On the E.U.’s Complex Federal System

Because the “the EU is built on consensus at 27” states,[1] by 2026 it had become painfully obvious to Europe’s elite that its Union had come to harbor a great disadvantage in terms of united or collective action because political consensus can be elusive even at 27 states, each of which could result to a veto on reforms at the federal level, with enlargement of the Union from 27 on the horizon. Something had to be done, given the intransigence of the principle of unanimity in the European Council and the Council of Ministers. Direct access of the state governments at the federal level could stave off too much federal encroachment on the prerogatives of the state governments, but the costs associated with this safeguard were becoming too high. Therefore, in February, 2026, E.U. state and federal officials met to give added weight to something called “two-track Europe.” In actuality, there were already more than two tracks in the European Union. Although complex, the means of releasing the Union from the high bar needed to achieve unanimity or even consensus among the several states could well save the Union from the paralysis of division. The outdated premise that united action should only be allowed when there is no division had become too utopian for federal Europe. Multiple-speed Europe in the E.U. is actually more in line with the E.U.’s federal system already being genuine.

In February, 2026, “frustrations about the pace of [economic] reforms prompted” more interest in groups of states moving forward with respect to federal legislation that would be binding only on those states.[2] Mario Draghi, a former head of the European Central Bank, “recommended exploring the use of enhanced cooperation to ‘move faster’ in high-priority areas such as the Savings and Investment Union, the single market and energy prices.”[3] Already, the European Public Prosecutor’s Office (EPPO), patent and divorce law, the Schengen Area and even the euro itself constituted examples of federal law binding on some states but not on others. The term, “enhanced cooperation” is misleading, for it omits the important point that the states falling under a federal law are obliged to abide by it. This point is an important one, especially in the case of the Schengen Agreement. The E.U. already had a genuine federal system, meaning that dual sovereignty was already the case.

Undergirding the creative approach to federalism—more creative than the unitary approach of the U.S.—were informal blocs of E.U. states, “such as the ‘Frugal Four’ and the ‘Friends of Cohesion,’” the Weimar Triangle, the MED9, the Visegrad group, and the Nordic-Baltic Eight.[4] Perhaps the easiest comparison to the U.S. is the bloc of Great Lake states that must all sign off on fresh-water being taken by other states from the Great Lakes. Given the climatic and cultural differences that exist between the American states, more such blocs would not be a bad idea. The key would be that relevant federal law would only apply to the states in a given bloc. The binding nature of the respective law renders both the E.U. and U.S. as something more than blocs, of course. Creative arrangements within a genuine federal system does not stop the system from being federal; rather, such arrangements fit well with the fact that federal systems are tailor-made precisely for cases in which interstate differences are significant. Rather than containing “multiple speeds,” as if every bloc should eventually converge at the most integrated one within the Union, complexity better denotes the E.U.’s way out of the prison of unanimity. Cases in which a federal system makes most sense are hardly those in which one size fits all, so the American doctrine that a federal law must apply to every state is actually inferior.

---

1. Jorge Liboreiro, “Leaders Embrace Two-Speed Europe to Break Impasse as Macron Sets June Deadline for Economic Reset,” Euronews.com, February 12, 2026.
2. Ibid.
3. Ibid.
4. Ibid.

Bulgaria: From the Lion to the Euro

Just weeks after the government of the E.U. state of Bulgaria resigned amid protests against the rampant corruption, the state traded in its currency, the levs, which means lion, for the federal currency, the euro. In the new year, 2026, Bulgaria stood to relieve holders of the state’s debt and to tame the endemic inflation that has plagued the state’s economy. In November, 2025, for example, food prices had risen by 5% year-on-year, “more than double the eurozone average.”[1] The term “eurozone” is actually problematic, as it, like the application of the jargon, “bloc,” to the E.U. itself is meant to obfuscate readers regarding the genre of the political, federal union. To claim that Bulgaria joined a currency zone is inferior stating that the state adopted the federal currency. Stated properly, the currencies in the E.U. can be compared with those that were in the early U.S., and all of those combinations of state and federal currencies can be held to be compatible with federalism.

