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The United States of Europe: A Realistic and Necessary Utopia

The author, Dr. Wolfgang Vonnemann, shows in this article, that

  • the foundation of the “United States of Europe”(USE), a federation of the Euro-countries, is the only efficient solution of a future Euro-crisis compared to the actual efforts of the European politics,
  • the foundation of the USE will not raise to question the existence of the European Union, but turn out to be a strong move to a deeper integration of all EU-countries,
  • the foundation of the USE will not affect but promote the identity and the sovereignty of the EU-member states.

[zur deutschen Version des Artikels »]

The United States of Europe: A Realistic and Necessary Utopia

By Dr. Wolfgang Vonnemann[1]

European politics has been preoccupied with saving the Euro since 2010. This preoccupation was triggered by a call for help from Greece: In the spring of 2010, after a period of continuously rising yields on its government bonds and, as a consequence, the growing costs of refinancing these bonds,[2] Greece could no longer satisfy its financial needs on the international capital market. The insolvency of the country loomed.

I. The Debt Crisis – A Threat to the Euro

Faced with this situation, the countries within the European Union (EU) known as the Euro Group decided to grant “bilateral” credit to Greece in a coordinated manner and with the involvement of the International Monetary Fund (IMF). A few weeks later, in May/June 2010, the euro countries created what is known as the “euro rescue package”, the core of which is the “European Financial Stability Facility” (“EFSF”), a special-purpose vehicle formed by the euro countries to provide “rescue loans” on manageable conditions to “ailing” countries – that is, eurozone countries that are no longer credit-worthy on the international capital market.

For the countries of the eurozone, these measures concerned the common currency of the euro and, in light of this, the financial support of Greece – as with the subsequent support of Ireland – was declared by both politicians and by the media almost unanimously as “without alternative”.

If one were to take this assessment literally, it is unquestionably false because there is always an alternative. With respect to Greece in the year 2010 it would have meant not granting loans to Greece. The “bailout policy” of the countries of the Euro Group was only unavoidable to the extent that the consequences that could have occurred without this policy should have in any event have been avoided. What might these consequences have looked like?

Imagine if Greece had become insolvent, and had thus been unable to repay its due government bonds. Creditors of these claims, which reached a double-digit billion amount in euros, were first and foremost banks, Greek as well as banks from other countries of the Euro Group and international banks. These banks would have declared lower profits or even losses. In view of the volume of Greek government bonds in April 2010, the banks concerned probably would have been able to cope had the bonds failed. Given this volume, problems of liquidity would also have probably not arisen, if one perceives the possible default of Greece in April 2010 as an isolated economic problem. But that was not the case and it could never be the case.

This is because, for one thing, “the Greek problem” would have been widely and controversially publicly discussed in the democratically constituted countries of the EU. No one could have prevented the fact that news coverage would have also included the future development of the Greek national debt. This would have meant that the problem would no longer just have had the burden of a double-digit billion amount; it would have grown into a triple-digit billion dimension.[3] And neither the news coverage of the media nor the consideration of the international investor would have restricted itself to Greece. Instead, other “unstable” euro countries (e.g. Portugal, possibly Spain, but also Italy and, observed from today’s perspective, Ireland) would have moved into the spotlight. The insolvency of Greece would have led to the consideration of the possibility or probability of the insolvency of such countries. And, in the sense of a self-fulfilling prophecy, the insolvency of one or other countries would have actually occurred because, in light of Greece’s case, loans on the international capital market would have no longer been provided. With that, banks would have fallen into significantly greater difficulties than in the case of an isolated problem of a relatively small country and a manageable bad debt.

Liquidity problems that could not have been absorbed through a generous refinancing through the European Central Bank (ECB) would have arisen not only as a result of state payment defaults themselves. One could have instead expected that there would have been a great loss of trust from “regular clients” – private clients as well as businesses – in the financial capability of the banks. The withdrawal of client money in countries affected by payment defaults, as well as in other countries belonging to the Euro Group, would have been conceivable. At this point at the latest, the euro itself would have been in acute danger. All one need do is to take a look back at the German history of the first half of the 20th century to see how this might happen….[4]

Against this background, the political leadership of the Euro Group, in principle, actually had no alternative to the policy that it pursued: To rescue no longer credit-worthy euro countries through collective loans. “In principle” means (without attempting to take up this discussion within the scope of this article) that the details of the action to be taken can certainly be debated but that in principle the rescue policy was – in view of the necessity of avoiding the above-outlined possible consequences (which were to be avoided in any case) – actually “without alternative”.

Necessary discussion about the legality of the rescue policy thereby fades into the background. It appears to the author that in the case of Greece, as in the case of Ireland, the euro countries retrospectively searched the EU treaties for a legal justification for a policy that had been deemed necessary. They ultimately found it, at least in the text of the treaties.[5]

II. The Future Stabilisation of the Euro

This “approach” is unlikely to be sustainable in the future. The “future” begins in this case on 1 July 2013 when the euro rescue package expires.[6] The euro countries assume correctly that even from 2013 – and more so up until then – the Greek-Irish problem may once again appear in another Member State of the Euro Group.

Two problems need solving.

On the one hand, a rescue package compatible with the EU treaties should come into effect from 2013.

