Can Europe Make It?

Some words on the euro

Jacopo Barbati
23 May 2014

I know that this topic concerns only a part of the people who live in Europe, but it is an important topic for everybody. The Eurozone covers around 333 million inhabitants out of the about 503 millions of people living in the EU. A (vast) majority use the common currency and face this difficult moment of economic crisis that, according to some political parties, derives from this same euro. If these parties take a good share of the votes during these European elections, a large number of seats will be allocated to MEPs whose aim is to put an end to the European currency. This situation will affect the whole Parliament, and the whole EU.

Being a federalist, my idea is the following: creating a common currency without creating a single state (and therefore a single Government, single fiscal, banking, economy and monetary policies) has been a mistake, an absurdity, a contradiction: it is very hard to make such a thing work. And indeed it is not working well.

According to some economists, the Eurozone is neither an optimum currency area, since labour mobility is limited and there is no fiscal federalism. This situation leaves the dollar as the landmark currency in the world, even if the euro has a higher value and the size of Eurozone and USA is comparable, both demographically and economically.

The truth is that the US is seen as more ‘reliable’, ‘powerful’ and, above all, quickest to recover after the crisis. These are consequences of being a federation, it's quite clear.

Some months ago many blogs and webzines sported charts that compared US states to some other countries in the world, according to their GDP (one example). As you can see, apart some big states like California, Texas, New York, many others have a GDP comparable to countries like Vietnam, Syria, Cuba, Morocco  - certainly not considered the most interesting markets in the world (OK, there are many things that define why a market is ‘interesting’ or not, but still). But those US states don't have to worry about that: the federal dimension underpins them, and altogether they form the USA, probably the most developed and powerful country in the world.

Why is this opportunity denied to European states? Why are they judged alone and not altogether? Because they are actually divided, and the outlook for further integration is not glowing. But I think that those who would like to see the euro sink without trace are making a big mistake.

Some ‘no-Euro’ economists in Italy say that the current situation favours Italy's first competitor, Germany, because in Europe Germany comes first in number of jobs and because the contraction of salaries makes the profits expand. Moreover, the euro's value is too high compared to that of the dollar, they say, and this penalizes European exports. Their solution is to return Italy to the lira, having the freedom to devalue it, thus relaunching exports and gaining competitiveness with regard to the US and Germany.

We can discuss competitive devaluation forever, and whether or not it is the best way to solve the current crisis, but I'll go further. Regardless of what you think is the best solution, the only way to implement it is to do this at a federal level. Also if you want to devalue: why go back to the lira to do that? Why consider Germany as the primary competitor, and not as the most obvious partner? With a European federation (that of course must have a common currency) you can have total control of monetary and fiscal policies. If you want to devalue, you devalue, but with the significant advantage of being part of a bigger economic area that can really compete with the others in the world, adding your value to that of those you currently consider ‘competitors’, to create a solid currency and solid foreign policy (as the US does for its weaker states) that is a guarantee for all.

If you go back to the lira, maybe you'll raise your competitiveness in the immediate future; but this would mean to stay out of a stronger EU. And after this short period, when China will be the leading economic power, and big countries such as India, Russia, and Brazil will be sufficiently developed to present themselves as serious competitors, what will you do all alone with your lira and with your very modest foreign policy?

Of course, I agree with the Euro-skeptics about the ineffectiveness of the EU in the economic crisis and the urgency of finding a solution. But the only solution that I can see is to overcome the current EU by creating a viable federation, not by destroying it, and retrograding by a 100 years, back to the nation states. Now the world is globalized and the concept of a ‘state’ should be revised.

This elections can make the difference, one way or another. It's up to you to decide if we are going forwards or backwards. 

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