When the U.S. “bloc” began in 1776, the members were sovereign countries and therefore they had their own currencies. The federal dollar commenced in 1785. The member-states had their own currencies until 1788, so those currencies were concurrent with the federal dollar for three years. The E.U.’s model has been that state governments can choose whether to retain their own currency or adopt the euro, so no state can have both its own currency and the euro as legal tender at the same time. The E.U. and U.S. provide us with various combinations regarding currencies in a federal system, none of those combinations being at variance with federalism itself. In fact, the salient feature of dual-sovereignty that characterizes early-modern federalism—which is distinct from confederalism, wherein the states hold all rather than just some of governmental sovereignty—is arguably most consistent with two currencies being legal tender. This is not to say that the U.S. got this right for three years when both state and federal currencies were legal tender in their respective jurisdictions. The American “bloc” was a confederation until 1989, after which the federal governmental institutions and the states both had at least some portion of the governmental sovereignty in the system. When dual-sovereignty came into effect, only the federal currency was legal tender throughout the union.

Of course, like the U.S. in its first several decades, the E.U. in 2025 still suffered from being dominated by its states at the expense of collective action at the federal level. Because one of the chief benefits of a federal system of dual sovereignty is that the states can operate as a check against excessive federal encroachment and the federal institutions can operate as a check against excesses, such as corruption and anti-democratic tyranny, in state governments. The latter check has been severely hampered in the E.U. because the state governments dominate even at the federal level. The adoption of the federal currency by Bulgaria can be viewed as a step in the direction of achieving federal-state balance of power because, as Christine Legarde, president of the E.U.’s central bank, said at the time, the euro is a “powerful symbol” of “shared values and collective strength.”[2] Such strength has been the big loser as the heads of the state governments have resisted, as per their political self-interest, proposing and voting for additional transfers of governmental sovereignty to the federal governmental institutions (i.e., government) in the executive and legislative branches.

So perhaps it can be said that dual currencies fits best with dual sovereignty, at least theoretically, but that this presupposes a balance of power between the state and federal governmental institutions. In the case of a “bottom-heavy” federal system, such as the U.S. was through the nineteenth century, and as the E.U. has been through at least its first three decades, as many states as possible should replace their respective currencies with the euro. Admittedly, even if the 27 rather than just 21 E.U. states would adopt the euro, this would not in itself mean that the E.U.’s hand would be strengthened in defense and foreign policy to push Russia back from Ukraine and Israel out of Gaza and the West Bank. Given the tremendous imbalance of power, however, such that the E.U. has had trouble in asserting collective action for the benefit of the whole union rather than just a few states, a powerful symbol of collective strength could help to dispel the allure of the anti-federalist, or Euroskeptic, ideology.

That intangible benefit is irreducibly political, and as such, it can be easily dismissed by E.U. citizens who are in denial regarding the distinctively political genre of their union. For such people, the adoption of the federal currency by more states is viewed primarily as potentially strengthening weak state economies and bad monetary policies. This applies especially to the adoption by small, corrupt states—Bulgaria being roughly equivalent to Maryland in population in 2025. After being turned out of office by mass protests against the systemic governmental corruption, the state government of Bulgaria certainly could not be relied upon to resist the temptation to inflate its currency given the public debt there. Generally speaking, corrupt people lack the self-discipline necessary to govern anything. The E.U.’s central bank was much more reliable, especially with Lagarde having been at the helm for many years, than the government of the E.U. state of Bulgaria. As salient as this benefit is in the state’s adoption of the euro, the impact, although subtle and largely symbolic, on European political integration, already under way, is worthy enough not to be relegated or ignored outright. The power of symbol can be louder in the long run that a lion’s roar. After all, as Leo well knows, the lion comes only late in the summer, when the heat of those dog-days can be unbearable. 

---

1. Aleksandar Brezar, “Bulgaria Switches to the Euro Amid Mixed Reactions from Its Citizens,” Euronews.com, 1 January, 2026.
2. Ibid.

A Trader Dreamed of Economic Collapse

Call it over-confident bravado or perhaps a lapse into utter transparency; trader Alessio Rastani’s comments on BBC give the rest of us a glimpse of the power behind the world’s thrones and how prone “the system” is to collapsing without a sufficient force geared to the viability of the system itself. In other words, it is amazing that the financial/governmental systems go on without more attention to them as systems rather than to micro self-interests. One might ask whether powerful self-interests are sufficient to keep the system from hitting the rocks. Apparently the answer is yes, though this is astonishing nonetheless. It is like a car somehow making its way down the street with one person in the car looking at pedal, another at the steering wheel, and still another at the speedometer. It is amazing if the car does not crash, yet somehow it managing to stay on the road.

