentally undemocratic”. She adds that “[n]o-one in Europe has voted for closer union. Indeed, in the most recent European elections, the success of nationalist parties suggests that many Europeans want a looser union, or even no union at all.” This is, of course, so. However, my suspicion is that the enmity the majority of Europeans currently feel for ‘more Europe’ or for some ‘political union’ is not because Europeans are necessarily against the formation of a Federal Europe (although some Eurosceptics clearly are). No, they are against this particular type of authoritarian, anti-democratic political union that is offered them. They feel it in their bones that no democratic federation is on the cards and that, in essence, they are being asked to forfeit their national democracies in exchange for a deeply undemocratic political union in which the powers-that-be confuse popular sovereignty with consultation and demand maximal discretionary power for themselves, eager to exercise it over citizens that lack the power to keep them in awe, let alone dismiss them. Put bluntly, Europeans understand that the USSR was also a political union; a pointed but not impertinent reminder of the profound difference between the ‘closer political union’ on offer and the democratic aspirations of many Europeans who are turning their backs on their Union.

These suspicions, which underpinned the ‘eurosceptic’ wave evident in last May’s European Parliament Elections, are founded on solid evidence. The Euro Crisis has proven, so far, a pretext for imposing upon national parliaments tax measures that would not have been passed if it were not for blatant threats to these countries’ very survival (e.g. the threat of removing ECB or ELA liquidity from their banks).

  • Think, for example, of the new taxes and charges Irish citizens had to pay in the context of austerity drives due to the exorbitant cost of the infamous promissory notes that unelected ECB officials imposed illegitimately upon a small, proud nation.
  • Consider the hideous fact that the Greek Parliament was blackmailed by the troika to make Greeks pay income tax from the very first euro earned, not to mention property taxes on empty apartments that their owners can neither rent out nor sell.
  • Take a moment to mull over the reply I received from a European Commissioner back in early 2012 when asked “Why are you pushing for rises in fuel taxes in Greece and in Portugal when your own models tell you that government excise will be reduced as a result of the high elasticity of demand in a middle of a hideous recession?” “Because it is the only way of demonstrating to Italy our resolve to be tough on their people if they fail to tighten their budget”, was the astonishing reply.

The Euro Crisis has, from this perspective, acted as an opportunity for ‘Europe’ to introduce ‘concentration without representation’; a more virulent version of the situation that gave rise to original Tea Party in Britain’s American Colonies. Coppola is, therefore, right: The powers-that-be in Brussels, Frankfurt and Berlin are not interested in any proposal for ending the Euro Crisis that fails to concentrate power more centrally while reducing the capacity of Europeans to keep this power in check on the simple principle of one-person-one-vote. It would not be, after all, the first time in history that a political ruling class place their preference for more unchecked power ahead of their concern for shared prosperity.

Granted that the political elites have not shown, and will never show voluntarily, any interest in our Modest Proposal, the latter’s purpose has been served: It was to demonstrate that there exists an alterative set of policies that are immediately implementable within existing treaties and that their implementation would have ended the crisis forthwith and without requiring of the German taxpayer to pay for the legacy public and private debts of the periphery. A set of policies which the powers-that-be are choosing not to implement in pursuit of other, clearly anti-democratic, objectives. After all, our purpose in putting together the Modest Proposal was exactly that: to empower Europe’s citizens by arming them with an answer every time unscrupulous politicians and bureaucrats attempt to put them down, telling them that “there is no alternative to austerity”.

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  1. Is ‘closer political union’ necessary?

Simon Wren-Lewis, in his own response to our article, agrees with us that it is not. In fact he argues that, even without our Modest Proposal, the Euro Crisis could have been dealt with far more efficiently. Here is a summary of what he refers to as his ‘counter-factual’; i.e. a list of policies that could have been implemented profitably in 2010 but weren’t.

  • Allow Greece to default in 2010, within the Eurozone, and then mop up afterwards by means of some (smaller) bailout loan
  • The ECB could have introduced its OMT (Outright Monetary Transactions) program immediately, in 2010 rather than wait till the rot had set in in the summer of 2012 [Nb. OMT ‘threatens’ bond markets that the ECB will buy member-states’ bonds in volumes necessary to reduce their yields below a certain maximum.]
  • Immediate fiscal expansion in the surplus countries to counter-act the fiscal contraction in the periphery; and thus achieve a fiscal balance over the Eurozone as a whole.

