Proponents of a 'United States of Europe' received quite a slap in the face during the recent battle for the EU budget. Instead of the eternal 'more Europe' mantra, the multi annual budget for the period 2014-2020 has been reduced and European taxes are out of the question. Europe is forcing citizens to save; Europe itself should lead by example. Better results with less money: there is a change of mindset in Brussels.
After all the big words, a sense of reality finally sets in. It is time to put to rest the concept of a federal European entity - the United States of Europe. Not because its ideal is not legitimate, but because it does not work. The 'United States of Europe' is the intellectual self-delusion of a small elite.
The ideal is fed by reference to the 'United States of America'. In order to imitate the American example, Europe would have to harmonize various policies. Therefore, European federalists are staunch advocates of tax harmonization. The European Parliament recently voted in favor of the harmonization of the corporate tax base. That has to be the first step towards harmonization of the tariff. The ' unique social model' is of vital importance. Harmonization of working hours has already been arranged. The next goal is the introduction of a European minimum wage. Uniformity on a European scale is paramount.
Yet in the U.S we see the exact opposite. The so-called 'united states' compete with each other to the death. States like New York, Illinois and California are similar to European welfare states, looking at the large share the government has in the economy. They have a high tax burden, high social spending and strong public sector unions. They also have the biggest problems: high unemployment, high pension costs in the public sector and capital flight. Other states do not even consider following this 'European model'. On the contrary, fiscal competition is their answer.
Many Americans see California as the U.S. equivalent of Greece. States like Nevada, Arizona and Texas offer an attractive fiscal and investment climate. Citizens from California move away and leave the Golden State behind with a lack of money, a debt problem and economic stagnation. Simultaneously Nevada, Arizona and Texas bloom. The same is happening in Florida. Low tax rates attract citizens from states like New York and Illinois. From 1995 to 2010, within the United States 2 trillion in gross income moved to states with an attractive fiscal climate.
In Europe labor mobility is low; after all, work has to be brought to the citizen. This is considered 'social'. Europeans would establish a rescue fund for the 'poor California', out of 'solidarity'. Europeans have a bail-out for everything: countries, banks and Russian billionaires. Americans do not: if necessary, California goes bankrupt. Tax competition has a self-purifying effect.
This also applies to public policy competition. Because of their industrial past, states in the Midwest have powerful labor unions. Membership is often required: unions enforce high wages and scare investors into leaving the state. Therefore, a counter movement was created: right to work states. Trade union power is severely curtailed and membership is voluntary. The governor of Wisconsin, Scott Walker, is fighting a hard battle with the unions in order to break their power. The unions wanted him voted down through a recall election. Yet the Republican Walker won in the traditionally Democratic Wisconsin. There are now 24 right to work states, and they are popular with investors. Boeing has its Dreamliner assembled in right to work state South Carolina, not in the state of Washington, where unions are in charge. The Walloon arms manufacturer Fabrique Nationale (FN) produces weapons in South Carolina. The European and Japanese auto industry has its factories built in right to work states: Georgia, Tennessee, and Alabama. Policy competition is the counterweight to vested interests.
European federalists do not want to see this 'real America'; they are obsessed by the federal government. The U.S. has a single currency and provides unlimited government bonds. Euro Federalists believe that the euro zone should follow that example through the use of euro bonds. The U.S. government, however, collapses under a mountain of debt. President Obama has produced almost more debt than all his predecessors combined, from George Washington to George Bush. In fact, Obama is busy 'Europeanizing' the federal government. He repeats the mistakes that Europe has already made.
In the U.S. the diversity of the 'Disunited States' is a source of strength, thanks to fiscal and policy competition. This should also apply to the EU Member States. Uniformity smothers any chance of self-correction.