As for a dash of reality, Rastani said on September 26, 2011 on BBC TV that Goldman Sachs rules the world and the Euro zone is poised to crash. "This is not a time right now for wishful thinking that governments are going to sort things out," Rastani said. "The governments don't rule the world, Goldman Sachs rules the world." Beyond the disciplining of egos within the bank, Goldman’s reach is multiplied by forays made by its alumni into governments and other banks. For example, when Merrill Lynch executives were finally facing the prospect of needing to sell to Bank of America in September 2008, John Thain relied on his fellow Goldman alums who he had lured to Merrill—sidelining Merrill’s own. In the U.S. Government, both Henry Paulson and his assistant at Treasury who ran TARP were Golden. It can therefore be surmised that the Eurozone was poised to crash because Goldman’s execs had determined that they could profit from it. The state-heavy E.U.’s government only appeared to be capable of protecting the viability of the euro financial system.

I suspect that Rastani was overplaying his hand. The financial interest of the rich states of the E.U. (and their respective banks) cannot not be written off in favor of a Golden hegemony unless Goldman Sachs controls the European banks. To be sure, at the time of Rastani's interview, there were players poised to benefit financially from the collapse of the Eurozone. Even so, powerful vested financial interests not limited to Europe surely had a financial interest in the continued viability of the Eurozone. Of more value to us than Rastani's crystal ball is his mentality and values, which were on full display during his interview. We have a rare snapshot of what sort of people rule the world in terms of real power. 

The crash will be good news for traders, Rastani told stunned BBC anchors. "For most traders we don't really care about having a fixed economy, having a fixed situation, our job is to make money from it," he said. "Personally, I've been dreaming of this moment for three years. I go to bed every night and I dream of another recession." Rastani said traders aren't the only ones who can benefit from the crisis. "When the market crashes . . . if you know what to do, if you have the right plan set up, you can make a lot of money from this." Whether or not such opportunities rule the day, Rastani’s mentality itself is startling (or should be). In other words, we should also be stunned.

 Rastani's dreaming of a recession (like Bing dreamt of a white Christmas?) even as he was predicting that the “savings of millions of people are going to vanish” in less than a year might strike us as insensitive, even sadistic—and at the very least, rather selfish. Would he cheer the death of an uninsured man who could not afford medical treatment if money could be saved by a hospital in Rastani’s portfolio?  If so, could we give any credence to his “deathbed conversion” should he fall on bad times? Beyond the obvious moral questions, does the child deserve his amassed power, wealth and position? Moreover, can we continue in good conscience to respect him now? The respect that we give to offices or positions may be exaggerated, and thus due an "adjustment." Just because a Wall street player has power on account of his or her position (and wealth) does not mean that he or she is due respect accordingly.

In fact, if traders such as Rastani have a financial interest in the collapse of an economic system, it could be asked whether they have enough power to make that catastrophe happen. If Wall Street bankers—the real power-brokers—are focused on such financial payoffs, is anyone of sufficient power looking out for the system itself? Again, Rastani may have been overplaying his hand.

In 2008, the U.S. Government enacted TARP to stave off financial collapse. Of course, even Goldman was vulnerable, so it was in its own financial interest that Treasury contain the contagion. The experience demonstrated that the American federal government is capable of safeguarding the financial system, but what if Goldman were to face no downside from a collapse and would in fact benefit from it? Could Goldman alums in strategically-placed government offices sabotage the government’s own efforts to protect the system? As Sen. Dick Durbin said in 2010, the banking lobby owns Congress. The U.S. Government acting against the interests of Wall Street might be akin to that government putting some air between itself and Israel. Elected representatives and their appointees know enough not to screw the sacred cows.