In December 2010 it was reported that the President of the EU Council suggested the following two sentences to supplement the EU treaties:

“The Member States whose currency is the euro may establish a stability mechanism to be activated if indispensable to safeguard the stability of the euro area as a whole. The granting of any required financial assistance under the mechanism will be made subject to strict conditionality.”[7]

According to a report of the Süddeutsche Zeitung,[8] the (German) Federal Ministry of Finance made a proposal as to how to formulate the details of this authorisation in the EU treaties. This proposal provides for the establishment of a European currency and growth fund. This fund[9] shall not only (unlike the previous EFSF) be responsible for the allocation of (conditioned) assistance loans to euro countries. It shall also monitor adherence to credit conditions and may buy government bonds from euro countries. Control over this new European institution was even thought of: It shall be indirectly adopted by national parliaments via a “committee of committees of the parliaments of the eurozone”.

More important than the question of how the future crisis mechanism is to be shaped is the solution to the problem of how existential financial crises of euro countries can be prevented in the future.

1. “European Economic Government” as an Instrument of Crisis Prevention

Discussion around methods of crisis prevention is widespread. More recently it focuses on the – originally French – idea of a “European economic government”. As to how such an economic government should be formed, there are different concepts.[10] The French concept is illustrated by the French Minister of Finance, Christine Lagarde, in an interview in the Süddeutsche Zeitung. In response to the question: “What should a European economic government look like?” she answered:

“In future every EU country must consider how its economic policy affects the others. Those who wish to improve their export performance and to increase investments in a certain area will in doing so affect the other EU countries. An economic government means that one secures the agreement of the others in advance.”[11]

It remains a mystery of French politics how the transfer of a classic industrial policy concept to the European level (and nothing more seems to lie behind Lagarde’s idea of a European economic government along the lines of the French conception) shall contribute to the stabilisation of the euro.

Shifting more into the centre of the discussion is the German concept of the “Competitiveness Pact”which seizes on the French concept of a European economic government.[12] Without an amendment to the EU Treaties, the cooperation of the euro countries within the EU, and those EU Members States that want to affiliate themselves with this cooperation, shall be strengthened on a voluntary basis. The heads of government of the affected countries shall mutually commit themselves “to be guided by the current best practices so as to improve the competitiveness of the eurozone overall.” Tax, tariff and social policies shall be coordinated; the euro countries shall ensure that the “labour costs in their countries not diverge too much, the pension funds be stabilised for the long-term, and sufficient investment funds flow for future tasks.”[13]

In future, then, the euro countries shall “voluntarily” or under the pressure of the conditions that are tied to financial assistance, forgo their sovereignty in numerous areas of their financial, economic and social policies, as has already been practiced in the case of Greece and Ireland in the context of the grant of financial assistance. Greece, for example, had to increase taxes, improve the enforcement of tax collection, reduce the pensions of public servants, reduce the salaries of public servants, and increase the retirement age.

It might be that the conditions for financial assistance in Greece, Ireland, or in other countries that may be affected in the future, will, under the pressure of acute threatened insolvency, actually be implemented through the adoption of necessary laws in national parliaments or through appropriate government action. That countries will actually do this is in no way certain in view of the partly drastic impact that the measures would have on the living standards of large sections of the population and because there would be protests against them. And even if at point in time X a law that would implement these measures would be adopted, there exists the danger that it will be repealed at a later point in time by a different parliamentary majority. If the financial assistance, or a part thereof, had at this point in time not yet been disbursed, could then financial assistance actually be refused by the donor countries, given the potential consequences of the insolvency of a euro country on the euro itself?

By allocating euro financial assistance, the Euro Group could find itself in a situation in which it sways between the dictate of the stronger against the weaker and an unrestrained transfer union.

If the fulfilment of the conditions for specific financial assistance is already questioned, how much more does this apply to measures decided upon within the framework of a “Competitiveness Pact” between government leaders to prevent financial crises? In this case, even the healthy pressure – that exerted by the threat of insolvency of a recipient nation and the consequent risk of a currency crisis in all euro countries – is lacking. It is correctly pointed out in public discussion that, 20 years ago on the occasion of the agreement about a European currency, European government leaders also agreed to coordinate their economic policy, without ever being successful. The fate of the Stability and Growth Pact, which should have ensured the stability of the Euro, casts serious doubt that “European economic government” agreed upon by the euro government leaders will generate the desired results.

National sovereignty will not only hinder but will prevent the functioning of a euro rescue package and, in particular, the functioning of a European economic government in the sense of a Pact for Competitiveness. The euro crisis will not be solved by these means.[14]

2. The Transfer of Fiscal and Economic Policy Competences from the National to the European Level as an Instrument of Crisis Prevention

Would then the irrevocable transfer of fiscal and economic policy competences from the national to the European level – howsoever designed – constitute a solution to the problem?

To which European institutions such competences should be relocated is debatable in view of the fact that is only the Member States of the Euro Group that are affected, while European institutions exist for the EU as a whole. Finding an answer to this question is superfluous if such a shift is not helpful to the cause. This is indeed the case.[15]

Tax policy would be a possible area in which national legislation would be replaced by European legislation. So Ireland should, for example, in the course of being granted euro financial assistance, be obliged to raise its corporate tax rate, which is at the bottom end of the scale when compared with other European countries. Ireland, however, refused to accept such a condition.