Undoubtedly, these three policies would have given the Eurozone a substantially better chance to recover, compared to the disorganised insanity that were the policies actually implemented. Wren-Lewis’ counter-factual reveals nicely that, however terrible the Eurozone’s original design was, there was room within it to respond more rationally, efficiently, humanly. That Europe chose not to do so is quite revealing of a ‘dark side’ that is built into the foundations of the European Union (see here for my hypothesis on what that might be) and which manifests itself in the form of, what Wren-Lewis aptly refers to as, “…the obsession with public deficits and the need for austerity”.

Granted that the above counter-factual economic history is useful, there are some aspects of the reality on the ground, especially in 2010, that demand our attention. While I too advocated, in January 2010, that a Greek default [see (i) above] was infinitely preferable to the largest loan in economic history being piled upon the weak shoulders of the Greek state (on condition of GDP-sapping austerity), it is important not to forget that, in 2010, Greek debt and Greek banking losses sufficed to give the banking crisis raging in Paris and in Frankfurt another major boost. The reason for putting forward our Modest Proposal (and in particular the combination of (a) the policy on step-by-step bank recapitalisations and (b) the ECB-mediated conversion loan to governments) was precisely that: to show that it was possible to defuse that time bomb, in a manner that a Greek default would not have done, without violating either the EU’s Treaties or the ECB’s charter.

Our emphasis on making proposals that would defuse the crisis without Treaty and Charter changes was our Modest Proposal’s main objective. We believed then and we believe now that: (A) these Treaty/Charter changes will open a frightful can of worms and will take so long to complete properly that the crisis will have destroyed the union long ago; and (B) the moment you open that can of worms, and invite politicians and bureaucrats to recommend changes to the institutions themselves, the tendency will be, as the previous section suggested (in accordance with Frances Coppola’s main point), for moves toward ‘centralisation without representation’. The Modest Proposal’s dedication to proposing policies that required no modification of Treaties/Charters was motivated by these thoughts and fears. We believe they are still pertinent.

Which brings me, finally, to the question of OMT. Wren-Lewis, as mentioned above, would have wanted to see OMT announced in May 2010, rather than more than two years later. And, in a “further modest proposal” of his own, he would like to see:

  • the conditions under which OMT is activated (i.e. the conditionalities imposed on a member-state before its bonds are purchased by the ECB in the secondary markets) be spelt out and properly codified (presumably to make the OMT’s implementation more efficacious and, at once, to reduce the discretionary power of both Frankfurt and Brussels)
  • greater accountability of the ECB (e.g. in terms of its failure to keep the inflation rate just below 2%).

My qualm about (a) is that I am unconvinced by OMT’s wisdom, propriety and long-term efficacy. At the risk of surprising my regular readers (as I shall, seemingly, side with the Bundesbank’s official line on the matter), I shall state the view that OMT runs against the grain of existing Treaties. Buying up Italian or Greek bonds ad infinitum until yields fall below some threshold is at odds with the no bailout clause etched in the ECB’s charter. Personally I feel nothing but contempt for the no bailout clause. Nevertheless, I acknowledge the simple point that OMT is treading on legal thin ice and, for this reason, the ECB will only activate it as a last resort and never ad infinitum. My concern is that this reluctance is understood well by bond markets which, at a time of their choosing, may test the credibility of the OMT’s ‘threat’ with terrible consequences for the Eurozone. Thus, the Modest Proposal has never espoused OMT, proposing instead a limited debt-conversion program financed by ECB-bonds (see Policy 2 of our proposal).

To summarise, the reason I suspect Mr Draghi, the ECB’s President, is refusing to write down the precise conditions for OMT’s activation is because specifying precisely the conditions for activating and managing OMT will lead to high drama in the European Courts as well as in the German Constitutional Court. Properly to ingrain OMT into the existing rules, as well as to make the ECB’s governing board more accountable, we would most probably need to revisit the Treaties and to re-write the ECB’s charter. Both these ‘moves’ are pregnant with the danger of greater ‘centralisation without representation’ and should, thus, be avoided. In contrast, the Modest Proposal is a solvent of these fears (of centralised authoritarianism) and an effective remedy of the Euro Crisis.

  1. Epilogue: Niall Ferguson’s ‘extreme centrism’ undermines Europe

Following the Scottish independence referendum, in which a Tory-Labour alliance backed the ‘No’ campaign, Niall Ferguson wrote an op-ed in the Financial Times suggesting that not only Britain’s but also Europe’s best chance of holding together against the forces of ‘populism’ are grand coalitions between the centre-right and the centre-left. “The advent of a new era of grand coalitions is good news for me. From now on, I no longer need to deny my allegiance to the extreme centre,” he concluded confidently.

