Federalisation: Coming to a cinema near you?

By Luke Prescott

The 1932 Race for the White House saw two very distinct choices presented to the wearied American public. On the one hand was the incumbent President Hoover who did not envisage a great federal role to provide relief to the American people. Hoover insisted that a particular brand of volunteerism could act as a cure-all, and wished to limit federal regulation of the economy overall.

On the other hand was Franklin Delano Roosevelt who campaigned on a platform of much increased public expenditure and built an alliance on this promise with the poor, tired and hungry termed the New Deal Coalition.  The American people overwhelmingly voted for much greater federal involvement after years of waiting for a State intervention that couldn’t deal with the scale of the crisis.

It is highly unlikely that as Europeans we’d ever face an election to chose how we want our leaders to deal with the economic problems of the EU (markets move too quickly for public consultation), but the huge bail outs of late have presented us with a clear opportunity to debate and decide as Europeans what we want from Brussels.

The dreadfully literal and sobering debate over the future of the Eurozone and the EU has occupied the heads of member states over recent months as financial contagion spreads through the Eurozone. Sinking investor confidence is not only due to poor economic outlooks across the EU but of a seeming inability of EU leaders (reluctance, in the case of the UK) to fully grapple with the problem.

In pumping billions into multiple bailouts the EU has created stronger and more intimate ties than any treaty – key decisions about the future of Greece, of how it raises taxes and where it spends its money, are being made in Paris and Berlin. Holding such a high stake in struggling Eurozone economies has legitimised critical and even offensive displays from Merkozy recently; grinning when asked of their confidence in Berlusconi and strongly condemning Papandreou’s plans for a Greek bailout Referendum.

The ideas being floated to resolve the current crisis all involve much greater European integration. One of  these ideas is to create Eurozone bonds that are representative of the whole Eurozone to replace individual state bonds which could help struggling states to stabilise their own economies; and the idea is generating momentum.

Italy would obviously greatly benefit from an absorption of more favourable bond yield rates (Germany for example, pays just 1.8%). Consensus is growing that many Eurozone states will have to give up a great deal of independence when it comes to who and how they tax, and how much and where they can then spend in order to receive ever greater bailouts.

George Osborne stated on November the 14th 2011 that those countries will be required to agree to a ‘big loss of national sovereignty’, and the Eurozone will have to coordinate and act together with regards to wider fiscal policy. But many of these ideas of greater economic coordination and tax cooperation are restricted to the Eurozone (which the UK is not part of) and not of the EU.

This may lead to what many have now termed a ‘two-tiered EU’, made up of the ‘ins’ who are incorporated into a cohesive and deeply integrated Eurozone and of the ‘outs’; those countries who are part of the EU by name, but are not fiscally integrated into the pooled resources of the Eurozone.

Is the UK in danger of being left in the slow lane of a two-tiered EU?

In Parliament, politicians on both sides of the aisle have utilised the crisis to score points, which compounds the uniquely unhelpful British viewpoint that this is an external crisis. Electoral boundary changes and the prospect of fierce fights at the next elections led to 81 Conservative MPs rebelling on the recent Referendum on the UK’s EU membership. Many rebels were not led by conviction but instead voted in favour of a referendum to gain the valuable political capital when they return to their Little Englander constituents.

Even Ed Miliband made it very clear he would support the Government and guaranteed Cameron the votes he needed to ensure the Bill was put down, making it all too easy to be a Tory rebel and very difficult for Cameron to defend his three-line whip. The debate surrounding the rebellion illustrates just how far away the public and their MPs dangerously believe Eurozone problems lie.

After a rightly embittered Sarkozy told Cameron to ‘shut up’, the President of the European Commission José Manuel Barroso has stated in The Observer that the EU needs to redefine itself for a 21st Century defined by mega-states like India and China; “We either unite or face irrelevance”. Barroso also delivered a much needed warning to Cameron and the British public in general about dragging our heels; “The speed of the European Union can no longer be the speed of the most reluctant member”.

Decisions are being made today about the future of the EU, and decisions are made by those who show up. Cameron may need to accept the inevitable backlash from his backbench and embrace much greater integration in Europe – these decisions will not wait until after the next General Election. I suspect Cameron may be more of Europhile than he cares (or indeed, dares) to admit.

Greater integration and a shared representation are obviously a good thing for member states struggling to get heard on a world stage dominated by the US and China. The EU has shared interests and values- not merely economic – and although currently there may a reluctance as Europeans as to whether we want to change route and head toward federalisation, we may find that we have already passed that fork in the road after a series of huge bailouts.

The bailouts, the prospect of involvement of the European Central Bank and creation of Eurozone bonds has set a precedent for the future. These decisions create unbreakable bonds of reliance and of a mutual destiny, at least fiscally at first.

One thing that the EU will gain from this crisis is a shared destiny; could this set the foundation that will build a single nation of 27 member states? The shared sufferings and failures that have left Europe in the grip of financial turmoil could lead to an exacerbated and expectant European public demanding swift, unified action to promote growth and leadership in the 21st Century.

Indeed, in five or ten years time when the markets have settled, we may look back as Europeans and see that what saved the European economy was those key decisions taken as a group of States together, and that each member state would have been considerably worse off trying to going it alone. Greater federalisation across the EU is a path we cannot turn back on and recent developments (Anglo-Franco operations in Libya and the fiscally driven decision for those two former rivals to now share aircraft carriers) have shown that when we act as one Europe, individual national sovereign issues can be achieved on a much greater scale.

Tangled economics brought the American States closer together during the Great Depression; individual States and Americans looked to Washington DC for a Federal solution. Hoover defined early sentiments on how to deal with the crisis; that the market would solve it without federal intervention.

The election of Franklin Delano Roosevelt on a mandate of huge federal spending and intervention acted in itself as a referendum of where Americans felt they were as a nation, and what they wanted from a Washington DC. Will the sovereign debt crisis and the Great Recession help Europeans decide what exactly it is we want Brussels to be doing?

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