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The EU: Alexander Hamilton or George III?

European Union’s Brexit negotiator Michel Barnier gives a news conference following the third round of Brexit talks with Britain, in Brussels, Belgium, May 15, 2020. (Francois Lenoir/Reuters)

The Wall Street Journal’s editorial board takes a look at the way that the EU is trying to combine tackling the effects of the pandemic with a broader agenda:

Whatever else you might say about them, European Union mandarins aren’t short of ambition. They have long wanted to knit the EU into a true federal union, and they’re seizing the coronavirus as a €1.9 trillion opening.

That’s the combined size of the €750 billion one-time virus recovery package European Commission President Ursula von der Leyen proposed Wednesday, and the €1.1 trillion seven-year budget the Commission also is proposing that includes a heavy dose of virus relief. This is on top of €540 billion in Covid-19 relief the Commission unveiled last month, and however many trillions the European Central Bank deploys in the crisis.

Brussels wants Europeans to focus on how the mandarins will spend the money. Much of it will go in grants to states, apportioned on such factors as youth unemployment . . .

Far more consequential is how Brussels would pay for this. The money from the seven-year budget would be provided in the normal way, as block grants from the EU’s 27 member states to the Commission. But Brussels also wants to borrow a large portion of the €750 billion emergency program — and then impose new, EU-wide taxes on everything from plastic waste to digital commerce to repay the bonds.

This new borrow-and-tax authority is the main point. The alleged inspiration is Alexander Hamilton, America’s first Treasury Secretary. His plan for the new federal government to assume Revolutionary War debt from the states, and then repay that debt from the federal government’s revenues, put the U.S. on track to become what it is today.

Some European leaders have hoped for decades that issuing eurobonds mutually backed by all members would knit the bloc together, or that new digital taxes might do the trick. Now they think the only way to keep the EU from splintering is to forge a new borrowing capacity that can transfer resources from richer nations to poorer.

This misunderstands American history. Before Hamilton wrote his First Report on Public Credit, he coauthored the Federalist Papers to persuade his fellow New Yorkers to ratify a new Constitution. He understood that a political union providing democratic accountability for the federal government was a precondition for fiscal union . . .

And there’s the rub. There is still no evidence that voters in the EU’s member states want to enter into a political union on anything approaching the American model. For fairly obvious historical reasons, the nascent American Republic was a nation, or proto-nation, in a way that the EU’s ungainly confederation is not. This is understood very well, if not widely admitted, in Brussels, but those steering the European project have always appreciated the value of, to use that entertainingly cynical phrase, a ‘beneficial crisis.’ The euro was built on a foundation of sand. To launch a currency union without the backing of at least a partial fiscal union was asking for trouble, but the necessary political support within the member states for a fiscal union simply was not there. No matter: The single currency was launched anyway. The thinking of at least some of those responsible was that, if trouble came, it would set off a crisis that would create the conditions in which some sort of fiscal union would become politically palatable, if only because the alternative was an economic catastrophe.

Trouble duly came calling, but, in the end, it turned out that the first euro-zone crisis was not enough (quite) to do the trick. The question now is whether the impact of COVID-19, particularly on the already weakened economies of the euro-zone’s south, will scare the currency union’s members into a fiscal union. Probably not (or not exactly) but the greater the taxing power that the EU assumes, the louder will be the demands for greater democratic accountability — no taxation without representation and all that. And logically, ‘representation’ would have to be at the EU, rather than the national, level, and it would be achieved by giving more power to the EU parliament at the expense of national parliaments.

The poorly designed currency will thus have led to an economic crisis that forced the pace of fiscal integration, and the crisis of legitimacy that could well ensue from forced fiscal integration will force the pace of political integration. See how this works?

The Wall Street Journal:

Perhaps the EU needs closer fiscal and political integration to survive this crisis. But then someone should tell voters, and persuade them to assent. They’re entitled to change their minds after 2005 [when a proposed EU constitution was rejected], especially if a new political organization for the EU gave voters more direct control over Brussels.

The problem with that is that the EU Parliament cannot, as things currently stand, in any true sense of the word, be democratic, for the simple reason that there is still no EU ‘demos’. One day there might be, but it doesn’t exist now, and it’s not going to be created overnight by transferring more powers to a parliament that represents everybody, but nobody. ‘Control’ will not in any real sense lie with the voters, but with a technocracy that will use the illusion of increased democracy to produce exactly the opposite result.

And there are a good many reasons to think that, in the end, the technocrats will get away with it.

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