As evidence in support of his new enthusiasm for grand coalitions everywhere, including in continental Europe, Professor Ferguson mentions two such examples: The New Democracy-PASOK coalition government in Greece and the new European Commission that was stitched up by the centre right European Popular Party (under Mr J.C. Juncker, the new President of the European Commission) and Europe’s social democrats (under Mr. M. Schultz, the Speaker of the European Parliament). With regard to Greece, he claims that the grand coalition succeeded in keeping Greece in the Eurozone, the presumption being that a government led by the Left opposition (SYRIZA) would have taken Greece out of the Eurozone. As for the new European Commission, he clearly implies that the amicable division of the European Commission’s top posts between the centre-right and the centre-left was a bulwark against disintegration and populism. Both these presumptions run in the face of a more complex, less optimistic reality.

Beginning with the current Greek coalition government (that Niall Ferguson wants his readers to assume was something akin to a godsend), the fact is that its readiness to submit fully to the pointless, and self-defeating authoritarianism of the troika is the main fuel that powers the engines of Greece’s Nazi party. At the same time, this was a government that undermined the authority of the High Court (by blackmailing judges to succumb to troika-imposed legislation that violates Greece’s constitution), closed down the public broadcaster (Greece’s BBC), and left no stone unturned in order to donate gigantic quantities of money (that the taxpayer was forced to borrow) to bankrupt bankers who, as a result, have acquired a complete control over the media (which rely on them as the sol source of funding). In addition, the portrayal of a fundamentally Europeanist party (SYRIZA) as anti-European solely on the evidence that it resisted the mindless fiscal consolidation programs foisted upon Greek society, reflects the view that all those who do not obey the centrally issued decrees of austerian irrationalism are populist anti-Europeans. I can think of no greater gift to genuine anti-Europeans than this type of ‘extreme centrism’.

Screen Shot 2014-10-03 at 4.40.46 AMGreece may be a pronounced case but it is by no means exceptional. Wherever we turn to in Europe, we see large swathes of the population lost in despair at the hopelessness of their circumstances. Whether the French socialists run the government on their own or in alliance with the Gaullists, independently of whether it is the Spanish socialists or the current government that implement the blueprint emailed to them from Frankfurt or Brussels, the result is the same: European citizens that daily lose the last remnants of their belief in European institutions and their countries’ democracy, increasingly lured by the Sirens of misanthropy. This is Niall Ferguson’s ‘extreme centrism’ in action. While the functionaries of his ‘extreme centre’ in the EU’s capital and, at once, in their national capital, run the show, it is becoming increasingly difficult for citizens to remain confident Europeanists. I can, in fact, think of no better ally for misanthropy throughout Europe than Professor Ferguson’s ‘extreme centre’.


[1] The German finance minister’s intervention has added significance because of his choice of co-author for the said article: Karl Lamers, the CDU’s former foreign policy chief, had been Mr Schäuble’s co-author of a blueprint for political union in the early 1990s, when the euro was still on the designers’ board. It would be foolhardy to disregard the powerful symbolism of Mr Schäuble’s decision to revive that almost forgotten proposal, with the same co-author, and at the time when the ECB’s President, Mr Mr Draghi, is making it clear that there is something spectacularly wrong with the Eurozone’s overall fiscal stance and aggregate investment strategy.

[2] The Glienicker Gruppe comprises Armin von Bogdandy, Christian Calliess, Henrik Enderlein, Marcel Fratzscher, Clemens Fuest, Franz C. Mayer, Daniela Schwarzer, Maximilian Steinbeis, Constanze Stelzenmüller, Jakob von Weizsäcker, Guntram Wolff.

[3] The Piketty Group (PG) includes, besides Thomas Piketty, Florence Autret, Antoine Bozio, Julia Cagé, Daniel Cohen, Anne-Laure Delatte, Brigitte Dormont, Guillaume Duval, Philippe Frémeaux, Bruno Palier, Thierry Pech, Jean Quatremer, Pierre Rosanvallon, Xavier Timbeau, Laurence Tubiana.

[4] For example, the Glienecker Gruppe recommend investors are held responsible for unsafe loans they afford while the Piketty Group add a provision for a common unemployment insurance scheme.

[5] The Progressive Economic Initiative’s Call for Change was signed by: Joseph E. Stiglitz, Jean-Paul Fitoussi, Peter Bofinger, Gosta Esping-Andersen, James K. Galbraith, Ilene Grabel, Stephany Griffith-Jones, András Inotai, Louka T. Katseli, Kate Pickett, Jill Rubery, Frank Vandenbroucke.

[6] Since then that argument was augmented by two papers by the undersigned: Why is Europe not coming together in response to the Euro Crisis? And Can Europe escape its crisis without turning into an iron cage?

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