Europe’s Fiscal Crisis Escalates to Democracy Crisis

One of the most urgent questions of our time is: what will become of the European Union? Its currency union is in deep trouble, an increasing number of its member states are in dire fiscal straits with urgently unsustainable debt, and its form of government suffers from a democracy deficit as bad as the Greek budget deficit. Having emerged from a truly optimistic effort at bringing former political and military adversaries together, the EU has lost its roots as a project of international cooperation. Instead, it has morphed into a political project with its own life and ambitions where democracy is being sacrificed on the altar of super-statism.

Few people have been as outspoken about this problem as Nigel Farage, Member of the European Parliament for the UK Independence Party:

It is a bit of a stretch to say that the EU is intentionally anti-democratic, but there is absolutely no doubt that Farage is right in that the EU is effectively anti-democratic. He makes a very good point that when the EU evolves as an organization, it does so in a way that further increases its democratic deficit.

And there is more to come. In fact, the current fiscal crisis is beginning to merge with Europe’s democracy crisis, in a way that is causing open tensions even between politicians in different EU countries. An article in Bloomberg.com makes the point well:

Disagreements within the 17-nation euro area are undermining the future of the European Union, said Italy’s Prime Minister Mario Monti as the stand-off on European Central Bank support for Italian and Spanish debt hardened. “The tensions that have accompanied the euro zone in the past years are already showing signs of a psychological dissolution of Europe,” he told Germany’s Spiegel magazine in an interview published yesterday.

The solution to the fiscal crisis in each of the troubled euro countries lies at the national level, where the decision can – and should – be made on how to reform, or preferably dissolve, the welfare state (the root cause of Europe’s fiscal crisis). Instead, the mindset among Europe’s politicians is increasingly that they need to save the euro and the EU even if the price is national economic, constitutional and political sovereignty.

This tension between democratic national governments and the EU is put on full display further down in the Bloomberg.com article:

[Italian Prime Minister] Monti also appealed for European governments not to be overly bound by their parliaments. “Of course every government has to follow its parliament’s decisions,” he told Spiegel. “But every government also has the duty to educate the parliament” or risk making a euro-area breakup more likely.

This provoked comments from German politicians echoing the strong points made by Nigel Farage:

Hans Michelbach, a lawmaker representing the coalition Christian Social Union, said in an e-mailed statement that elements of Monti’s comments are “anti-democratic” and incompatible with European principles. Michael Meister, the deputy leader in parliament of Merkel’s Christian Democratic Union, called for “not less, but more democracy in Europe,” Tagesspiegel newspaper reported after Monti’s remarks.

In other words, in the wake of the fiscal crisis and the tensions it has put on Europe’s super-state institutions, there are now tensions emerging at an even higher level, namely between the need for the super-state institutions to move ahead regardless of what the people say, and the demand among the European peoples to maintain democratic governments. Democracy is no doubt at risk, if Europe tries to solve its fiscal crisis with more statism instead of less. As the EU Observer reports, this risk seems to be of no consequence to the Eurocrats pushing for yet more power to the EU and the ECB:

EU officials have drawn up a far-reaching plan that would eventually turn the eurozone into an outright fiscal union, but acceptance by EU leaders – whose powers it reduces – will require a major leap of political faith. The seven-page document suggest that ultimately the 17-nation single currency area will need a treasury office and a central budget. Among the short-term changes required is the de facto handing over of budget power and economic policies to the EU level. … Budgets that breach fiscal rules would have to be altered.

This means a centralized welfare state, run from Brussels under fiscal rules that will force all euro countries to do what Greece is trying to do, namely balance a budget by raising taxes and cutting spending. But so long as the massive entitlement programs remain in place it is economically impossible for the EU to do at the super-state level what individual countries have failed to do at the national level.

The paper – drawn up by the presidents of the European Commission, European Council, Eurozone and European Central Bank – moots giving the European Central Bank the ultimate authority. In the medium term, so long as a “robust framework for budgetary discipline and competitiveness is in place, some form of debt mutualisation “could be explored.” Meanwhile, labour policies and tax polices – until now a no-go area for the European Commission – will no longer be exempt. An integrated economic eurozone will need “co-ordination and convergence in different domains of policy” says the paper explicitly mentioning “labour mobility” and “tax coordination.” “Let me tell you here that fiscal union is about much more than just euro bonds. It also means more co-ordination in taxation policy and a much stronger European approach to budgetary matters,” said commission President Jose Manuel Barroso at the European Policy Centre in Brussels on Tuesday (26 June). “Faced with this stark reality, standing still is not an option. A big leap forward is now needed.”

This is extremely dangerous. The Eurocrats are trying to cure lead poisoning by injecting the patient with lead. And just to make this entire process toward more super-statism more bizarre, an opinion piece in the EU Observer makes the case for yet another super-state project in Europe:

Apart from the cynicism of a public relations exercise talking about a “banking union” after tens of thousands have protested against bailing out banks with taxpayers’ money, leaders have also missed an opportunity to tell citizens what they are most worried about: will their pensions and savings be guaranteed if a country goes bust? A ‘social union’ might have been a better response. … Spain, Italy, Portugal, Ireland, Greece – all have to cut back drastically on their social spending to meet the fiscal targets and convince markets they will not go bust. Meanwhile, public anger is growing and the support for such measures is zero. … On the other hand, public support for a eurozone-wide social security scheme may also be hard to achieve. Social spending is still considered a purely national, non-EU matter. But the reality is that eurozone deficit and debt rules make cutbacks mandatory which in the end affect wages, pensions, hospital bills, subsidised cancer treatments, schools, science programmes. The most sensible thing to do would be to tell citizens that transferring some of these schemes at eurozone level may actually be a safer bet. That in the end people would get their pensions no matter what and that research programmes will not be cut overnight to meet deficit targets. But in order to do that, EU leaders would need something they have not shown in a long time: honesty and courage.

There you have it: a European welfare state. More of what caused the crisis, less of what can solve it. The losers at the end of the day are Europe’s taxpayers who will be paying more taxes for less government – just as they do now at the national level – and Europe’s voters who will have even less influence over the policies that set the terms for their personal finances, their access to health care and education, their retirement security… in the end their very lives.