Tomorrow (Saturday) I expect to be in Copenhagen at an event organised by my EFD colleague Morten Messerschmidt. I’ll be debating against the Danish European Commissioner “for Climate Action” Connie Hedegaard. But the subject is not Climate this time, but “A Federal Europe?”.
Europe is in a state of flux, and Angela Merkel wants a new Federal Treaty which would bring the €urozone member states into something close to a full federation with common financial structures. But a Treaty on this scale is a major exercise which will certainly take time, and perhaps referenda. There are also huge unanswered questions — such as how the €urozone, under its new dispensation, will relate to the non-€uro members. Some commentators — notably Andrew Lilico — feel that the “excluded” nations are already well on the way to an EU exit. Certainly I should be (fairly) happy with a federal €urozone, plus a simple free trade area for non-€uro countries.
But in the meantime, Brussels is desperate to stabilise the markets, which are becoming more and more disillusioned with the repeated attempts to shore up the €uro. So as a holding exercise we have a sort of mini-treaty — the “Treaty on Stability, Coordination and Governance in the Economic and Monetary Union”, or TSCG. Doesn’t exactly resonate, does it?
And what does this Treaty do? It places a limit of 0.5% on members’ “structural deficits” (however defined), and of 60% on national debt.
And if that sounds familiar — well it’s not all that far from the old “Maastricht Criteria”, is it? The 60% limit is exactly the same. The 3% GDP annual deficit has been changed to 0.5% of structural deficit. The first problem, of course, stands out a mile (or perhaps a kilometre). Most of the €urozone states are already way outside these limits, and are desperately (and largely unsuccessfully) struggling to bring down debt. So this Treaty is at best a wild aspiration, not a policy.
Then how is it to be enforced? Here’s the clever bit! “Automatic sanctions”. In other words countries already drowning in debt will be required to pay massive fines. How will they pay, when they have difficulty borrowing enough to keep their heads above water? Answer: They won’t be able to. Indeed under Maastricht there were also penalties for non-compliance (although not automatic), which were never applied for the fairly obvious reason that countries unable to pay down debt are also unable to pay fines. I suppose they could put the Finance Minister in jail. It’s beyond parody. You couldn’t make it up.
There are a few additional measures, but they are essentially trivial. Balanced budgets are to be written into constitutions. But if they’re not achievable to start with, it’s difficult to see how constitutionalising them will help. There is a whole series of requirements to seek approval from the Commission and to work towards common policies. Judge for yourself how effective that’s likely to be.
At the end of the day it’s just the Maastricht Criteria re-heated, and likely to be about as ineffectual. I think it was Albert Einstein who said that a sign of lunacy was repeating the same action in the hope of a different outcome. And it was the Ancient Greeks (probably not Euripides) who said “Whom the gods wish to destroy, they first make mad”.