So the trader has a point, though beyond the content of his predictions, the transparency of his mentality and the mentality itself warrant reflection by the rest of us. I suspect that we have a naïve view of the type of people pulling the strings. Were we to get to know those people (even the CEOs), an obvious question might be whether they deserve the power, position and wealth that they have gained. In a plutocracy, there is unfortunately little that we can do about it, as they hold the strings. In a republic, on the other hand, the financial and business sectors are subordinate to the public good, and the representatives of that good can reform the selection and promotion rules in those sectors. In saying that the rest of us will have no other choice but suffer because it is in his financial interest, Rastani was essentially informing us that our so-called democratic republics are actually plutocracies. Our systems depend, in other words, on the particular financial incentives of the Golden traders. This is even worse than the prospect of a recession. 

It means nothing that you or I might conclude that the system itself is broken, as we do not pull the strings; we merely pull the levers on election-day, lulled by the illusion that popular sovereignty lies with us. Even if Rastani’s interview wakes some of us up, little difference can be expected short of a major shift in power—but how can the less powerful overcome the kings of the hill to gain the hill itself? That would be like water flowing upstream as if gravity no longer held. Yet somehow, for people such as Rastani to be so respected and powerful in spite of the kind of persons they are seems to go against gravity itself. Like ignorance that is arrogant, one must wonder how the thing manages to stand at all. Perhaps all that is necessary is a gust of realization by us that the emperors are indeed trading in the nude, and are thus unworthy as de facto rulers. But can we act on the basis of a new awareness?

Source:

“Trader Alessio Rastani To BBC: ‘Governments Don’t Rule the World, Goldman Sachs Rules the World’,” The Huffington Post, September 26, 2011. 

On the Danger to the United States of Living off Government Debt: The Case of the Dollar as World Reserve in 2010

Given the $13 trillion of U.S. Government debt in 2010, the dollar was losing out at the time in percentage terms to other currencies as the global reserve currency. To be sure, in absolute terms, there were still more dollars being held abroad than twenty or thirty years earlier, but as a report from Emma Lawson of Morgan Stanley showed, other currencies were taking on more of a relative presence. The lesson concerning excessive public debt was not grasped at least through the 2010's, as the debt continued to increase trillions of dollars more.

The Euro had been making the greatest strides in percentage terms, particularly in 2002. The slight downturn in 2009 might have reflected the impact of the financial crisis of 2008 in Europe, though the Greek debt issue had not yet reached a boil (it would be interesting to see the figures from 2010).  In any case, the dramatic drop in the dollar’s percentage terms also came in 2002, before the Iraq war and the bank bailout spending (i.e., the $13 tillion dollar debt). The drop could have been in reaction to September 11, 2001, though it would seem an exaggeration even then to say that the US financial system would be undone by the attack.  Even so, as we know from 2008, irrational exuberance can take hold in even a global market. We ought nevertheless not lose sight of the fact that the number of dollars held in reserves around the world increased. The pie got bigger, and even though the dollar piece became larger, it was a smaller proportion of the pie in 2010.  Even so, the $13 tillion in US Treasury debt, the decision of the Chinese to allow their currency to appreciate to a limited extent, Russia’s call for a mix of global reserve currencies, and the EU’s bailout of the Greek bonds all pointed to trouble for the US dollar as “the” reserve currency. Also troubling was the UN report at the end of June, 2010, which urged that the US dollar is no longer stable enough to be the world’s reserve currency. Ouch! The dollar slid %5 in June. Fortune reports that central banks had been preferring gold to the greenback.

Lawson believed that  ”over time we anticipate that reserve managers may reduce their holdings further.” She is looking at the significance of small percent changes over a short time—and this I see as perhaps susceptable to overblowing small trends. For example, she found that central banks had dropped their allocation to U.S. dollars by nearly a full percentage point to 57.3% from 58.1%, and calls this “unexpected given the global environment.” But was such a change, relative to those shown in the chart, really significant? She argued that other dollars - the kind that come from Australia and Canada - had been benefiting from skiddishness on the dollar. The allocation to those currencies, which fall under “other” in the data, rose by a full percentage point to 8.5%, accounting almost exactly for the drop in the U.S. dollar allocation. She was undoubtedly assuming that the trend would continue, but a look at the chart can demonstrate that even the dramatic changes in 2002 had not continued at such a rate (e.g., for the euro and the US dollar). 

