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The wrong reverse causality of European Fiscal Unionists

Gentle LSE economist Pissarides gave a nice speech on whether Europe is working. A rhetorical question – obviously it is not – playing on the word “working”, a word he loves, given his life spent researching what makes promoting employment and fighting unemployment easier, especially what he calls fighting the largest waste of all, youth unemployment.

His main point, suggested by many others: let us move toward a fiscal union to solve Europe’s problems. A Eurobond. A transfer from countries feeling  today the warmth of the sun toward the ones under a severe cold weather.

California was built with money from the East coast of the country at the end of the XIX century, financing infrastructure, canals and roads. China is moving the ample resources of its East coast, again, to inland so as to provide infrastructure. West Germany with East Germany …

Why don’t we do that in Europe, he asks? “They (California and New York, Eastern and Inland China, West and East Germany) feel part of a single unit, but in Europe we don’t.”

So? So we need to restore trust, by creating a central mechanism that provides for transfers, even if those “are not palatable to European voters like they are to the American voters”. Trust, in his scheme, would thus be created going against the wishes of voters across Europe, a strange solution indeed.

The weakness in the argument is the usual reversion of causality of european fiscal unionists: “we need a fiscal union to obtain a political union” instead of “we need a political union to create a fiscal union”, which is the paradigm followed by Germany, China and the United States, the latter having waited at least 100 years to move to a centralized system of revenues, spending and debt, once States felt at ease with surrendering their fiscal sovereignty to outside Washington politicians.

Pissarides himself highlights involuntarily his own contradictions when he beautifully reminds us why the migration of young workers toward the current sunshine belt of Europe, Germany, suggested by Merkel herself would not work:

This lost generation of youths… Mrs. Merkel herself suggested that maybe they should migrate but if they want to come to Germany first they should learn German and get into their apprentice training programs… But the point is you don’t want emigration to be the corrective mechanism yet, because you are going to lose your best young people…. We don’t want to see Greece and Spain be emptied of all their  highly trained people and go work in Germany or wherever else because these countries need what they can contribute to in the future, you want to nurture them there, not outside their own countries”.

Splendid statement. Which in itself is a fundamental cry for stopping the crisis: stopping the slowly increasing migration bleeding from the South to the North of the euro area. But it is also a statement where what I underline (the possessives used by the economist are astonishingly powerful) clarifies the central issue of Europe today: when we speak freely in a conversation  we do have our national interest at heart, and even Pissarides – who criticizes the absence of a European interest in European voters – cannot resist lamenting phenomena that go against national interest.

We are, at heart, Italian, Greek, Germans. And any solution that one puts forward should make sure to take that into account. Any solution uniformly resisted by voters at large should be rejected. So much for the Fiscal Union, which will be an available option only when and if we will feel at ease with Italian and Greek young migrating away from (what at that point will be considered useless) national borders, when we  will not consider migration across states a loss anymore, as it happens today in United States. When cultures will have found an irresistible common bond, the true and only Eurobond that matters, culture.

As for now, European electoral consensus is growing elsewhere, against the euro.  As Pissarides says, it makes no sense defending it just for the sake of keeping it alive. “Decisions don’t seem to be made” and if this keeps on going, “we might as well give up, there would be no point in continuing” the senseless stupidity of anti-growth policies. But which decisions are needed?

His fiscal union solution lacks coherence, his spirit is the right one. The only policy coherent with his European spirit is the one that is in the direct interest of all countries involved, without requiring non credible transfers across countries: reversing the timing of the so-far politically proposed solutions. Stopping austerity now, canceling now those parts of the Fiscal Compact that require absurd levels of debt reduction for recession-stricken countries, asking for a timing of reforms that is coherent with the economic cycle, allowing them to be run and tried only when the sunshine-belt will have extended there where it naturally used to be, across the South, i.e. only when we will all be out of the recession.

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