• Vladimir Chlouba

A New Model for Europe – the European Confederate Union

The European Union saw the light of day primarily because of internal reasons, i. e. because it was seen as an effective way of keeping Europe out of war. There is no doubt that the project of the Union has been decisively successful in that task – after two destructive world wars that tore the continent apart, the Union managed to keep its members at peace and eventually reunited the democratic West and the post-communist East. Perhaps paradoxically, the future relevance of the Union lies in its potency to empower Europe to assume the role of a significant actor in the international arena. It is likely that the future of international relations will be one where, unlike during the Cold War era or at the beginning of the twenty-first century, a number of powers shape the nature of international politics. It might not quite be a return to the pentarchy that ruled Europe during Metternich’s time, yet it will be multilateral in comparison to what we have been used to in the last 70 years.

Europa and the bull, depicted by Jean-François de Troy (1716)

I posit that in order for the European Union to remain internationally relevant, it must function more as a confederation. A confederation in this sense can be understood as a union that coordinates critical issues such as foreign policy, international safety, and intra-union trade but otherwise leaves its member states alone. I thus argue that Europe must tightly coordinate, and in effect integrate, its foreign policy. This is the starting point of all of my analysis. However, for the European Union to remain an internationally relevant actor, it must also be economically robust. It is my second conclusion that in order for the aforementioned foreign policy cohesion and economic robustness to gain temporal stability, a functioning monetary union will be beneficial if not necessary. A common currency that is bolstered by observed rules and the necessary institutional infrastructure does not only encourage trade within the Union, it can also be relevant as an international reserve currency. It cannot be denied that a functioning monetary union requires a certain degree of fiscal coordination as well as fiscal transfers. However, this fiscal coordination does not necessarily have to assume the form of a supranational European government that dictates to individual states how they should manage their finances or, looked at from a different perspective, an almighty government that actually disburses funds to individual state governments. What suffices, in my view, is a set of tight rules that limit countries in their budgeting and impose direct costs for those who choose to damage the common currency by ignoring such rules. Even though such a system has been suggested in the past, it was never enforced and the potential penalties were not necessarily of the harshest kind. What needs to be enacted is the kind of punishment that arises from the very logic and collective responsibility of monetary integration – the expulsion from the currency union itself.

When it comes to fiscal transfers, I reason that a robust European fund – similar to the European structural funds or the EFSF (European Financial Stability Fund) – would suffice. This fund together with the fiscal limits imposed should over time improve the competitiveness of member states and decrease the flagrant asymmetries that currently exist. Research suggests that a monetary union such as the Eurozone leads through the common currency to larger and more persistent trade imbalances. However, research also evidences that economies characterized by flexible labor markets and deregulation are better equipped to deal with such imbalances. Indeed, the problem that the many members of the Union face is one of irresponsible fiscal policy, overregulation and an excessive role of the state in the economic affairs for the private sector. By imposing strict fiscal rules, the model I argue for would protect the currency union and reduce overall government spending. It would thus not only require careful observance of fiscal rules, it would also call for a commitment to remove the structural problems that have plagued Europe for some time.

A key instrument that would encourage fiscal responsibility and empower the Union economically would be the blue Eurobond which would provide incentives for countries to keep their GDP/debt ratio low. Jakob von Weizsäcker and Jacques Delpla suggest that member countries should pool up to 60 percent of GDP of their national debt under joint and several liability (I would think a lower number more appropriate). This would provide economic benefits for the whole Union by lowering these bonds’ yields. Any borrowing that a country wished to do above this level would have to be done independently and thus at much higher borrowing costs.

In the end, this model of the European Union would allow the community to remain economically robust and internationally relevant. Furthermore, it would not infringe on the key sectors in which the national governments rightly demand sovereignty such as social, education, and healthcare policies. Importantly, this framework would discourage fiscal irresponsibility and, if properly enforced, would eliminate large deficits.

What has been missing in the Union’s political infrastructure is the people’s democratic input. For this purpose, all legislation and important decisions should be approved by the European Parliament and the European Council, which should really assume the role of a European Senate. Crucially, all political thinking about the Union, and this thinking should be written down in an important document, should be guided by the principle that all of the powers and roles that are not specifically allocated to the Union ought to stay with the member states.

There is little doubt that the model of the European Confederate Union will draw widespread criticism, certainly from the eurosceptic camp. Yet I challenge the eurosceptics, who are rightly apprehensive of preposterous proposals to build a European federation, to suggest their own plan that would enable Europe to remain internationally relevant in the decades to come. To indiscriminately criticize any and every proposal that strengthens Europe economically and internationally lacks both intellectual depth and an adequate analysis of international affairs. The challenge we face is to coordinate those aspects of European policy that will enable the Union to remain internationally relevant while staunchly rejecting proposals that would create a European federation and thus encroach on those areas of national sovereignty where the Union has nothing to do.

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