Towards a Europe of Symmetry, Solidarity, and Opportunity

Op-ed in El Pais

August 23, 2015

The euro area crisis has revealed a sad reality. The process of monetary union should have generated economic convergence and political rapprochement and a sense of European citizenship. But it has failed. Economic differences have increased, societies have fractured, and nationalism has flourished. To top it off, the threat of euro exit has been used as a negotiating tool, forever changing the nature of the euro and converting it into a system of fixed exchange rates. It was a terrible mistake. In this environment, Europe's future is dark. Battles will be won, but the war will be lost. In a globalized world and with a rapidly aging population, Europe can only be strong if united. It will become irrelevant if divided.

There are many reasons for the failure. The narratives of the crisis vary according to countries and ideologies and are exploited shamelessly to promote local political interests—the Europe of rules versus the Europe of bankers, responsibility versus solidarity, neoliberalism versus Keynesianism, debtors versus creditors, North versus South. Building a future with such different starting points is impossible. Europe should start with a clean slate—from where it is today, not 2010—end the recriminations, and move towards creating a Europe that is able once again to generate growth and improve the welfare of all its citizens. The deeper the crisis, the greater the solution must be. Europe must decide whether to consolidate the euro as a true monetary union or abandon the project. The current reality, packed with half-measures, is no longer feasible. Europe must be proactive. Waiting for the next crisis would be a great irresponsibility that European citizens do not deserve.

Requiring all countries to reach equilibrium before further integration can proceed is a big mistake.

A true monetary union needs a federal structure built around three axes: symmetry, solidarity, and opportunity. Countries that are willing accelerate the integration process must be free to do so, with a two-speed process if necessary. Europe must end the tyranny of unanimity, the tyranny of the minority.

Symmetry in the economic adjustment is necessary, because Europe needs to start where it is and not wait for all countries to be equal. Requiring all countries to reach equilibrium before further integration can proceed is a big mistake. This principle led to the decision to solve the banking problem in a coordinated manner, rather than in a mutualized manner, drastically worsening the crisis. Each country had to solve its own problem, triggering the diabolical doom loop between banks and sovereign debt that has caused so much damage to Europe. Europe urgently needs a strong cyclical expansion to support the adjustment process—in the same way that Germany benefited from the European expansion during its reunification—and regain a sense of European optimism, both economic and political. This cyclical expansion requires symmetry—while countries like Spain continue to adjust, others must help with expansionary policies, and Europe should complement the rest. Germany must show commitment to the European project and implement a plan of investment and reforms to invigorate domestic demand and reduce the excessive and unsustainable current account surplus. The European Central Bank (ECB) should keep its program of quantitative easing and zero rates until medium-term inflation is credibly and sustainably stabilized at 2 percent. And the investment plan put forth by European Commission president Jean-Claude Juncker must be expanded significantly to give the necessary impetus for demand in the weakest countries.

Without solidarity there will be no monetary union. Solidarity in the long run, not just in times of crisis, can only be achieved through a robust fiscal and financial union. European economic cycles are not synchronized and economic structures are not equal—nor should they be. Diversity gives strength to the euro area. It is a misconception that all European countries must converge towards a single economic model and be, for example, like Germany. This diversity requires a federal tax system to manage asymmetric cycles and prevent the adoption of the procyclical fiscal policies that have caused so much economic and political damage during the crisis. Europe's primary objective for the next four years must be the completion of a fiscal and financial union with the creation of a European debt agency that issues Eurobonds to partially finance the debt of euro area countries. Eurobonds are necessary to solidify the financial union, as the credible backstop of the bank resolution fund and a future European deposit guarantee fund, and to facilitate the geographic diversification of European banks' portfolios. Only then, together with the creation of truly pan-European banks, can the link between banks and sovereign debt be credibly broken. Transferring a portion of tax revenues to a European treasury and strengthening the constitutional guarantees of compliance with the fiscal rules must be necessary elements of this process.

Opportunity for all Europeans, and for those who want to come to Europe, is an economic necessity and a moral imperative. Europe must make reducing inequality a goal along with fiscal and macroeconomic balance, and remove barriers to internal mobility of its citizens to make its economy more flexible and increase its growth potential. A "labor union," based on a concept of European residency that allows employment and the portability of benefits in any location in the European Union, is an essential complement to economic, fiscal, and financial union. This labor union should be open to immigrants in a solidary fashion among European partners within a European immigration policy. Europe needs immigration to reverse its population decline, and it has the moral obligation to address the humanitarian crisis in the Mediterranean.

European citizens are right to be disappointed. They deserve much more. European leaders cannot wait for the next crisis. Europe must resurrect the euro.