Would a uniform European corporation tax contribute to the prevention of financial crises such as that suffered by Irish? Ostensibly perhaps it would because it could supposedly lead to higher tax revenue. This however must not necessarily apply to Ireland’s position because Ireland used – successfully – a low corporate tax rate to attract businesses, and thus jobs, to the country. Tax policy can therefore be an important competitive tool. Why should this instrument be taken out of the hands of countries that urgently depend upon attracting businesses to generate tax revenue and create jobs? In Ireland’s case this applies all the more as the Irish problem was not that corporate tax revenues were too low. In fact, Ireland could not have financed the bailout of its banks – whose transaction volumes had increased on a multiple of the gross domestic product – even with higher revenues from corporation tax.[16]

Would a coordinated social policy in the Euro Group contribute towards the prevention of a euro financial crisis?

Which social-political competences in particular should be transferred to the European level is debatable. Under debate, for example, is the alignment of the retirement age to 67 years (which will in future be the applicable age in Germany) in order to stabilise pension funds.

An increase in the age of retirement is a means by which to relieve the burden on the finances of the state pension fund in the face of an ageing population and simultaneously increasing life expectancy, both of which are found in all Member States of the EU. Since pension deficits must regularly be financed from the national budget, this would also contribute toward easing the strain on state finances.

Increasing the retirement age, however, is only one means by which to relieve the financial situation of pension funds. Reducing pensions or increasing contributions to the pension fund are equally conceivable. Moreover, the pension system does not necessarily need stabilising in all countries of the Euro Group. There could be countries in which other social cuts appear more sensible or are more easily enforceable. Why, then, should it be necessary in respect of pension policy to tar all euro countries with the same brush?

This question arises all the morein relation to the proposal to ensurethat the cost of labour in euro countries does “not diverge too widely”.[17] What lies behind this is the view advocated by economists that Germany in particular imposed excessively severe wage restraints in comparison with other EU countries in the first decade of this millennium, which created or contributed to competitive advantages while other countries suffer competitive disadvantages.[18]

If this were so, one would have to ask the question of how this assumption is compatible with the fact that unit labour costs in Germany during this period were still higher than in most of the other EU countries, especially in the current or perceived future “euro crisis afflicted” countries such as Greece, Ireland, Portugal or Spain.[19]

Advocates of this opinion – who see unit labour costs divergences or, more precisely, divergences in the development of relative unit labour costs overthe past decade in the euro countries, as a problem – place special emphasis upon an expansive wage policy in, for example, Germany. In so doing they disregard, for a start, that German businesses face competition not only from other countries in the Euro Group but also from the worldwide market. Unit labour costs thereby play in any case – depending more or less on the industry – a significant role.

The demand for “a more expansive wage policy” is aimed less at business and more at politics. With reference to the “crucial problem case” of Germany, Dullien proposes the following:[20]

“For Germany, suitable options appear to include the introduction of a statutory minimum wage, the greater utilisation of generally binding collective agreement, and greater salary increases in the public sector, which may function as catalyst for wage increases in the private sector.”

An in-depth discussion of this proposal would be outside the scope of this contribution. It is, however, evident that the implementation of these measures may stimulate domestic demand, although it is debatable whether this stimulant would directly benefit the partner countries of the eurozone in particular. In any event, these measurements would have no effect on unit labour costs in those industries that are especially export-oriented, such as, for example, machine tool manufacture, the automotive industry or the chemical industry. Salaries in these industries are not at the level of minimum wage and the parties to the collective agreements – particularly the strong industrial trade unions such as IG Metall and IG Bergbau Chemie Energie – are in no need of “encouragement” from the public service.

The idea that politics could influence wage policy and wages (apart from in the public service) misjudges the reality that – not only in Germany but also in the other euro countries – wages and salaries are agreed upon by trade unions and employers, and politics may at the most have an influence on non-wage labour costs. [21]

In addition, the idea of stipulating a “permissible corridor” for current account surpluses or deficits as a percentage of gross domestic product and to sanction their transgression strikes one as strange,[22] at least in relation to countries with freely convertible currency or even one single currency. For it is primarily businesses that determine the prices and the quality of their products and services, and thus either succeed domestically and in the export markets or do not. Why then should a country be penalised for the success or failure of its businesses when it cannot control it?[23]

At most, politics has the ability to steer the structure of a national economy. Such structures can be more or less competitive. Current account deficits are considered a sign of deficient competiveness and current account surpluses as a sign of the competiveness of a national economy.[24] Since 1999, Greece, Portugal and Ireland, together with Spain, can be classified as having the highest current account deficits.[25] The property bubble in Spain[26]and the escalating share of the financial sector in the Irish national economy are significant signs of such structural deficits.

But structural deficits, which may differ from country to country, cannot be sensibly controlled at the European level. They can be much more efficiently eradicated, or at least limited, at the national level, where policy can be tailored to the specific structural deficits of that country.

The transfer of fiscal and economic political competences to the European level would then “amputate” the sovereignty of countries concerned exactly in those areas in which a national (or, as circumstances may require, even regional) policy would be sensible, while a uniform European policy would be senseless and inefficient.[27]

III. The “United States of Europe” – The Instrument to Avoid a Euro Stability Crisis

An effective solution to prevent future euro crises would, in contrast, be to let individual European countries step down from the international stage and create, in a manner inviolable and visible to everyone, a superordinate political and economic unity. The solution to the current and continuing euro crisis lies in the formation of a European federal state – let’s call it the United States of Europe (“USE”) – that would replace the Member States of the Euro Group as subjects of international law.[28][29][30][31]

What would be the main difference to the current situation?

