As last year’s Nobel economics laureate Thomas Sargent pointed out in his brilliant acceptance lecture, Europe is now roughly where the United States was between the Articles of Confederation of 1781 and the Constitution we know today, which replaced them in 1789. What is desperately needed is an Alexander Hamilton, prepared to take all or part of the debts of the individual states onto the federal balance sheet. What is desperately needed is a recognition that Europe’s present confederal structure is incompatible with monetary union created in 1999.
“We have the dimension of empire…the first non-imperial empire.”
But back to Ferguson:
The solution is available. Since November of last year the European Commission has been actively considering how to create “Stability Bonds” that would put the full faith and credit of the EU (i.e., Germany) behind at least part of the national debts of the member states. Taken individually, some of these debts are hopelessly high. Added together and compared with total euro-zone GDP, they are manageable.
What stands in the way is not French socialism or Greek populism. It is quite simply German complacency. Life in Berlin is good. In Munich, the capital of the German manufacturing machine, it is even better. You should try explaining to the average Bavarian beer drinker at the Stammtisch why he needs to get ready to finance an annual transfer to the Mediterranean countries of up to 8 percent of German GDP. I never get very far.
Oh come on, it’s little or nothing to do with complacency. As the commitment of billions of euros already shows, Germans know that there is an economic case (we could debate how good it is) to keep this wretched show on the road, but, if they continue to do so, it will be without enthusiasm or any sense that they and, say, the Greeks are one people or, indeed, could become one.
Just under a year ago, the then-German president had this to say:
“Solidarity is the core of the European Idea, but it is a misunderstanding to measure solidarity in terms of willingness to act as guarantor or to incur shared debts. With whom would you be willing to take out a joint loan, or stand as guarantor? For your own children? Hopefully yes. For more distant relations it gets a bit more difficult,” he said.
As I noted back then, “more distant relations” was a rather telling phrase.