he German political economist Benjamin Braun recently made an astute observation about the editorial position of a German newspaper – in fact, it is an observation about the German policy consensus in general. “Eurobond? Never, it’ll kill us all. Eurobomb? Bring it on.”
Incomprehensibly, the EU is now discussing yet another field of political integration: a defence union. But the big task it set itself 20 years ago remains (to put it politely) incomplete. Amongst other things agreed in the recent two-day EU summit was the need to press ahead with defence strategic procurement and coordinating capability. There is a ‘Strategic Compass’ plan for an ‘EU Rapid Deployment Capacity of up to 5,000 troops’ and much more besides.
All this while the EU’s flagship scheme – monetary and economic union – remains dysfunctional and plagued by ever-widening imbalances. Integration of banking has been going in the reverse direction. The European banking supervision system is up and running, but the dispute-resolution regime is a joke. The debate on deposit insurance is stuck. And the impetus for a capital markets union is lost. This is not just a flaw, but a first-order policy failure.
Rather than fix this, the European Union is discussing a security and defence union – another opportunity for these attention-deficit, hyperactive disorder-afflicted policy makers to pretend that they are pro-European. If you can’t do a proper economic union, you should stop right there, and fix the problem. Otherwise you end up with a dysfunctional economic union, an ineffective foreign policy regime and – to top it all – an army that can’t fight.
The future success of the EU will depend primarily on boring economic matters like innovation and the capital markets union. The EU will require a eurobond: a real one, not a ‘recovery fund’ that is ultimately backstopped by national governments. The purpose of a real eurobond is to stabilise a currently-unstable monetary union, not to bankroll reform in member states.
Storms lie ahead. Power structures in global banking are about to be upended by a slew of fintech innovations: this requires banking reforms and a capital markets union for Europe to participate fully. That (and climate change) is what the EU needs to focus on. And for that to happen, it needs treaty change.
But this is not going to happen. The discussions are all about issues like who gets to do what in Brussels. The Russia sanctions are turning into a political disaster. You can’t blame veto-wielding member states, or the lack of quality majority voting. The problem lies in the fact that countries like Germany are allowed to pursue national economic strategies at the expense of the union.
So the European Union is now entering a twilight zone of reverse integration – coupled with a sense that it is still moving forward because it’s talking about new projects.
Source : The Spectator