From the outside, the Euro Group would appear to be what it in effect already is, i.e. a “joint liability community”. But the USE would be a joint liability community that is grounded on a transparent and solid foundation and a common constitution, and in which the rules of interaction, not least in terms of fiscal policies, would be comprehensible to everyone. This of course would not per se prevent an inappropriate level of debt in individual states. On the other hand, however, precautions could be taken in the constitution in the form of a debt limit. Even without such a debt limit, the emergence of financial crises – which place the stability of the euro in question – would be unlikely because the confidence (or lack of confidence) of the international capital markets in the continued existence of the euro monetary union would no longer depend on individual countries. Instead this confidence is dependent on a large and diversified political economy, namely the USE. The individual members of this federal state would benefit from this confidence, as is the case for the US-American states or the states of the Federal Republic of Germany.[32] This would, above all, also minimise or even eliminate the risk of contagion of crisis in one state to another state. The risk of contagion is of course, to a great extent, the consequence of a creeping loss of confidence in the willingness and the capacity of the Euro Group, in its current form, to quickly and effectively support threatened partners.

The creation of this European federal state would doubtless lead to the abolition of some cherished vanities of today’s nation states. These include the possibility or, more realistically, the illusion of shaping international politics beyond that of the European framework,[33] the chance (for the larger euro countries at any rate) to be able to negotiate on an equal level with the Obamas and Wen Jiabos of this world, the red carpets and being received by military guards of honour all over the world…

There is one thing, however, that the USE would not be, provided it is configured appropriately: The European super-state that regulates everything and pushes the present national states aside, and that is always portrayed as a spectre[34] as soon as deeper European integration is discussed.[35] To the contrary: Under the umbrella of the USE, competition and freedom of choice would remain possible in almost all areas of domestic policy, perhaps even to a higher degree.[36] In contrast, the danger is large that this latitude will be limited within the existing framework and within possible future frameworks currently being discussed to combat or avoid euro crises.

Another danger that would be smaller rather than larger as a result of the formation of a European federal state is the danger that smaller countries will be dominated by larger countries, Germany in particular.

The current discussion about the solution of the euro crisis allows one to foresee a development that boils down to Germany being the dominant power in the Euro Group. For without German financial commitments, no credible crisis prevention mechanism would be possible.[37] Every German federal government, regardless of its political leanings, would, owing to the mood in Germany and with a view to the next elections, have no option but to determine the terms of this German crisis prevention mechanism.[38]

In a democratically organised European federal state, Germany, even with a population of around 80 million, would not be in the position to dominate a Europe comprising 17 or more countries with a population of around 327 million or more. Moreover, it is to be expected that, over time, in a European federal state – as is usual in democracies – political decision-making processes will develop more and more alongside political orientation and less along national lines.

IV. The Relationship between the USE and the EU

“Why do you have to show a division? Are the rest of us standing in your way?” – With these words the Polish Prime Minister, Donald Tusk, is said to have resisted the plans of Chancellor Merkel to implement her proposed “Pact for Competitiveness” within the Euro Group (to which, as is well-known, Poland does not belong).[39] If an attempt at coordinating national (economic and fiscal) policy within the Euro Group has already met such massive resistance, how much greater will the opposition be against the project of merging the European states to a federal state? Such a project is certainly likely to prompt fears about Europe being divided once again, which would mean the end of the EU together with the end of the European integration achieved by the EU.

The emergence of such fears is readily understandable. But these fears need not be justified if the formation of the USE is shaped as an opportunity for

The European Union could and in fact should remain in its current form. The EU treaties and the whole EU secondary law would survive essentially unchanged. Only the following amendments to the EU treaties appear necessary:

§The European Central Bank will be transformed from an organ of the EU to an organ of the USE; the exclusive competences of the EU regarding monetary policy, pursuant to Article 2, Paragraph 1 c) of the Treaty on the Functioning of the European Union (TFEU), are transferred to the USE. Because no substantial alteration arises, these “amendments” of the TFEU could be made by an additional protocol agreed upon by the EU Member States. The rights of the President of the Council of the EU or of a member of the Commission to participate in meetings of the ECB, pursuant to Article 284 TFEU, could continue to exist, as could the duties of the President and the board of directors of the ECB to furnish information to the organs of the EU.

The decision-making power regarding the fulfilment of the convergence criteria pursuant to Article 140 TFEU by those countries that do not belong to the Euro Group is passed on from the European Council – in which those countries that do not belong to the Euro Group are anyhow not eligible to vote on this question – to the USE. This “amendment” of the TFEU could be made by an additional protocol agreed on by the EU Member States because no substantial alteration arises.

The national states of the USE remain members of the EU. The USE does not substitute them as EU member-states. The government of the USE, however, in the Council of the EU assume all rights of all national states. Accordingly, Article 15, paragraph 2 and Article 16, paragraph 2 of the TEU (Treaty on European Union) must be amended.