Even so, Treasury’s huge debt could not but undermine the US dollar over the long term. This point ought not to be minimized or ignored under the fiscal pressure to push the US economy out of recession. Even if the US did not admit that the debtload was too high to be paid down one day (the debt then approaching the annual GNP of the US), the market rendered its verdict. Relative the huge debt facing the US dollar (and remember there are huge state debts, such as in California, Illinois and Florida!), the “crisis” facing the euro in 2010 paled in comparison.  As of mid 2010, the euro was still over $1.20. Years earlier, it had been at parity. The media frenzy on Greece's debt in 2010 ought therefore to be put into some kind of perspective, and the impact of the dollar’s public debt not be lost. 

It’s not clear to me that the human mind can conceptualize a trillion, not to mention thirteen of them. Yet we glide over the public debts in the US as though they were sustainable. If the US falls, it will be from within--from consolidation at the empire-level.  Such a fall will likely come as a surprise to most Americans, who in being oriented to external threats tend to miss the gravity of the black hole amassing under our very noses.  To be sure, the additional debt enables us to live beyond our means as a society, and such a condition can be very addictive.  Perhaps the parallel question for us to reflect on is whether Rome fell from within or simply from the Goths.

Sources:

 http://www.businessinsider.com/morgan-stanley-dollar-euro-reserve-holdings-2010-7#ixzz0tBDYFjMd

 http://wallstreet.blogs.fortune.cnn.com/2010/07/09/central-banks-start-to-abandon-the-u-s-dollar/

The Strength of the Euro Bespeaks Normalcy for the E.U.

As 2018 was beginning its climb in the northern hemisphere toward eventually warmer days, the prospect for the E.U. through and after the secession of one of its largest states was perhaps brighter than commonly thought at the time. When the days are short, it is perhaps all too easy to be pessimistic. Signs of strength in the euro implicitly sent the message in January  of 2018 that the E.U. would be just fine without its foremost euro-skeptic state.

The first month of 2018 witnessed negative interest rates both for the euro and the yen, and stronger economic growth for the E.U. and Japan. Interestingly, however, the two currencies were heading in opposite directions as markets protected that interest rates would rise quicker in the E.U. than in Japan. In 2017, the euro had rallied by 14% against the dollar, while the yen had been up by only 2 percent. Against a bloc of trade-weighted international currencies, the yen had actually declined.[1]

The normalization of the E.U.’s context, and the E.U. itself, even as a large state was in the midst of seceding from the Union, can be inferred from the euro’s relative strength. “What we clearly have is that the expectation for normalization is giving the euro a boost, and that’s part of what’s moving the currency,” said Andreas Koenig of Amundi. Normalization is not a word that most Europeans would have probably been using at the time. Britain was still holding that it could avoid a hard border in Ireland and yet leave the single market and the customs union, as well as have diverging regulations. At the federal level was the expectation that the state’s intent on ending the free movement of E.U. citizens in and out of an independent Britain as no longer being subject to the ECJ, the E.U.’s Supreme Court would “point to a free-trade agreement little more comprehensive than those with South Korea or Canada.”[2] With the E.U. and one of its states holding such divergent expectations still in the dawn of 2018, normalcy is a word that people then likely were not applying for the E.U. for the year and indeed the next several to come.

Yet the secession of a state whose government had not only resisted transferring more governmental sovereignty to the federal level, but also wanted some back and even viewed the E.U. itself eschew as a network or mere trading “bloc,” could even then be reckoned as a good thing for the Union because a stronger, more internally aligned one would come out without even such a large state at the UK. For a house divided cannot long stand, and at the very least the vast majority of any political society, even a federal one, should agree on the basics of what the society is.

---

[1] Mike Bird, “Euro and Yen Tell Different Tales on Negative Rates,” The Wall Street Journal, January 22, 2018.

[2] “Now for the Difficult Bit,” The Economist, January 13, 2018.

Essays on the E.U. Political Economy: Federalism and the Debt Crisis

The collection of essays comprising The E.U. Political Economy looks broadly at the E.U.'s federal system, with particular attention to the states, including the matter of "Brexit," which refers to the secession of Britain from the Union. The text then turns more narrowly to the government-debt and banking crisis that occurred in the wake of the financial crisis of 2008. The backdrop of federalism is meant to convey the point that weaknesses in that political system hampered the E.U.'s handing of its states and banks that were in trouble with debt. Lastly, several essays are presented on some more general aspects of the E.U.'s political economy. Rather than being heavily theory-oriented, the essays draw on contemporaneous news reports to quote from practitioners from business and government.

