If Europe wants “strategic autonomy” from the U.S., it is going to have to pay for it. Given the stretched fiscal position of some of the nations that are meant to be leading this drive, most notably France, the question is how. As I noted the other day, France would like the EU to help out, by borrowing directly on the market to help pay for the increased spending. Germany, which in many respects underwrites the euro, is rightly pushing back, and is calling for countries such as France . . . rethink their priorities.
Austrian economist Fabian Wintersberger ponders this issue (scroll down a bit after clicking on the link). He is skeptical about claims that the eurozone is hindered by the lack of American-sized capital markets (as am I; more on that to come). However, he also links the power to borrow with the power to lend and the political power that comes with the latter:
Joint issuance expands fiscal capacity at the supranational level. And once borrowing is mutualized, allocation becomes political. The more debt is centralized, the more power shifts upward.
It is therefore no surprise that the European Commission has long been in favor of such instruments. Control over borrowing implies influence over distribution.
The story of the EU is in no small part the story of how Brussels, in the interests of “ever closer union,” is forever gnawing away at what is left of the sovereignty of its member states. Increased collective borrowing is an effective way of binding the bloc’s members even closer together.
Sneaky? Sure, but that’s par for the course. As I note in a new piece for the magazine, there has, to say the least, never been much popular enthusiasm for the transfer of power away from the member-states to Brussels, meaning that opacity and subterfuge had to deliver what democracy would not:
After two world wars, [Jean Monnet, the most important founding father of what evolved into the EU] believed that Europeans could not be trusted with their own countries, but he also recognized the depth of their attachment to them. The project to subordinate the national to the supranational would have to be top-down, step-by-step, often opaque, and implemented, as Monnet once put it, by “zig and by zag.”
“We decide on something, leave it lying around, and wait and see what happens,” commented Jean-Claude Juncker, Luxembourg’s prime minister, in 1999. “If no one kicks up a fuss, because most people don’t understand what has been decided, we continue step by step until there is no turning back.”
It is, of course, easy to understand the enthusiasm of some of the EU’s member-states for allowing the EU itself to run up a bigger tab on their behalf.
Winterberger:
At the member-state level, the incentives are equally clear. Countries such as France and Spain benefit from raising borrowing constraints. As Stanford economist Hanno Lustig wrote on X:
Hey roommate, I’m bumping into my credit limit on my credit card. Let’s get a joint credit card?
For the EU to encourage this is economically irresponsible but, politically it makes, from a Brussels perspective, a great deal of sense. And in Brussels politics more specifically, the drive toward “ever closer union” trumps economics.
There was no better example of this than the creation of the euro, a decision that was an act of smart politics — it was another device intended to tie the member-states even closer together — but economic lunacy, a phenomenon, of course, not confined to Brussels..
Think of socialism.