The establishment of the USE could well be understood as a case of application of the “enhanced cooperation” of the individual Member States of the EU pursuant to Article 20 of the TEU, Article 326 of the TFEU. The USE should be open for all Member States of the EU that are willing and able to substitute their currency for the euro, and it should enshrine this openness in its constitution.

V. The Architecture of a European Federal State

The establishment of a federal state would, to the nation states concerned, appear to be a huge state and perhaps even today it would strike them as utopian. It should therefore be designed so as to be as tolerable as possible. It follows in principle that the USE will naturally be a democratic state under the rule of law (like all the states potentially concerned) whose powers, however, should be restricted to those that are strictly necessary for the functioning of a federal state. The constitutional reality of the Federal Republic of Germany with its strong tendencies towards centralisation should not, then, serve as a model.[40]< All statutory regulations that can appropriately be made at the level of the national state should remain its competence. All state power, where possible and appropriate, will be exercised by the national states. Under the protective roof of the federal state, the diversity of languages, cultures, the legal system and traditions should be able to be lived, designed and developed.

The constitution of the USE should contain the following cornerstones:

1. Constitutional State of Law

Without a legal authority that monitors the guarantees of a charter of fundamental rights as well as the observance of the constitution as a whole, i.e. constitutional jurisdiction, a modern democratic state of law is a mere “torso”. The establishment of a constitutional court is thus necessary.[41]

2. The System of Government

In principle, a presidential or a strongly parliamentary oriented system is available. A presidential system is based upon a person at the head of state who, as in France or in the USA, is vested with far-reaching powers. That European voters could “agree” upon such a person beyond their national loyalties, at least in the initial period of the USE, appears doubtful given Europeans’ national roots and it would probably be to expect too much of them. Therefore the direct election of a state president in the framework of a presidential system would probably be marked by a nationally influenced vote in which the more populous countries would have considerable advantages while proposals of smaller countries would stand no chance. This prospect alone speaks for a parliamentary system of government in which the government would be formed out of the parliament and would be answerable to it.

3. The Parliament

How should this parliament be composed? A first – negative – answer must be: In any event not in the same way as the current European parliament. This is because in this institution the democratic principle of voting equality is not currently implemented as each of the votes cast by European voters does not hold the same weight.

On observance of this principle, on the basis of which a parliament is composed proportional to population, smaller countries would be under-represented. And it is to be expected that over a considerable period the national affiliation will still outweigh political party affiliation. The sense that the “small guys” in a common federal state have no influence in comparison to the “big guys” would hardly contribute towards a successful beginning of the USE.

It therefore appears essential to create a two-chamber parliament, one chamber of which represents the population of the European electorate proportionally and the other of which represents the national states. In such a second chamber, the national governments, as representatives of the national states, should be allowed the opportunity of contributing to the political decision-making process at the federal level. The representatives of the states would, then, be delegated by national governments. The number of representatives is thereby of no great importance if one, as in the German Bundesrat, prescribes uniform voting. It is crucial that every national state, regardless of its size, sends the same number of representatives. Only in this way would the loss of full national sovereignty be tolerable.[42]

4. The Legislative Powers on the Federal Level

The federal state substitutes the Member States as a new subject of international law. Its task would then be the representation of the USE externally and the regulation of its foreign relations, including international trade policy. These, as well as the legislative powers in relation to customs duties, would be a matter for the USE, unless they fall within the competence of the EU

As with every state, the USE would have to be responsible for external defence and the armed forces. Costs and reasons of efficiency also speak in favour of this because the creation of an integrated European army will undoubtedly in the long-term, after a necessary integration phase, lead to a reduction in costs and to the improvement of its operational capability. The duration of this integration phase should be fixed in the constitution so as to create a corresponding “pressure to succeed”. The constitution should in any case create the basis for the jurisdiction of the federal government when it comes to questions of defence.[43]

Monetary and currency policy, which are indeed the motive for the formation of the USE, would be matters for the federal state.

The USE will need its own tax legislative competence to finance its tasks at the federal level and to have at the federal level an economic-political tool at its disposal in the form of fiscal policy.[44] This competence for fiscal legislation should, in view of the variety of income and corporation taxes, be rather located in the area of indirect taxes because of the possibility of its use as a structural political competitive tool and because of the differences in living conditions in different countries. It would be conceivable for legislative authority to be given to the federal state in the area of sales tax. A uniform sales tax in the countries of the USE would at the same time facilitate domestic trade. Because a great amount of government expenditure in all EU countries is financed by sales tax, a breakdown of the sales tax revenue between the federal state and the national states would be necessary.

Nothing speaks against the individual national states keeping their own legal culture, as regards both substantive law and procedural rules. However, the federal state should be granted the authority to create statutory provisions that judicial and administrative decisions can be enforced in each national state. The federal state should be allowed to create rules about the territorial jurisdiction of courts and public authorities and about the applicability of national laws in matters that cross national borders. Finally, it must be able to create both substantive and formal rules to which its own governance is subjected.