Essays on the E.U. Political Economy is available at Amazon.

The E.U.’s Central Bank: Beholden to State-Level Politics

Faced with the rise of anti-euro candidates for state offices throughout the E.U., Mario Draghi, the president of the E.U.’s central bank deemed it politically prudent to depart from the light world of cool economic data to mount a spirited defense of the euro and even free trade in March, 2017. With the UK having voted to secede from the Union, he could not assume that the state of the Union would continue to be inherently viable. Indeed, some political candidates at the state level were “questioning the whole idea of a united Europe and the European Central Bank’s fundamental reason for being.”[1] 

The complete essay is at Essays on Two Federal Empires.

---

[1] Jack Ewing, “As E.C.B. Charts Economic Course, Politics Complicate the Picture,” The New York Times, March 9, 2017.

Analysis of Italy’s 2016 Referendum: Beyond the Euro and the E.U.

The predominate axis of analysis in the wake of the Italian referendum in early December, 2016 centered on the euro, the federal currency of the European Union. 

The full essay is at "Essays on the E.U. Political Economy," available at Amazon.

European Central Bank to E.U. Leaders: Vision Is Needed

Mario Draghi, president of the European Central Bank, warned a committee of the E.U.'s parliament at the end of May 2012 that the structure undergirding the euro in the E.U. had become "unsustainable." He criticized political officials for having kicked the can down the road by enacting half-measures or else delaying decisions, thus making the debt crisis even worse than it otherwise would have been. "The next step is for our leaders to clarify what is the vision for a certain number of years from now."[1] Similarly, Olli Rehm, vice president of the E.U. Commission (the E.U.'s executive branch), said that ways must be found to avoid a disintegration of the common currency.

The full essay is in Essays on the E.U. Political Economy, available in print and as an ebook at Amazon.

1. Jack Ewing, "A Terse Warming for Euro States: Do Something New," The New York Times, May 31, 2012.

Eurobonds for Stimulus Spending

Meeting on May 23, 2012, the E.U.’s European Council failed to come up with a plan to offset the recessionary aspect of Greece’s budget cuts. The pressure was on; the OECD had just warned that the E.U. go back into recession. Interest rates on state debt-namely that of Spain—had reached an unsustainable level the week before due to concern regarding banks based in the state. Besides the debt and banking vulnerabilities at the state level, the E.U. itself was struggling with its political weakness, which can be attributed to the states’ rights (or euro-skeptic) ideology that was not exactly going away in the context of the debt-contagion that had prompted the establishment of a permanent E.U. bailout fund for states in over their heads on debt. In this context, the European Council was at the intersection of debt, banking and political problems.

The full essay is at Essays on the E.U. Political Economy, available in print and as an ebook at Amazon.

Tsipras against Austerity: Merkel Bends on Stimulus

Under pressure to join a unity government in Greece with the New Democracy and Socialist parties, Tsipras of a “radical left” Syriza party was holding firm as of May 13, 2012. Even as the resulting prospect of new elections and a possible reneging on the agreement by Greece, there is something to admire in Tsipras’ position.

Greek president Karolos Papoulias meeting with leaders of the three main parties (Tsipras on right) AP

The full essay is in Essays on the E.U. Political Economy, available in print and as an ebook at Amazon.

A Rigid Refusal to Renegotiate: Blaming the Greeks

As Greek party leaders struggled to put together a government in May 2012 after a splintering election, a major (and contentious) issue was whether to demand a renegotiation of the bailout agreement. Alexis Tsipras, leader of the Coalition of the Radical Left known as Syriza (which made large gains in the election), was declaring the agreement null and void given the mandate implied by the gains made on the far right and left (both being opposed to the austerity program). Tsipras believed he “had changed the debate to the point that the formerly dominant parties that had signed the loan agreement were . . .  indicating they might agree to demand it be renegotiated.”[1] His statements were enough to prompt a firm Nein! from Angela Merkel in Berlin and a related “tightening of the screws” from the committee of the European Financial Stability Facility.

