Economic Union is a Necessity, but it Cannot Exist Without True Democracy

The plans laid out by the Commission for an EU federation in 2012 certainly had their merits, but any European state must grow out of the will of citizens, not bureaucrats.

By James Bartholomeusz

*This article, along with the in-text image, was originally published by Project for Democratic Union

Set your mind back to the autumn of 2012. London had just hosted a dazzling Olympic Games, Ebola was nowhere to be seen, and it would be over a year more until Marine Le Pen and Nigel Farage would surge to victory in the European elections. With Isis as yet non-existent, the Assad regime in Syria was still international public enemy number one, and Yanukovych was still in power in Kiev, cuddling up to Putin over the Eurasian Union. In Greece, the paramilitary leaders of Golden Dawn were still at large.

In amongst all this, a paper was published by the European Commission that went largely unnoticed outside the Brussels bubble. This document, however – entitled ‘A blueprint for a deep and genuine economic and monetary union’ – is one of the most radical to have come out of any EU institution this century. It maps out a comprehensive response to the Eurozone crisis and the collapse of the financial sector more widely, and makes a seismic recommendation: the transformation of the European Union into a full federal state.

The blueprint proposes a three-stage plan for the acceleration of the EU into a federal state, based on the development of the European Monetary Union. First, it is recognised that the halfway-house of centralising monetary policy with the ECB whilst leaving fiscal powers largely at member-state level was an error, and is clearly now unsustainable. To remedy this, all central bank responsibilities should be handed over to the ECB (enshrining a so-called ‘Single Supervisory Mechanism’), whilst the ability to bailout failing financial institutions should be given to a new European Resolution Authority (a ‘Single Resolution Mechanism’). Further to this, continent-wide investment and structural reform should be amalgamated under a Convergence and Comptetiveness Instrument (CCI) to coordinate efforts between member-states. All of this, the Commission believes, can be achieved under existing treaty provisions, but further developments would require a new round of negotiations between Eurozone and non-Eurozone member-states.

A new treaty or treaties would aim at progress via two further stages. In the second, the EU would be given the power to set requirements for national fiscal policy in accordance with the conditions of the agreed CCI plan. This would be accompanied by a European Redemption Fund. Returning to the principle that national public debt should not exceed 60% of GDP – as laid out in the Maastricht Treaty – all member-state debt above this level would be mutualised in a single EU pot and managed centrally. Although this process would need to be handled very carefully, to counteract the possibility of fiscal freeloading by net beneficiaries at the expense of others, it would provide a basis for budgetary solidarity between a set of states using the same currency.

In the third stage, the banking system of the Eurozone would be fully integrated and presided over by the ECB, mimicking the relationship that exists between central and private banks in ordinary countries. The natural implication of this move would be the creation of a full federal budget for the EU, administered by an EMU treasury within the Commission. With all macroeconomic responsibility held in Brussels, the EU would at last have become a proper federation, with the nations of Europe as member-states possessing devolved powers. Given that every member-state bar two is on the path to adopting the common currency, this federation would map on almost exactly to the current Union.

For those who know the vision of the Project for Democratic Union, a lot of this will sound very familiar. (Indeed, the PDU was founded only a few months later, though unrelatedly; a product of the same economic and political circumstances as the Commission’s findings.) We would certainly welcome an economic union of the EU along these lines, yet there are important points at which we part ways with this plan. Chiefly, this has to do with democracy.

Of the European institutions, the PDU feels closest kinship with the Parliament – the Union’s only directly elected body. We believe that the crisis in the Eurozone will never be sufficiently and durably solved without the democratic participation and support of Europe’s citizens. The Commission has achieved wonderful things for our continent in past decades, but it is also an unelected, largely unaccountable bureaucracy that has amassed steadily greater power to itself at the expense of democratically-elected national governments. The autocratic nature of the Commission, coupled with its theological commitment to imposing austerity whether ordinary Europeans want it or not, are the primary causes behind the recent reaction against the European project.

In keeping with this, something that stands out upon reading the blueprint is the uneasy way in which democratic accountability is appended haphazardly to the end of in-depth policy discussions, as if everything will work so long as public opinion is nudged in the right direction. Naturally, the economists of the Commission know best; if voters can just be brought into line, then the system will function perfectly rationally. This is a delusion. Too many Europhiles, even the most well-meaning, remain in denial as to how toxic the EU has become for a large number of citizens. We are just about treading water as it is, struggling to even justify a Europe of nations – in this climate, no grand project for European federalisation can be carried out from on high. The will of ordinary citizens must drive the process, and for that to happen we must convince people again of the European ideal.

Fast-forward two years, to the present day. There are now glimmers of hope for the future of Europe – embodied, for example, in the appointment of the Juncker Commission as a result of May’s Parliamentary elections – but there is still much work to be done. Most fundamentally, any institution tasked with overseeing the European economy must be directly elected by the Union’s citizens. A federal Europe, founded upon full economic and political union, would be a great thing indeed, but it will never be a lasting solution unless it comes about from below.