The legislative authority of the federal state should ultimately extend to the remaining exclusive competences of the EU pursuant to Article 3, paragraph 1 of the TFEU, namely European competition law and the conservation of biological resources of the sea. In addition the current shared competences of the EU pursuant to Article 4 of the TFEU should fall within the competences of the federal state insofar as they possess substance, and do not merely affect peripheral areas and do not only promote the cooperation between the Members States or supplement the policies of Member States or merely have a coordinating function.[45]< These conditions are fulfilled only for agricultural policy and the fishing industry, asylum, immigration and right of entry and the right of residence for members of third countries, the protection of external borders, moreover the protection of the property at the federal level, space travel, and the guarantee of the security of energy supply of the federal state. These areas should be enshrined in the Constitution as within the legislative competence of the federal state and be placed under EU reservation. Thereby provision will be made for the point in time at which the USE is identical with the EU. At the same time it will be clarified that the legislative authority in these policy areas will not be exercised by the USE for as long as the EU exists independently from the USE.

The United States of Europe – an unrealistic Utopia? It may still appear to be so to many today. But the practical constraints (‘Sachzwänge’) in the highly sensitive area of European integration – in which, in the long run, the wallet of each citizen will potentially be affected – are such that they could very well let Utopia become reality.Incidentally, in the year 1980 almost everyone saw the reunification of East and West Germany as an unrealistic Utopia…[46]

[1] The author holds a degree in economics and works as an attorney in Berlin. This article was translated from the German by Rebecca van Es.

[2] In the meantime (as of 10 March 2011), yields on 10-year Greek government bonds have risen to 13%, the yields on 10-year Portuguese and Irish governments bonds to 7.8% and 9.8% respectively – see the report “Neuer Akt im Schuldendrama” (“New act in the debt drama”), page 22, 10 March 2011 edition of the Süddeutschen Zeitung (SZ).

[3] The rescue package for Greece alone comprises 110 billion euros.

[4] See also “Wenn einer fällt, fallen alle” (“When one falls they all fall”), page 22 of the 30 January 2011 edition of Tagesspiegel; Wolfgang Kaden in his op-ed article “Warum Schluß sein muß mit der Milliardenhilfe” (“Why there must be an end to the billions in aid money”) in the 10 March 2011 edition of Spiegel Online, as well as John Taylor, chairman of the currency specialist FX-Concepts, in an interview with the online edition of the Frankfurter Allgemeine Zeitung (FAZ.NET) on 10 January 2011: “The functioning of the ECB will be restricted when countries such as Greece or Ireland are in danger of collapse because the European banking system would then experience huge difficulties.”

[5] French Minister of Finance Lagarde was quoted by the Wall Street Journal on 18 December 2010 with the following words: “We violated all legal provisions because we wanted to stand united and really wanted to save the eurozone. The Treaty of Lisbon is clear: No bailouts.“ See with regard to the compatibility of bilateral financial assistance with the EU Treaties also Rohleder / Zehnpfund / Sinn, Infobrief- Wissenschaftliche Dienste des Deutschen Bundestages WD 11- 3000 – 103/10; Heß, “Finanzielle Unterstützung von EU-Mitgliedstaaten in einer Finanz- und Wirtschaftskrise und die Vereinbarkeit mit EU-Recht” (“Financial support of EU Member States in a financial and economic crisis and the compatibility with EU law”), in: ZJS 2010, page 473 and following.

[6] More precisely formulated, in terms of the framework agreement concluded between the euro countries and the special purpose vehicle EFSF of 7 June 2010, from 1 July 2013 new loans can no longer be granted because the framework agreement provides with respect to still denominated loans the earliest possible liquidation of the EFSF as after 30 June 2013.

[7] See also the report on FAZ.NET of 13 December 2010.

[8] Page 17 of the Süddeutsche Zeitung (SZ) of 23 December 2010.

[9] Meanwhile it goes by the working title “European Stability Mechanism” (ESM).

[10] And these ideas are, for the most part, very nebulous – see, for example, the article by the Minister of Finance of Saxony-Anhalt, Bullerjahn, “Solidarität schafft Solidität”(“Solidarity creates solidity”), page 4 of the 31 January 2011 edition of the SZ and Heß, ZJS 2010, pages 473 and following, 480 and following.

[11] Page 17 of the SZ of 23 December 2010.

[12] Since the summit of the heads of state and government of the Euro Group on 11 March 2011, the pact has been referred to as the “The Pact for the Euro”.

[13] See Spiegel 5/ 2011, page 19 and following.

However, Article 5 of the Treaty on the Functioning of the European Union (TFEU) already provides that the Member States of the EU coordinate their economic, employment and social policies. Article 119, paragraph 1 of the TFEU determines that the “activities of the Member States and the Union shall include … the adoption of an economic policy which is based on the close coordination of Member States’ economic policies…”. Article 136 of the TFEU even provides that “economic policy guidelines” are designed only for the euro countries and that these countries should follow them.

[14]< See also the majority of German economics professors in their statement on Europe’s debt crisis in FAZ.NET from 24 February 2011.

[15] Holger Steltzner comes to the same conclusion in an op-ed article on FAZ.NET from 18 February 2011: “Risk of economic government”. Another perspective is voiced by Dullien in his expertise on behalf of the department of economic and social policy at the Friedrich-Ebert Foundation: “Ungleichgewichte im Euro-Raum” (“Imbalances in the Eurozone”), December 2010, page 39.

[16] In 2010 Ireland’s budget deficit amounted to 32% of its gross domestic product (GDP).

[17] See Spiegel 5/2011, page 20.

