by Henry Farrell on May 20, 2010

getting interesting …

Wolfgang Schäuble in the “Financial Times”:

bq. Indeed, far from reflecting a growing German Euroscepticism, Mr Schäuble and Ms Merkel have both revived calls for closer political union to underpin economic and monetary union. “When we introduced the euro in the 1990s, Germany wanted a political union and France did not. That is why we have an economic union without a political union,” he says. “Political union naturally means a bit of federalism in the German sense of federal. It means that one can no longer take certain decisions on a national level. That is very hard for the UK. It’s often not so simple for France, but France finds it easier to take European decisions.

bq. “Germany has a lot of experience with federalism, more than the UK or France. If you want to create a federal organisation, you must be ready to have a certain amount of redistribution within it. You can dismiss that by rudely calling it a “transfer union”. But strong and weaker states both have their responsibility. We are asking a lot of the weaker ones, but the strong also have their responsibility, and we must explain that as well.

bq. “We must say very clearly to Germany: we can play our role, but we must know that means there will be decisions taken against us. The weekend before last [in the negotiations over the eurozone stabilisation mechanism], we saw that it was not in the German interest to be standing alone. That is also a good learning process for the German public.”



John Quiggin 05.20.10 at 4:22 am

The financial crisis has meant that issues that were expected to be resolved over decades through classic EU muddling incrementalism (fiscal sustainability of national budgets, transfers within the EU, democratic deficits, optimal currency area) now have to be addressed in a matter of months.

Even so, I think success is more likely than failure (at least for values of failure that include collapse of the euro and more). There is too much tied up in the European project to be abandoned for the lack of a trillion or two euros.


alex404 05.20.10 at 4:33 am

The direction their supposedly heading reminds me a bit of Canada.


FreebornJohn 05.20.10 at 5:09 am

The probelm with euro-federalists is that they have one pre-canned answer to every problem. The economic crisis in the eurozone periphery is what happens when you subordinate sound economics to some overriding political dogma like eurofederalism. You cannot solve the problems created by eurofederalism with more eurofederalism. That leads to a dead-end out of which there is only one way out – the collapse of the dogma itself.


Earnest O'Nest 05.20.10 at 8:10 am

Whereas, obviously, the other way out that was tried a century ago or so is much better – when seen with the libertarian eyes of somebody living freely born & patriotic in this federal country whose dimensions dwarf the current eurozone.


Earnest O'Nest 05.20.10 at 8:12 am

My sympathy is with the Germans in this, they rightly want the Greeks to behave more like the Germans would and understand that it would not be bad if the Greeks made Germans behave a little bit more like themselves, the Greeks, as well.


VV 05.20.10 at 9:33 am

As a Greek, I couldn’t agree more with Mr Schäuble and Earnest.


champagne molotov 05.20.10 at 10:26 am

Well, about time. Last month an election in some obscure German backwater was more important than the future of Europe. Let’s hope they get their act together.


novakant 05.20.10 at 11:25 am

some obscure German backwater

North Rhine Westphalia has 18 million citizens – that’s almost a quarter of the German population and 4 times more than, say, Ireland. Also at stake was the governing coalition’s majority in Germany’s upper house and thus their ability to make policy.


hix 05.20.10 at 11:33 am

NRW has 18 million inhabitants and changed the Bundestrat majority. NRW is a more important political entity than say the much debated Greece.

I kind of gave up on any meaningfull process with integration after the consitution disaster. Hows that going to work, even as a two speed solution with Eurozone members only? 30% of the population in Irleand of all places believes the EU steals their babies after a pretty simple cheap lie campaign.l Theres a lot of potential for something similar in Austria FPÖ+Kronenzeitung, maybe even in the Netherlands, Greece also seems vulnurable.


Earnest O'Nest 05.20.10 at 11:44 am

Does anybody remember all the poo-hah on the last elections in Masschusettes? But they speak English there of course so they just have to be more important than NRW. After all, the acronym sounds like it is a multi-national electricity company, doesn’t it?


bert 05.20.10 at 12:18 pm

Is Schauble repeating the last two paragraphs in German, to interviewers from Bild?
Not yet, and he’ll need to.
I wouldn’t place too much emphasis on one interview in the current context. The overall impression of German eurozone policymaking over the last couple of weeks hasn’t been one of consistency or stability. Schauble talked about Greek expulsion from the euro, then took to his hospital bed as the ramparts were dug with Greece inside. Schauble talks about federalism, hours after a unilateral short selling ban.

