Hopefully, a silver lining
Europe's Political Union and the ISIS attacks
During the financial crisis, the Eurozone's northern countries have rescued countries in the south by backing the ECB's promises of unlimited protection and stepping in with huge bail-out funds. This was a clear display of solidarity. When Germany recently requested a quota system to stem the refugee crisis, however, it was left to go it alone by the EU. Angela Merkel was praised for opening her wallet, but her calls for other EU states to take in more refugees fell on deaf ears. And now that France has declared war on ISIS in the wake of the Paris attacks, other European countries are merely shrugging their shoulders, offering condolences, and silently hoping that the jihad will spare them.
What these events show is that Europe has moved a long way towards a fiscal union, but is still light-years away from a political union. Half a century after the foundation of a common market and a quarter of a century after agreeing on a common currency, the continent still lacks a common state secretary, a single foreign policy, a united police force and a common army. Despite the holy vows of European unionists, there are 28 armies in the EU with 28 chief commanders, which are only loosely bound together by NATO.
Some, like Francois Hollande and Jean-Claude Junker, believe that Europe should try to move even faster towards a fiscal union, arguing that Europe needs a common deposit insurance system, a single budget, shared bonds, more financial risk-sharing and a common unemployment benefit system. But this is not true, as such measures would only cement the flawed structure of relative prices resulting from the inflationary credit bubble created by the euro and the structural unemployment in France and Southern Europe that emerged as a result. Deeper fiscal union would merely exacerbate the mistakes of the euro experiment. The measures proposed by Hollande and Junker would move Europe into a morass of public debt by reducing the interest spreads among countries even further, sustaining bubbles and destroying the capital market's control. By implementing such measures Europe would be repeating the mistakes the US made after its foundation, with various rounds of debt mutualisation that ended in an unsustainable credit bubble, driving 9 out of 29 US states into bankruptcy during the period of 1835-42 and paving the way for the US Civil War.
In fact, strengthening the fiscal union further would make it increasingly unlikely that Europe will ever become a political union, as France would not need to trade in its Force de Frappe in such a scenario. Undisputedly the strongest military power on the continent by far, France has thwarted all attempts to date to pool Europe's armed forces. It did so in 1954, when the General Assembly rejected the treaty for the West European Defence Union, and it has done so ever since. It was the French parliament that rejected the common European constitution that could have marked the beginning of a political unification process. In fact, one French President after another has declared that France will not accept a United States of Europe as even a remote goal of European politics.
France, on the other hand, is the major beneficiary of a fiscal union, given that both its banking system and its industries are heavily exposed to southern Europe. The French banks' exposure to Greece, for example, which peaked at 58 billion euros, was twice as high as the exposure of Germany's banks. It is understandable that France wants to continue along the current unbalanced path towards further fiscal integration, but allowing this to happen will further narrow Europe's chances of ever becoming a political union. If Europe does not correct this imbalance in its integration process, its founding ideals will suffer irreparable damage.
Perhaps the hideous attacks of the jihadists will change French attitudes towards Europe and make it clear to the Elysée that even a mighty military power like France needs a political union. The EU member states now have to pull together to help France fight the terrorists and to support Germany, Austria, Sweden, Slovenia and Hungary in their bid to resolve the refugee crisis. Before advancing any further along the road towards a fiscal union, Europe needs to control its borders, it needs a united police force, common asylum laws, a single foreign policy and, above all, a united army.
Europe should be looking at successful unions like the US and Switzerland for guidance. These unions began as military defence operations and only later developed fiscal unions. It took decades, if not centuries, for these unions to obtain sizeable public budgets and to begin to redistribute income. And to this very day, both unions are built on the no-bail-out rule preventing the kind of fiscal or monetary bail-out operations for single states or cantons seen in Europe during the financial crisis. It is time for a radical new approach to Europe by shifting the emphasis away from the dubious task of fiscal risk-sharing and by focusing on those policy areas where the true risks lie.
Also published as "Can the Islamic State Unify Europe?" by Project Syndicate on 26 November 2015