[18] See, for example, Dullien, cited above, page 35 and following.

[19] See the article “Der Traum von drei Prozent” (“The Dream of Three Percent”) in the SZ of 2 March 2011, page 19.

[20] Cited above, page 36.

[21] See also the Monatsbericht (monthly report) of December 2009 of the Federal Ministry of Finance (“BMF”), paragraph 7.2l, even thewage index in Belgium is based on an industry-wide collective bargaining agreement between Belgian employers and trade unions at the nationallevel.

[22] Holger Steltzner, cited above, asks in this context the following question: “Will in the future an ‘equilibrium Commissioner’, with regard to the German export surplus, stop BMW’s assembly lines in September because Germany has already exported too many cars in the EU?”

[23]< See also the December 2009 Monatsbericht (monthly report) of the BMF at page 11 and following.

[24]< See Arne Heise and Özlem Görmez Heise, “Auf dem Weg zu einer europäischen Wirtschaftsregierung” (“En route to a European Economic Government”),International policy analysis commissioned by the Friedrich-Ebert Foundation, September 2010, page 5 and following.

[25] See the December 2009 Monatsbericht (monthly report) of the BMF, paragraph 3.2, page 4 and following; Dullien, cited above, page 10.

[26]See Dullien, cited above, page 18.

[27] See also Steltzner, cited above. Already sceptical towards a European coordination of economic policy is a member of the German Council of Economic Experts (Sachverständigenrats zur Begutachtung der gesamtwirtschaftlichen Entwicklung), Lars R.Feld, in an interview with the Tagesspiegel newspaper, 14 March 2011, page16.

[28] Even before the euro crisis the then Foreign Minister Joschka Fischer discussed in his speech at Humboldt University on 12 May 2000 the “formation of a centre of gravity” as a “possible interim step towards the completion of political union”.

[29] Arne Heise und Özlem Görmez Heise, cited above, state in their historical examination of the “Bedingungen für den Bestand von Währungsunionen” (“Conditions for the Continuance of Monetary Unions”) that “it (may) be drawn as a lesson from history” that “only such monetary unions whose economic and organisational integration was accompanied by a political centralisation lasted” and that “an essential part of political centralisation (was) the creation of common political decision-making bodies and institutions and their hierarchical ability to enforce.”

[30] See Dullien, cited above, footnote 12, page 39, who considers “a European federal government similar to that in other federal states such as the United States” as the end of a process that begins with a European economic government.

In his speech at Humboldt University on 12 May 2000 Joschka Fischer stated: “Out of the [EU] ‘communalization’ of economy and currency in comparison to the still lacking political and democratic structures an area of tension [‘Spannungsfeld’] has arisen which may lead to an internal crises within the EU if we don’t effectively abolish the shortcomings in the area of political integration and thus end the process of integration.” He sees this end in a “European federation” with a European parliament and a European government “that actually wields legislative and executive power within the federation.”

[31] The majority of German economics professors pursue another approach to the problem in their statement on Europe’s debt crisis, the core of which outlines the creation of an “insolvency plan for heavily indebted euro member states”, FAZ.NET, 24 February 2011. In the opinion of the author, this solution suffers not only from internal contradictions but also especially from a lack of political feasibility.

[32] In an interview with the Spiegel (2/2011, page 64), the American economist Nouriel Roubini states: “The situation of the heavily indebted countries on the edge of the eurozone resembles that of the heavily indebted US states from California to Illinois. But there are distinct differences: Even if California is bankrupt, no-one believes that the US monetary union would therefore disintegrate.”

In an interview with the Süddeutsche Zeitung (SZ of 3 January 2011, page 23), the head economist of Deutsche Bank, Thomas Mayer, states: “The European monetary union is a joint liability community but as long as it stands without political union, it must and can remain only a ‘community with limited liability’.”

See also the June 2008 Monatsbericht (monthly report) of the Deutsche Bank on the theme “Der Markt für Anleihen der deutschen Länder” (“The market for bonds of the German states”), page 47: “The level of debt of the individual states has, however, only a very slight influence on the respective yields as investors apparently reckon on very limited credit risks.”

[33] In the view of today’s French Foreign Minister and previous Prime Minister of France, Alain Juppé, only a united Europe would have this opportunity. lang="FR">In an interview with Figaro on 16 June 2000 about his project for a European constitution, he stated: “Au risque de susciter des polémiques, notre ambition est de faire l`UE une puissance politique. .. L`UE a vocation à devenir un acteur politique du jeu international. Qu`elle puisse s`asseoir à la table des négotiations mondiales sur tous les grands sujets et qu`elle pèse le poids d`une grande puissance.”

[34]< The ideas of Carsten Schneider, budget policy spokesman of the SPD (Social Democratic Party of Germany) parliamentary group, are certainly compatible with such a “spectre”. He explains these ideas in an article entitled “Die Lösung heißt Europa” (“The Solution is Called Europe”) in the SZ of 16 December 2010, and they culminate in the following demand: “When a country has a deficit, then it must develop, not be liquidated, but we need more sustainable funding. A pan-European growth strategy must be a redistribution mechanism (!): more education, more infrastructure, more investment, more innovation.”

[35] See also “Die Debatte um eine europäische Verfassung – Leitbilder – Konzepte – Strategien” (“The Debate about a European Constitution – Models – Concepts – Strategies”), CAP Working Paper, 2001, page 58.

