The Euro-Federal Crisis

The European Union is going through its federal-state crisis, forced into the debate on federal vs. national power by circumstance rather than by choice, just as we were 224 years ago.  There are significant differences, to be sure, and we’ll get to those.  But what it happening now is a result of similar tensions to our own, and it’ll be very interesting to see how the Europeans resolve them.

Since the Greeks threatened to do to contemporary Germans what they did to WWII Italians – swallow up large swatches of resources in the order to stay pacified – the question of just how far the rest of Europe in general, and Germany in particular, would allow themselves to be dragooned into backstopping the finances of the EU’s weak sows, Portugal, Italy, Ireland, Greece, and Spain.

Now, the Arab Spring is forcing Europe, through Denmark, to confront the issue of border control in a way that it has not in the past.

In the first instance, Germany at first resisted, and then insisted on, a tighter monetary coupling of the states, giving the ECB greater power, and Germany somewhat greater responsibility in the mix.  The alternative seemed to be a breakup of the Euro, as the countries with weak finances sought to inflate or default their way out of their debts, something they can’t do when harnessed to a currency they don’t control.  At first, this seemed to solve the problem, and the creation of the rescue fund was an attempt to provide both fiscal and psychological backing to the PIIGS.  Regardless of whether or not greater central control was going to be enough to save Greece, it was clear that neither they nor the rest of the PIIGS could stay in the Euro forever without it.

In this case, the analogy is fairly direct.  Rhode Island, for instance, had gotten itself addicted to cheap paper currency in the middle of the continent-wide depression.  Farmers found they couldn’t pay for anything, and in need of some medium of exchange.  As these thing usually develop, the paper wasn’t backed by anything, and Rhode Island couldn’t even service its state debt.  The Constitutional clause preventing states from issuing their own unbacked paper currency was in direct response to a number bof instances like this; if the Feds were going to bail out the state debts once, they didn’t want to create a moral hazard by doing so.  It was in large part Rhode Island’s resistance to sound money (something bankers usually want and populists usually undermine) that kept it from ratifying the Constitution until 11 other states had done so and the new Congress has already been meeting.  In fact, it took the threat of economic isolation to persuade Rhode Island to go along with the rest of the country.

Then, this week, Denmark announced that it planning to reinstate border guards between itself and Sweden and Germany.  This falls short of completely reinstating border control, but the guards will be doing spot-checks.  The sudden influx of refugees from North Africa as a result of this year’s Arab Spring uprisings (and in one case, civil war), is the catalyst.  With France and Italy bearing the brunt of the influx, they’ve also been unable to contain it; once the refugees are in the country, they can fan out throughout Europe in the absence of border controls between them and other Europeans countries.

In this case, the analogy isn’t so direct, but the problems do have some echos.  The Commerce Clause was intended to eliminate internal trade barriers between states, and the question of a unified foreign policy was equally important – only the Federal Government could conclude treaties with foreign powers, for instance.  Another motivation was the very real fear that the emerging trans-Appalachian states might split off and form their own country, either in alliance with or union with Spain.

In Europe’s case, individual countries believe they are being forced into reinstating border controls because the lack of internal controls is making them all pay France’s and Italy’s inability to deal with the problem.  One result would be the institution of internal controls again.  Another might be to hasten a unified defense and EU-border control regime, instead of leaving that to the individual countries.

The differences, of course, should be obvious.  Europe goes into this crisis with a central bureaucratic government that is already at once too powerful and too unaccountable for the good of its people.  It lacks the tradition of the English Common Law.  It already has a central bank and currency, so the problems faced by Greece are already on Europe’s plate, and there’s little room for incremental change by either party.

In the past, country after country rejected a European Constitution that was less a blueprint for a government structure and more an endowment of by no means limited power, on Brussels, the disputes were largely notional.  I thought and still think a Constitution that attempts to implement policy at that level of detail deserved to be rejected, and I was glad to see people stick it to the bureaucrats. The Europeans as a whole are already too used to toxic levels of bureaucratic power and meddling, and the longer it could be staved off from going continent-wide in the absence of anything resembling elected oversight, the greater a chance that they might be able to remedy that problem at home.

I also think that it’s unlikely that had that Constitution passed, it would be of much good in current circumstances.  Having failed to address these problems in the abstract then, Europe is being forced to confront them concretely now.

It remains to be seen whether they have the ability to do so in a way that it at once both constructive and flexible, as the practical politicians we know as the Framers were able to do in their day.

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