EUROPE'S FISCAL UNION AS A SOLUTION TO THE GLOBALIZATION PARADOX

By Nolan Weber
Staff Writer

The moral force of democracy, the economic sway of globalization, and the political power of national sovereignty are each fighting for one of two positions at the table of international power. Writers, scholars, politicians and economists have found this idea profound and readily applicable to world affairs with stunning implications. This thesis, presented in Dani Rodrik’s The Globalization Paradox, suggests that in a dynamic zero-sum game a country must reconcile these competing aspects of nationhood or face geopolitical and socioeconomic tension that threatens internal stability. Suppose a country desires strong sovereignty in the international arena determined by a democratic electorate. Its global trade must suffer as it will lead to a protectionist commerce policy. Assuming a country increases global trade and maintains strict national self-determination, it must let democracy fall by the wayside, as in the case of China. If a nation exposes itself to greater global commerce and seeks to maintain democracy, its sovereignty must be sacrificed, like the countries of the European Union. The EU serves as an ideal case study and yields the most pertinent illustration of this theory. Moreover, its implications are incredibly powerful the evolution of the EU from an economic confederation to a supranational federalist political economic system.

As a prefacing note, consider events as recent as the likely election of Francois Hollande, the breakdown of the Dutch government and the ongoing Greek debt crisis —and the EU’s serious consideration of a monetary and fiscal union as a means of stabilization. All share a common denominator in The Globalization Paradox. For instance, with respect to Hollande’s EU political policy, he supports an EU Directive on the protection of public services or the conjoining of French and German civic service. This would shield many services from the influence of globalization either by directly protecting state-funded services or making a compromise by losing some sovereignty to maintain some level of direct influence over sovereign affairs with Germany. Naturally the vehicle to achieve such ends would be the morally sanctioned force of democracy. Adding to the more nationalist slant of Hollande is his favorability toward “growth” over “austerity” measures—a position not held by the collective conscience of EU policy makers.

The current dissolution of the Dutch government came about along similar lines of the somewhat antagonistic relationship between sovereignty and globalization. However, considering no politician would ever attempt to sacrifice democratic institutions, they are diametrically opposite notions in this instance. Nonetheless, the divide came over, among other ancillary reasons, the decision to adopt the EU’s target of no more than 3 percent deficit in relation to GDP. The majority coalition, Rutte, saw its primary political ally breakaway in favor of policy less rigid and based more on sovereignty demonstrating that what is good for one country may not be good for another.

However, these recent developments are small changes compared to the long-term planning and theorizing laid out in the December and March quarterly summits of EU leaders, which occurred in the immediate wake of Greece’s financial turmoil. I advance this because Germany, the plurality shareholder of the EU’s worth, is pushing for a fiscal union in addition to the monetary union already in place. When one considers the EU’s political economic model, this is a logical progression. The moral hazard of a having access to a printing press, especially if one is only fractionally responsible for it, has to be reconciled. Needless to say, dissolving the key makeup of the EU’s political economic identity by breaking up the Union or abandoning the Euro is hardly an option.

With a fiscal union in place, all budgets that derive revenue from taxes would ostensibly now be subject to legitimated scrutiny by the EU. The implications of this are far-reaching and globally shaping to say the least. If, for example, a small Pomeranian spending bill were to pass at a local level, but call the anger of other EU nations for reasons of practicality, politics, or otherwise, there could be a supranational reversal of local policy by virtue of the democratic element of The Globalization Paradox. One could argue that the single currency system already produces a quasi “United States of Europe” or a “Confederate States of Europe”. Yet, the introduction of a national, provincial, and local oversight committee within the Union certainly commits the ambiguous political classification of the EU to something a bit more historically tangible. As such, the way the EU is categorized by academics, economists, and global citizens requires revision.

Lauded scholars of European Integration Theory and Practice, Simon Hix and Bjorn Hoyland, describe the EU as a political system but not a state. They make a solid argument as to why traditional political monikers do not do justice to what the EU is. I agree when they say that it does not fit the mantra of international organizations, such as the WTO, or the conception of a federated state, such as the United States of America. Yet, calling the EU a “political system” as a political scientist is akin to a market research analyst classifying McDonald’s an “eatery” rather than a “fast-food restaurant”. It defeats the purpose of being an academic: to add understanding, nuance, and organization to the world. Nevertheless, it is important to note that when Hix and Hoyland wrote The Political System of The European Union , they were acting under a political integration process that was slowing since Maastricht.

National and international political movements, orientations, and reorientations are dynamic; they are always moving in some direction at a given pace. While it is true that treaties after Maastricht were less and less politically powerful and really just addendums to the 1992 treaty, what would one expect? Arguably, the first cross-national, cross-cultural, regional currency union had been formed! The established academic conceptions of the pace and nature of European Integration are being revised. However, this history is still in its early stages. Indeed, the ambiguity of the European Union’s status as a “political system” speaks to its youth among more seasoned forms of governance.

I posit that the Financial Crisis of 2008 and its fallout have created an environment where justifiable and momentous action can and will be taken. The debt crises of Portugal, Italy, Ireland, Greece and Spain provide an unprecedented level of turmoil and uncertainty, given their ground breaking political orientation. Moreover, international counterparty risk exposures intensify the call for politically and economically unifying measures to be taken. In the strong likelihood of some measure of fiscal supra-nationalism being adopted, it will most likely not be a wholesale interjection of impromptu federalism. The “Europeanized” younger generation is not yet politically mature and compromise is inherent within notions of integration. The fiscal union will spark a serious sea change but a more conventional federal organization of government will take time, economic growth, and generational replacement. Similar to the United States’ experiment with a confederation, fiscal unification accorded with a more powerful central executive political authority will be needed to unify collective action to more effectively weather the economic storm. Granted, this begs the question for a separate time and place: at what point will The European Union end and the United States of Europe begin?

Works Cited

Baker, Luke, and Mark John. “Europe Pushes Ahead with Fiscal Union, UK Isolated.” Reuters. Thomson Reuters, 09 Mar. 2011. Web. 26 Apr. 2012. .

“François Hollande: Towards a European ‘New Deal’?” François Hollande: Towards a European ‘New Deal’? Web. 26 Apr. 2012. .

Hix, Simon, and Bjørn Høyland. The Political System of the European Union. Basingstoke: Palgrave Macmillan, 2011. Print.

Rodrik, Dani. The Globalization Paradox: Democracy and the Future of the World Economy. New York: W. W. Norton &, 2011. Print.

Courtesy of motiqua

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One response to “EUROPE'S FISCAL UNION AS A SOLUTION TO THE GLOBALIZATION PARADOX

  1. Fiscal union is not going to happen. The ongoing incompetence of the ECB is not likely to inspire confidence in further centralization.

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