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Greek crisis: EU Public Goods Require a Stronger EU

The political crisis in and with Greece demonstrates that the political system of the eurozone is not sustainable for a monetary union writes Daniela Schwarzer. While peace still prevails on the continent, dire economic and social conditions have generated resentment between EU countries and against the EU. Loud voices in the Greek debate blame the euro and the interference of European institutions or other governments for their suffering. Likewise, national tax payers in Germany struggle to understand why they should agree to new rescue packages and a debt relief if another country is not playing by the rules everyone agreed to.

The democratic disfunction of Europe has not gone unnoticed by national political parties, and not only in Greece. It is one of the reasons why right-wing populists and nationalist left-wing parties in several member states advocate an exit from the euro, and more broadly a repatriation of competencies from the European to the national level. The claim is also being made that national parliaments are the true sources of legitimacy and the best venue for democratic decision-making.

If one believes that giving up the euro and dismembering the European Union is the right way forward, then renationalization and repatriation may have a valid point. If one thinks, however, that global interdependencies, power shifts, and limited resources mean that member states have lost the capacity to meaningfully determine their fate alone, then the EU actually needs to be stronger and we need to improve democratic decision-making to stop the erosion of legitimacy in European policymaking.

The EU system was built on a system of negotiations between national democracies, leading to compromise, which is often the lowest common denominator. Only determined political leadership from national capitals and often supranational institutions can bring about more ambitious European decisions (see Rachel Tausendfreund’s comment). For decades, this has worked. Today, this is no longer enough, mainly because of the euro.

The single market and the euro have created public goods that affect all European citizens, including macro-economic developments like inflation, financial stability, growth, and, as a consequence, employment. With a single currency and monetary policy, these public goods can best be provided when joint decisions on the EU level are taken alongside national decisions. If public goods exist, European citizens together should be able to determine the large orientation of policies that affect them all.

For example, in an internal market that also shares a single currency, it is impossible for a single member state to implement an expansionist macro-economic policy. If such a policy is chosen, the effects spread across borders and stimulate demand in neighboring countries. But while the neighbors benefit from the higher demand, the initiating government alone is stuck with the higher deficit. At the same time, the introduction of the single currency and the integration of markets means that the externalities of one government’s irresponsible decision are felt by the others. This is why a complex system of rules and surveillance mechanisms has been devised, but it needs to be grounded in democratically legitimate structures.

Another example is financial stability. A liquidity or banking crisis in one country, as we have seen, can destabilize other member states, as well as the eurozone altogether. Under this pressure, a mechanism was designed that provides liquidity to governments and banks, based on national contributions and guarantees. National taxpayers’ money has been used to help other member states. It is nearly impossible to communicate to the public that this not only benefits the recipient country, but the eurozone as a whole. As the crisis with Greece has shown, it is no longer sustainable for national parliaments or referenda to act as veto players and endanger the existence of European public goods. The current system has encouraged political polarization and a loss of trust, and hurt overall economic prosperity. The existing rescue mechanisms require European resources and European decision-making on how to spend them.

Decisions of national governments affect citizens in other member states and need to be monitored. More needs to be done, though, to equip the eurozone with the capacity to actually provide the public goods that come with the creation of the single currency in a more efficient and democratic fashion. The debate has started, for instance on eurozone fiscal capacity. Today, budgetary policy remains under the control of national governments, but these only represent partial interests and can never speak on behalf of the whole eurozone. If we were to move ahead with the creation of a fiscal capacity for the eurozone, we would also need to install democratic decision-making structures on the European level.

This would not entail a “Superstate EU.” Only where European public goods are affected would the geographical spread and the decision-making level need to be aligned. For this, the concept of a European Republic has been coined. In other areas, compromising between national positions can continue to be the norm. And in other cases, the EU can do less while national or regional entities take the lead. But either way, we can no longer leave sole authority for European public goods to national governments.

Dr. Daniela Schwarzer is GMF’s senior director for research and director of both the Europe Program and the Berlin office. Follow her @D_Schwarzeruf. This articel was first published by the GMF.

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