If this is actually a taste of the new language, it makes things interesting for David Cameron in particular (a rejection of federalism was the alleged point of principle on which the Tories detached themselves from the EPP). John Major’s response to such talk was subsidiarity and optouts. Cameron may choose a similar approach. Might one expect eurozone/non eurozone distinctions to intrude into the next EU budget talks?


Salazar 05.20.10 at 2:11 pm

Earnest: Actually, the main electricity company in that German state is called RWE, so you’re not that far off.


Earnest O'Nest 05.20.10 at 2:32 pm

I am, literally, not that far off ;-)


Earnest O'Nest 05.20.10 at 3:47 pm

Or, in other words, I am far out!


R.Mutt 05.20.10 at 5:00 pm

Wolfgang Schäuble, wasn’t he the guy who forgot what he had done with an envelope with 100,000 DM in cash campaign contributions given to him by an arms dealer? Maybe he redistributed it.


Mise 05.20.10 at 5:22 pm

No matter how much I rationally consider the pros and cons of further European integration, my views inevitably come down to the fact that, really, the more influence northern Europe has in the governance of my country, the better, as far as I’m concerned.


Earnest O'Nest 05.20.10 at 6:03 pm

And the more influence southern Europe has in the cousine of my country, the better.


Earnest O'Nest 05.20.10 at 6:03 pm

‘cuisine’, sorry – although it’s probably funnier when misspelled :-)


Tim Worstall 05.20.10 at 6:09 pm

“really, the more influence northern Europe has in the governance of my country, the better, ”

Quite possibly, but from a Northern European country this:

“really, the more influence southern Europe has in the governance of my country, the better, ”

is less comforting.


Guido Nius 05.20.10 at 7:03 pm

Hey Tim – as long as you leave both of us alone with your deregulation stuff, capiche!


Mrs Tilton 05.20.10 at 9:03 pm

R. @15,

Schäuble, wasn’t he the guy who forgot what he had done with an envelope with 100,000 DM in cash campaign contributions given to him by an arms dealer?

Now, that really is unfair. It’s asking a bit much of a Union politician, even one as clever as Schäuble, to keep track of where every individual cash-stuffed envelope in his pockets came from. In his confusion, he probably thought that dead foreign Jews had gratefully bequeathed the money to the CDU in their wills, an innocent and entirely understandable mistake; happens all the time.


Chad Rector 05.21.10 at 1:19 am

European federalism would be one way to govern a system of transfers and insurance, but it is not the only way. A decentralized confederal system, or a system of ad hoc agreements, could also do the trick. As Schäuble thinks, a federal system that bound the smaller European states to a fiscal authority and clamped down on their ability to free-ride off of Germany would be in Germany’s interest, and it may even be a more cost-effective way to govern Europe than the status quo. However, at least some of the other member states are probably better off with the status quo.

Shameless plug: my book on federations argues, with a bunch of historical support from prior decisions by states to form federal unions, that the distributive problems that come from free-riding are not by themselves enough to lead states to agree to political integration. Instead, political integration only happens when a key state holds out, refusing to contribute unless the other ones accept limits of their actions with real costs to exit. It seems to me, though (although I’m not a Europe expert), that Germany cannot credibly threaten to walk away, suggesting that they might end up paying a lot for stability but aren’t likely to get European federalism in return.


Alex 05.22.10 at 10:29 am

It reliably amazes me that Schäuble’s presence in public life is tolerated at all after the various party funding episodes.


ogmb 05.22.10 at 11:14 am

Wolfgang Schäuble, wasn’t he the guy who forgot what he had done with an envelope with 100,000 DM in cash campaign contributions given to him by an arms dealer?

He was also the guy who thought that Christo and Jeanne-Claude wrapping the Reichstag would irreparably sully the proud history of this German landmark.

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