A point of no return has been reached in the European continent when Greek Prime Minister Alexis Tsipras announced a referendum on the creditors’ final bailout offer.
Let us not be distracted by this roller-coaster ride of the eurozone, however consequential it is for Syriza, for Greece and for the eurozone.
Let us confront the real issue: What has gone wrong at its very core with the European project?
To begin with, we can’t blame anyone for the current deadlock.
Greece is right to rally against the policy of “extend and pretend” which gives no end in sight.
So is Germany justifified to protect her hard-earned taxpayers’ money.
So is Spain right to raise the issue of moral hazard and curb the rise of populism at home.
Clearly, national perspectives are not enough. They lead us to nowhere.
What we need is a unique perspective of European political history.
The European project started off with the European Coal and Steel Community in the 1950s, later to be merged into the European Economic Community (EEC). The EEC was essentially a customs union where internal trade barriers were removed. It promised nothing more, nothing less.
From the late 1980s, amidst a thaw in East-West relations, there was a surge of support for European federalism among elites, and this culminated in the Maastricht Treaty and the eventual replacement of the EEC by the European Union.
This was the time when the EU, or “the United States of Europe” as journalist T.R. Reid dubbed it, gained significant control over a wide range of issues including social reform, justice, environment and regulation.
The euro was one big project of the time.
The rationale for the creation of the euro is alarmingly federalist, as was asserted by Günter Verheugen, then Germany’s minister for Europe. He declared: “[N]ormally a single currency is the final step in a process of political integration. This time the single currency isn’t the final step but the beginning.”
However, the European nation-states were clearly not ready for the federalist implications of the euro. Contrary to what is prescribed for a federation, the EU member states kept their grip on debt issuance, bank bailout and, to some extent, fiscal adjustment, even though they lost control over interest rates.
As Paul De Grauwe of the London School of Economics noted, “the euro is a currency without a country”.
However, he said, “to make the euro sustainable a country will have to be created”.
For the eurozone to avoid another crisis, most economists agree that the EU needs to be a fiscal union to provide financial buffers, a banking union to avoid costly bailouts, and eurobonds to remove risk premiums on government bonds.
Sensible as these suggestions are, they add up to, yes, a political union, where, as Paul Krugman pointed out, “European nations start to function more like American states”.
But who says there is a pan-European appetite for a political union?
Certainly not France’s National Front, Spain’s Podemos, Italy’s Northern League, or Germany’s Alternative for Germany.
Probably not the mainstream parties either.
Clearly, Europe has sleepwalked to a point where the European project no longer dictates the euro. Rather, the euro dictates the European project.
European leaders should not muddle through as they are doing now, because this is not an option. Intra-European divergence and external imbalances amid one-size-fits-all monetary policy look like a perfect recipe for another crisis.
Neither should the eurozone break without a clear objective in mind. This would indicate a point of reversal for the seven-decade-old European project, which would be condemned to a permanent paralysis.
Unfortunately, unlike after the Second World War, Russia is not aggressive enough to strengthen Europe’s determination to surrender sovereignty for security.
So, what next?
We need to re-imagine Europe. We need to relaunch Europe onto a more sustainable path.
History will, again, be a good reference point.
I am referring to British prime minister Margaret Thatcher’s Bruges Speech in 1988, where she would be remembered for her insight and candor.
The “first guiding principle” for Europe, she declared, should be “willing and active cooperation between independent sovereign states”, which “does not require power to be centralized in Brussels or decisions to be taken by an appointed bureaucracy”.
“Europe will be stronger precisely because it has France as France, Spain as Spain, Britain as Britain, each with its own customs, traditions and identity. It would be folly to try to fit them into some sort of identical European personality.
“To try to suppress nationhood and concentrate power at the center of a European conglomerate would be highly damaging.”
My interpretation of her speech is that Europe should be a confederation not a federation, the EEC not the EU.
A European Confederation, essentially a return to the EEC, will restore the intense political, economic and intellectual race that had injected dynamism to the European continent ever since the Renaissance.
Whether the euro will be abolished pales by comparison here. The thing is the federalist logic of euro will have been defeated. Further, the short-term pain from readopting national currencies will be more than compensated by the long-term gain from reignited momentum.
The Confederation will have an additional benefit of reunifying the eurozone member states and their non-eurozone counterparts.
That said, the Confederation will retain some federal elements of the EU, particularly its common regulatory standards. This is a good way to leverage Europe’s economic prowess and moral and scientific leadership. The rationale here, however, will be practical not ideological.
Frankly, my proposal will not feature in the ongoing debate on Grexit, Brexit or Mediterranean refugees.
Yet, sooner or later, European leaders will make game-changing decisions on the European project.
Because after every major crisis comes every great (re)invention.
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