The summer of 2011 displays a remarkable paradox. To escape the debt crisis, European politicians call for a political and fiscal union, the 'United States of Europe', while their model, the United States of America, is facing its biggest debt ever. European federalists state that a functioning monetary union presupposes a political union. The United States, however, show that this is anything but a panacea. On the contrary: by next year, President Barack Obama will have piled more debt on his nation than all his predecessors combined.
During their last summit in Brussels, European leaders decided to let the Greek debt problem 'summernate'. The core problem of the eurozone, the competitiveness gap between the north and the south, keeps on ulcerating. The euro is good for Germany, but too expensive for Greece, Italy, Spain and Portugal. These countries cannot devalue within the eurozone, resulting in stagnation and recession. The European Union tries to reconcile the irreconcilable in the eurozone. As a consequence, crises succeed each other at an increasing pace.
That is why European federalists demand a Grand design. 'We need more Europe' is the tune of the morning prayer in the European Parliament. They believe 'More Europe' needs to get form and substance in ever more European institutions that accumulate ever more prerogatives. The goal is the 'United States of Europe'. The French want one single European economic government. The European Central Bank (ECB) should not only focus on monetary stability but also become a lender of last resort, just like the Fed, the American central bank. Jean-Claude Trichet, the president of the ECB, recently advocated one single European ministry of Finance, just like the American Treasury. The 'Spinelli Group', named after the Italian figurehead of European federalism Altiero Spinelli, believes that the 'United States of Europe' should be able to make its own debt through the issuance of Eurobonds.
But behold the United States of America! There is a federal government in Washington, there is an American President, there is a Treasury that issues American bonds and a Fed that buys these bonds and floods the American economy with cheap money. These federal institutions caused a debt of Belgian proportions and a deficit of Greek dimensions. According to eurozone criteria the U.S. is positioned between Spain and Portugal. Over recent weeks in Washington, policy makers argued as if they were in Athens. That would be no different in the 'United States of Europe'. Also Brussels would make ever more debt. The solution is not the concentration of powers but the right policies with budgetary restraint, a parsimonious government, more responsibility for citizens and a moderate tax regime. That is where the government should place the incentives. The bigger the government, however, the less likely it is able to do so.
How could the American debt derail so quickly? Obama cherishes a European dream: the 'Europeanisation' of the American economy, with big government and redistribution like European welfare states. He is trying to realise that goal at a time when European countries are no longer able to finance their welfare states. Around two-thirds of the federal budget is spent on social programmes. Obama allowed the federal budget to explode to make the federal benefits apparatus irreversible. In February, he proposed a budget with $3,800bn additional expenses in the coming decade. His healthcare plan costs another $1,000bn extra. His stimulus package of $800bn boosted nothing but the public debt. The unemployment rate remains high at 9.2%. For each dollar spent by Obama, 42 cents is borrowed. No wonder the debt ceiling of $14.3 trillion was almost reached.
And what did Obama do? Nothing! He wanted to lift the debt ceiling by a few trillion and continue undisturbed spending until after his re-election in 2012. When Obama was criticized by Republican Eric Cantor in a meeting with Congressmen, he angrily walked away like a spoiled child. He rejected a savings plan suggested by Senators Harry Reid (Democrat) and Mitch McConnell (Republican). John Boehner, the Republican Speaker of the House of Representatives, also submitted a savings plan. Obama turned it down. 'Jammer' Obama called cockily for a compromise. He has sunk to the role of a commentator. At the same time, his approval rating has dropped to 40 per cent. Obama is talking to himself, his leadership defaulted. Within the white electorate the downturn of his popularity is dramatic. His re-election is uncertain.
For Obama and Brussels, federalism equals unrestricted centralism. Besides all lofty historic rivalries, Europe is also a barrel full of envy, fear of strangers, and prejudices. The 'United States of Europe' idea would inevitably result in a catastrophe. One who wants to integrate Europe should take its shortcomings into account. A continental country like the U.S. that wants to construct a European-style welfare state blows up its public finances. Instead of learning from each other's mistakes, the political elites in Washington and Brussels are busy copying each other's mistakes.