The full essay is at Essays on the E.U. Political Economy, available in print and as an ebook at Amazon.

1. Rachel Donadio and Niki Kitsantonis, “ContinuingLeadership Deadlock in Greece as Its Lenders Watch and Wait,” The New York Times, May 9, 2012.

The SPD in Germany: Holding the Euro Hostage

Because the so-called “fiscal pact” amendment that would strength the E.U.’s enforcement of state government deficits and debts involves a shift of more state sovereignty to the E.U. for the states that ratify the informal amendment, the ratification in Germany requires a two-thirds majority in both the Bundestag and the Bundesrat. The latter body represents the German regions, or Länder, which in Texas or California would be counties. Generally speaking, the process of European integration has involved a succession of shifts of governmental sovereignty both from county and state governments to the E.U. itself as a federal government that includes an executive branch, a parliament, a council or upper chamber, and a supreme court that has a supremacy clause.

The full essay is at "Essays on the E.U. Political Economy," available at Amazon.

Ailing the E.U.: Unbalanced Federalism and the Euro

Lest it be thought that the economic safety net for the neediest led some of the E.U. states into excessive public debt toward the end of the first decade of the twenty-first century and beyond, the existence of some counter-examples suggest that the actual culprit was misapplied modern federalism. In early 2012, Sweden still had a very generous welfare state and yet had the fastest economic growth of any E.U. state. Leaving Malta and Cyprus aside, ranking the 15 E.U. states that were using the euro at the time by the percentage of GDP that they were spending on social programs before the debt crisis shows that of Greece, Ireland, Portugal, Spain and Italy, only the latter was in the top five—and with a welfare state smaller than that of Germany. In other words, an economic safety net for the poor does not necessarily translate into unsustainable government debt.

The complete essay is at Essays on Two Federal Empires.

State Fiscal Governance in the E.U.: Toward Balanced Union

At the end of January 2012, 25 of the 27 E.U. states (all but Britain and the Czech Republic) indicated at a meeting of the European Council that they would accept in principle (i.e., subject to ratification) a new limit of 0.5% of gross economic output over a complete economic cycle for the states’ “structural budget deficits” and strengthen the E.U.’s enforcement mechanism on states that breach that limit on deficits and 60% of gross output for accumulated state debt. The Wall Street Journal reported at the time that the “0.5% deficit limit would, if obeyed, mark a revolution in [the states’] fiscal policies, ending more than 30 years of steadily rising [state] debt.” This statement is immediately undercut, however, as the Journal describes the extent of the loopholes in the amendment.  The reader is left wondering whether the E.U. will use the proposed enforcement mechanisms, such as the ECJ imposing fines on states already hard up for cash, as well as whether fining a state government would make any difference.

Sarkozy, Merkel and Monti at the European Council Meeting          

Philippe Wojazer/Reuters

The full essay is at "Essays on the E.U. Political Economy," available at Amazon.

1. Marcus Walker, “BudgetTreaty: Neither Panacea Nor Poison,” The Wall Street Journal, January 31, 2012. 

The African Customs Unions and the E.U.: On Currencies

The East African Community (EAC) is Africa’s “most advanced regional trade bloc,” according to The Wall Street Journal. As of the journal’s report in late 2011, the EAC was already a customs union that guaranteed the movement of goods and the right to work across Kenya, Uganda, Rwanda, Burundi and Tanzania. The parliaments were working at the time on synchronizing immigration and tariff laws. “We want to develop this corridor vigorously and collectively,” Mugo Kibati, director of a Kenyan government program, said. The journal notes, however, that the EAC and other trading blocs in Africa, such as the Southern African Development Community, were “backing away from one prominent aspect of Europe’s economic union: a common currency.” Aside from any vague similarities that the fiscal differences between Greece and Germany may have to those between Zimbabwe and South Africa, the currency question itself is out of place for a NAFTA-like trade agreement.

The full essay is at "Essays on the E.U. Political Economy," available at Amazon.

1. Patrick McGroarty, “Africa’s Goal: EuropeWithout the Currency,” The Wall Street Journal, November 21, 2011.
2. Ibid.

3. Ibid.

A Fifty-Percent Write-Down: Discounting Debt Insurance?

