Maybe. It might stabilise the Euro. But it won't solve the economic problems of southern Europe, and the Euro will ultimately still be a drag on parts of the continent.
- Fiscal union is improbable: the scale of the transfers is so large, and the number of countries in the Eurozone so great, that it's extremely hard to imagine the extent and depth of political agreement needed to implement this policy being achieved. If France and Germany are absolutely agreed at both electorate and government levels then it does become more likely, but the agreement of the Netherlands and Finland, among others, is still hard to envisage. The likelihood of an agreement increases if you substantially water down the depth of the fiscal union and the depth of fiscal transfers required - the EU muddled compromise - but doing so also would also reduce the effectiveness of the policy.
- Fiscal union is unsustainable: for it to be effective, very large scale fiscal transfers will be needed on an indefinite basis, and it's very unlikely that the net contributor states will be able to maintain unanimous and unyielding political commitment to subsidising 'profligate' nations indefinitely. If populist parties manage to take even just a single contributor-state out of the union, the subsidy burden becomes much greater on the others, accelerating break-down in the union.
- Fiscal union is ineffective: it may stabilise the Eurozone in the near-term but it will not address the underlying structural and competitiveness problems in the troubled economies. It will also not give these countries the monetary or fiscal freedom to facilitate solutions. It may even reduce the pressure on these countries to solve their economic problems, eventually generating resentment within contributor-states electorates.
Fiscal union will not fix the underlying structural problems in the Greek, Italian, and Spanish (etc.) economies. Many of the problems debilitating these economies predate the introduction of the Euro and remain unsolved partly because these states are unwilling to identify/accept/address their problems. But the Euro also makes these problems much more acute, and simultaneously much difficult to tackle, because the Eurozone framework imposes a kind of straitjacket on these economies and makes them less flexible and in the long-run less competitive.
Stabilising the Eurozone via fiscal union simply means northern member-states subsidising paralysed economies on an indefinite basis. It means the problems of the struggling countries are less likely bring down the prosperous countries. But it won't make life much easier in the struggling countries. It's a stability measure - one that comes with a phenomenal price tag - but not a real solution to the fact that Economic and Monetary Union in itself inherently makes life in 'outlying' (economically, not geographically) economies significantly harder.
Fiscal union will not address the underlying issues so why should the northern states pour so much money into a system that will fail to meet the desired output specification? That is - stability and growth, not merely stability alone.
You risk ending up advocating a policy literally because it enables us to keep going with a policy that evidently doesn't work - but which we put up with because, bluntly, it's not progressive to admit that it doesn't work, and the suggestion that it might never work is politically toxic and unthinkable. But what if that's true?
We're desperately trying to find a form of integration that preserves the form of integration we already have. The big idea in European policy-making is literally integration at all costs. But the challenges of the modern world are so complex that it seems implausible to me that can really be the solution to every problem. Conservatives shouldn't be able to occupy the space of rational criticism of European policy-making - the EU does have flaws and some of its policies may be inadequate. Progressives should be able to say - look, I like Europe and I want to preserve a European Union and preserve European cooperation, but I don't think the Eurozone is stable and that instability and contagion risks jeopardising the European Union as a whole.
If you want to prevent populists tearing the union apart, I think we need to look at ideas other than 'keep what we have and add more integration'. That may mean slowly phasing-out the Euro - in other words, less integration, less federalism. Or it may mean taking a page from our Roman ancestors and loosening the one-size-only straitjacket by subdividing the European economic policy framework into a 'Northern European Union' and a 'Southern European Union', or somesuch arrangement; if we can't have a single currency, maybe two or three currencies would be stable and at least be better than going back to a more than a dozen. Or perhaps it may mean a new single currency with a smaller and more sustainable membership able to maintain the federal cohesion you seek. Or it might mean something else entirely.
To give a very simplistic analogy, fiscal union means agreeing to share a bank account with a bunch of people, some of whom you trust implicitly, but some of whom struggle to manage their money. It may not entirely be their fault. They may be lovely people who mean well. And sharing your bank account with them seems well-intentioned in a spirit of family and solidarity. But it will not solve the problem and it will not work. Both sides will become distrustful and feel like the other doesn't understand or isn't listening. Instability and discord is the end result. I don't mean, by this analogy, to imply any kind of cultural superiority over Greece etc - lord knows my own country's problems are the world's gossip these days - or that individual southern Europeans are financially untrustworthy. I simply mean to draw attention to the fact that some of these governments (not common citizens) have poor track records in this area and the progressive drive for happy solidarity is perhaps a bit naive and risky.
The quotes below are from very Eurosceptic sources (The Telegraph and Forbes) with whom I share little in common, and whose arguments don't necessarily fully support or match my own, but I wanted to include them because I find them interesting and because the help illustrate the issues I am talking about. These may be right-wing sources but what they say seems reasonable and evidence based, more so at least than the progressive vision of ever closer union. Please at least consider what they are saying even if you share my disdain for conservative outlets. Personally, I am a progressive and a former European federalist. But I am also a pragmatist, and if it seems to me that a conservative is talking sense, I think we should at least hear them out and use the opportunity to self-reflect on the evidence and realism of what we believe.
Forbes article said:
Telegraph article said:
