A Chance for Happiness for Europe’s Unhappy Family
Can Europe find away to resolve its debt crisis even though it is clearly not ready to form a federal structure?
April 30, 2012
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 Europe’s failed marriage.
No, the disintegration of the euro zone 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 around, the fallout will be less grave and more farcical that what the continent went through back then.
The problem is that Europe is not ready for the political equivalent of the three commitments it needs to undertake:
Cohabitating ad infinitum,
Living under a federal structure, and
Paying for things from a common (federal) purse.
None of this can even begin to happen until, and unless, Europe is ready to envision a common army, an electoral system where Greeks may vote for Germans (and Germans for Portuguese officials) to lead them, and embrace euro notes that bear images of monuments that actually exist (as opposed to the fictitious gates and bridges that only serve as a reminder of Europe’s 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 to drag the planet into horrific conflagrations not once, but twice in the last hundred years. It 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 we can embark on that can lead us to a speedy resolution of Europe’s crisis.
The idea is to reconfigure existing European institutions in a manner that, at once,
Imposes no demands on the taxpayers of the surplus countries to finance the debts of the deficit nations,
Requires no new treaties (since treaty changes would occur, at best, far too late to help), and
Resolves the three interconnected, yet distinct, crises that are eating away at Europe’s foundations: the debt crisis, the crisis of substandard investment (especially in the indebted regions that need it the most), and the banking debacle.
Help from “auntie”
Can these three objectives be achieved simultaneously? I believe they can. To give you a sense of how it 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 payments, which carry a high rate of interest. Rather than having “everyone” pitch in, an nice old aunt with a good credit rating could take out a loan (at a much lower interest rate) to repay the young couple’s expensive loan. The young couple would be responsible for making the monthly payments on the aunt’s loan, and the whole arrangement would be supervised by their family.
To safeguard the nice old aunt, in case the young couple still fails to make their payments, the rest of the family could buy insurance that would repay the loan if things went badly wrong. This way, the young couple at least has a chance of making it work out without putting everyone else (beyond their family) on the hook in case they don’t.
In Europe’s case, the functional equivalent is for the European Central Bank to issue its own bonds for the purpose of servicing member-state debt on the condition that members redeem these bonds in the fullness of time (but at the low interest rates secured by their “auntie,” the ECB, on their behalf).
Additionally, the current bailout fund — the European Financial Stability Facility (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 their bonds in the distant future).
Such a scheme can bring about a swift end to the debt crisis and relieve the German taxpayer from having to pay — or to guarantee — the Club Med’s debts. And it does so without creating any new institutions, without building new federal structures, and without any commitments that the European family is not ready to undertake.
My Modest Proposal for Ringfencing Europe discusses ideas for how to deal with Europe’s other two major crises — investment and banks. But those are just more details. The gist is that Europe can be saved without cohabitation under some hastily assembled, oppressive federal structure. All it takes is a rational reassignment of existing institutions.
The burning question, however, remains: Are we prepared to accept that neither a messy divorce nor the current confederacy are decent options for Europe’s troubled family?
Greek Finance Minister Yanis Varoufakis is the Greek Finance Minister and has been a parliamentary member of the ruling Syriza party since January 2015. Mr. Varoufakis formerly headed the Department of Economic Policy at the National and Kapodistrian University of Athens. Mr. Varoufakis received his doctorate in 1987 at the University of Essex, in the […]