07/05/2024
In CSI articles
Why is the creation of a European federation essential from an economic point of view?
Written by : Maxime MAURY
A clandestine problem :
The real strategic issues have largely escaped the European election campaign.
Texts have been secretly drafted to introduce majority rule in the European Council in the near future and thus enable the European Union to transform itself into a Federation. Mario Draghi, the former head of the Italian government and President of the ECB, is ready to lead the European Commission (or Council) in this radical transformation.
All hypotheses were examined:
The Federation could be formed without Poland or Hungary, with the European Union becoming a second circle around the federal core of the euro.
What remains dubious in this perspective is that, on the one hand, the peoples would not be consulted. On the other hand, the federal framework based on subsidiarity would remain unclear. In a federation, only that which cannot be better dealt with at grassroots level is dealt with at central level. A truly well-designed federation would therefore give powers back to the nations (standards). By the very principle of subsidiarity.
Despite these reservations about the method, there are several reasons why the federal transformation of the eurozone is imperative.
Here are the six main ones:
1) A single currency cannot last without a transfer union:
We know from the work of Nobel Prize winner Robert Mundell that in a monetary union, wealth tends to be concentrated in the centre. This is the principle of : This is the “money goes to money” principle, which stems from competitiveness and the impossibility of correcting distortions through devaluation.
A transfer union was launched in 2020 with the 800 billion Next Generation plan for the energy transition. But we are coming up against three difficulties that require a federal structure:
– Of the 800 billion planned, only a quarter has been drawn down 4 years later;
– Neither the debt nor federal taxation (carbon tax at the borders) are on the agenda;
– The natural centrifugal force has returned at full gallop.
2) The eurozone needs a “Savings and Financing Union” to offset the concentration of wealth at its centre:
Surpluses are concentrated in the north, but investment needs are everywhere. The eurozone is currently well behind the United States in terms of investment, R&D and productivity. We therefore need to allow savings to flow southwards and to the periphery. This is what Enrico Letta calls a Savings and Financing Union. It would enable the same savings and debt instruments to be used throughout the eurozone. This would strengthen the zone’s depth and liquidity and put it on a par with the United States.
3) A fiscal and social union is essential:
It should have accompanied the birth of the single currency 25 years ago, but this has not been possible. Its absence creates mechanisms for dumping and distortion of competition.
4) The policy mix calls for greater investment to achieve the energy transition and make up for the gap with the United States:
The eurozone, whose GDP was equivalent to that of the United States in 2008, is now suffering from a gap of 1/3 against the dollar. The gap in terms of investment, R&D and productivity is impressive (see slideshow presented by Maxime Maury on LinkedIn). The reason is simple: the eurozone’s policy mix is ill-adapted. Fiscal stimulus is twice as strong in the United States. The only way out of the budgetary straitjacket, which is no longer appropriate, is to use federal debt to finance transition investments.
5) Europe needs to assert its sovereignty and resilience:
We need a “Europe of power” in all areas. Armaments, the army, energy, food and medicines should be the main areas.
applications
6) You can only “make the rich pay” at European level:
The tradition of Rhenish or European capitalism is one of low inequality and solidarity.
supportive societies. In France today, the pay scale ranges from 1 to 1000
between a night nurse and a CAC 40 CEO. Dividend distributions (160
billion) and companies buying back their own shares (30 billion) are at unprecedented levels.
have reached unprecedented levels. At the risk of scaring off capital, we can no longer
We can no longer deal with this issue within the narrow confines of France.
In this sense, 25 years after the birth of the euro, European federalism is an obvious and urgent necessity.
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Sincere thanks to Dr Maxime Maury for his support of the Cercle de Stratégies et d’Influences and for contributing his expertise to our work.
Author:
Maxime MAURY
“Professor and former Regional Director of the Banque de France
Dr Maxime MAURY is an affiliated professor at Toulouse Business School and the Institut Catholique de Toulouse. An Officier des Palmes académiques, his previous positions include Regional Director of the Banque de France in Toulouse (2016-2019), Clermont-Ferrand (2009-2015) and Caen (2007-2009), and Departmental Director of the same institution in Troyes and Arras.