In “Europe’s Rescue Plan,” The Economist (October 29, 2011) opines on the “fixes” that had been announced just days before by E.U. leaders on the public debt crisis. I find three points of note that are particularly worth elaboration. 

The full essay is at "Essays on the E.U. Political Economy," available at Amazon.

Britain at a Crossroads?

The prime minister of the state of Britain faced a “rebellion” in his own party on October 24, 2011 as eighty conservatives backed a nonbinding referendum on whether the state should secede from the union. “I don’t vote against the government lightly, but I think when there is a matter of principle then that must come first,” Nick de Bois said. “We have a considerably changing dynamic [in the E.U.] and given that . . . and the fact that anybody under 54 has not had a chance to vote on [whether Britain should secede from the E.U.], it is appropriate to set in motion that opportunity,” he said.[1] De Bois’ sentiment mirrors that of Thomas Jefferson, who argued that each generation should have the opportunity to affirm or cancel the social contract of the generation before.

The full essay is at "Essays on the E.U. Political Economy," available at Amazon.

1. Alistair MacDonald, “Tories Split on Role in Europe,” The Wall Street Journal, October 25, 2011.

Slovakia Stands Up, Caves to the E.U.

On October 11, 2011, Slovakia’s Parliament failed to approve the expansion of the euro rescue fund, a development, The New York Times reports, that “brought down the government.”[1] Although the vote makes good copy, it was not at all as dire as the headline suggests. The state’s “leading opposition party said after the government fell that it would be willing to discuss support for the fund, pointing to the eventual approval of the deal. European officials in Brussels were counting on a political solution, but also weighing the possibility of some kind of messy workaround if Slovakia failed to pass the measure.”[2] In other words, the vote had to do with state politics as well as resistance to bailing out a richer state. Once the state government fell, pressure from the E.U. and the new politics in the state government quickly coalesced by the next day to produce a deal in support of expanding the bailout fund. According to The Washington Post, "opposition leader Robert Fico, head of the Smer-Social Democracy party, announced he had struck a deal with the remnants of Radicova’s coalition, promising to back the fund in exchange for early elections that analysts say Fico’s party is well positioned to win."[3] Doubtless that pressure from the E.U. was also in the mix, as E.U. officials were already hinting that the bailout fund could be expanded over the tiny state's objection. “We call upon all parties in the Slovak parliament to rise above the positioning of short-term politics and seize the next occasion to ensure a swift adoption of the new agreement,” European Council President Herman Van Rompuy and European Commission President Jose Manuel Barroso said in a joint statement.[4] In other words, hey guys, get your act together over there in Slovakia or else.

The full essay is at "Essays on the E.U. Political Economy," available at Amazon.

1. Nicholas Kulish and Stephen Castle, “Slovakia Rejects Euro Bailout,” The New York Times, October 11, 2011.
2. Ibid.
3. Anthony Fiana, "Slovakia Reaches Agreementon European Bailout Fund," The Washington Post, October 12, 2011.
4. Ibid.

On the Perils of E.U. States Being In Charge

Wolfgang Schäuble, the finance minister of the state of Germany, does not mince words when it comes to the state of Greece sticking to its promise to reduce its deficit in order to receive aid from the E.U. through its Financial Stability Facility. Aid will be paid, he said on September 8, 2011 in a radio interview, “if Greece actually does what it agreed to do.”[1] If monitors do not sign off on Greece having fulfilled its promises, then “Greece has to see how it gets access to financial markets without help from [the E.U. facility].”[2] Ouch! Meanwhile, the state government of Finland was still insisting on collateral from Greece as a condition for contributing to the aid. Adding still additional pressure on the Greek government, Mark Rutte, prime minister of the Netherlands, had said on the previous day that states receiving aid should either cede control over their budgets or drop the euro. According to the New York Times, many economists believe that the ripple effects from Greece’s departure from the euro “could be catastrophic for the world economy.”[3]

The full essay is at "Essays on the E.U. Political Economy," available at Amazon.

---

 1.  Steven Erlanger, “Europe Steers Into a Zone of Uncertainty,” The New York Times, September 9, 2011; Jack Ewing, “In Europe, Greece Gets a Warning about Aid,” The New York Times, September 9, 2011.

2. Ibid.

3. Ibid.