[36]< See also Joschka Fischer in his speech at Humboldt University: “Also in the European finality, we will still be British and German, French and Polish. The national states will continue to exist and will keep a significantly stronger role at the European level than the German states do.”

See also Walter Hallstein in his book about “Die Europäische Gemeinschaft” (“The European Community”), 1969, who on the first page of this book writes, “that a federation is sought in Europe, a federal state (‘Bundesstaat’) ... In the federal state ...the member states continue to exist and not just on paper ... Europe shall not become a melting pot... ” – cited by Heinrich Schneider, “Eine föderale Verfassung für Europa? Überlegungen zum jüngsten Denkanstoß des deutschen Außenministers Joschka Fischer” (“A federal constitution for Europe? Reflections on the recent thought-provoking statements of German Foreign MinisterJoschka class="hpsatn">Fischer”), page 14.

[37] In a report about the Irish general election on 25 February 2011, the SZ wrote: “The likely new Prime Minister, Kenny, … recently introduced himself to Angela Merkel in Berlin. With their grim sense of humour sharpened over difficult centuries, the Irish compared the trip with a visit to the bank manager where one has taken out a mortgage for one’s home. And because in the EU there is no way around powerful Germany, the Chancellor is the ultimate mistress of Ireland’s finances.” (“Zahltag im Land der Habenichtse” (“Payday in the Land of Have-Nots”), SZ on 25 February 2011, page 8.)

[38] Gerd Appenzeller clearly expresses this in his op-ed article “Merkels Preis” (“Merkel’s Price”) in the Tagesspiegel on 12 March 2011, page 8.

[39] See the report in Spiegel 6/2011, page 15.

[40] See Volkmann-Schluck, cited above, page 30, who indicates that “it was exactly those most vehement proponents of a constitution … who disassociate themselves from a Europe à la Bundesrepublik.”

See also on this theme Heinrich Schneider, cited above, page 14, who ascribes the widespread assessment in Europe (for example in Great Britain) of the term ‘federal’ as a dirty word primarily to the fact that “many contemporaries (can) imagine a supranational federated Europe only as a centralistic superstate, and especially when Germans advocate for that, … because since its creation it has become the display model of an increasingly Unitarian federal republic, …”

[41] See Volkmann-Schluck, cited above, page 5.

[42] See Volkmann-Schluck, cited above, page 34: “Above all the small countries such as Belgium and Finland insist on the US model because it guarantees that they will not be overlooked.”

Joschka Fischer also makes the case in his speech at Humboldt University for a second chamber where one “has to decide between the senate model, with directly-elected senators from the Member States, or astate chamber similar to our [Germany's] Bundesrat itself.”

<<<<<[43]< Within the scope of its foreign policy regulatory powers, the USE would certainly decide to become/remain a member of NATO. The three countries that belong to the Euro Group but not to NATO, namely Austria, Ireland and Finland, will have to factor in this foreseeable development when deciding whether to participate in the creation of the USE.

[44] See Volkmann-Schluck, cited above, page 24: “A separate tax and accounting law would however be necessary so that the federation envisaged by Fischer can exercise ‘extensive legislative’ and executive authority.”

[45] This applies to the common transport policy pursuant to Article 90 and following TFEU with the exception of social benefits and the prohibition of discrimination, the coordination of the economic policy pursuant to Article 121 TFEU, the employment policy pursuant to Article 145 and following TFEU, the cultural policy pursuant to Article 167 TFEU, the healthcare policy pursuant to Article 168 TFEU, the consumer protection pursuant to Article 169 TFEU, the industrial policy pursuant to Article 173 TFEU, the research policy pursuant to Article 179 and following TFEU, the environment policy pursuant to Article 191 and following TFEU with the exception of the representationof the USE in an international context, the tourism policy pursuant to Article 195 TFEU, the disaster management pursuant to Article 196 TFEU.

[46] Perhaps the United States of Europe is already today less utopian than many believe – see on this point the statement of Jean-Claude Trichet, who according to a report on Spiegel Online of 16 February 2011 holds the United States of Europe for possible. The German federal Finance Minister, Wolfgang Schäuble, also sees this possibility and stated to the “Bild am Sonntag”: “We will have in ten years a structure that corresponds much more strongly with what one identifies as a political union.” Cited from a report on n.tv.de on 12 December 2010; see further the case for/the plea for a European federal state from Walther Stützle on tagesspiegel.de on 10 August 2009; the commentary from Martin Hesse on sueddeutsche.de on 6 December 2010: “The goal is the United States of Europe.”; finally Gabor Steingart in his commentary “The United States of Europe (born May 2010)” on handelsblatt.com from 21 May 2010, who interprets the construction of the so-called euro rescue package as a further act of the creation of the United States of Europe. Finally Prof. Hendrik Enderlein, Hertie School of Governance in Berlin, in an interview with the Tagesspiegel on 15 December 2010 (page 16): “What we are missing is a stronger political Europe.” And: “There are two possibilities: Either we let the monetary union fail and with that the unification of Europe as a whole. Or we take the bull by the horns and deepen the Union. With the aimthat it will soon have a joint fiscal and economic policy.”

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Dr. Wolfgang Vonnemann
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