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Our life and blood…, but not our oat

The origins of the outcry above dates back to National Convent of Pozsony on the 11th of September 1741. The freshly crowned queen’s predecessor secured the modified order of inheritance within the Hapsburg-dynasty by the issuance of Pragmatica Sanctio thirty years earlier. Despite his efforts, his daughter, Maria Theresa had to seek the reaffirmation of the crown’s territories regarding her legitimacy for the throne.

The empire was in a difficult situation. Following the death of King Charles III in 1740, the Germanic rivals of the Habsburgs got the perfect ‘casus belli’ in the form of the queen’s questionable legitimacy. The war of inheritance and the denouncement of Maria Theresa left the empire war-torn, and even seeking the help of the always rebellious Hungarian nobility. Although, some history books point to the staged nature of the convent, the actual motivation of the orders to offer their help, “life, and blood”, lies somewhere else. The convent made sure that its members and their estates can further enjoy their centuries-old tax exemption, and that the new monarch will withdraw some unpopular limitation of the absolutist rule. Hence the twisted version of exclamation in the title was born.

History doesn’t repeat itself, but often rhymes. The short history lesson above reveals two crucial points regarding the government of a fractured, international country. Creating an ideology of unity is harder than one might think, and in the absence of it, support will cost you. Bearing these points in mind, let us see some contemporary wisdom shared by the outgoing German finance minister, Wolfgang Schaeuble.

Even though the outgoing finance minister is a supporter of European integration himself, he is often critical regarding federalist movements and concepts. According to his recent three-page-long paper, containing financial advice on the future of the Europe project, he sees the establishment of a common European finance ministry as an impossible task. Since member states had to be constantly reminded to comply with the fiscal regulation of the Union, such an endeavour would create a problem of free riders.

Source: EKB

Source: EKB

Other tools might be a better fit to create financial stability within the Union. For instance, the currently working European Stability Mechanism could be replaced by a European Monetary Fund. If the name sounds too familiar it is not a coincidence. According to Schaeuble’s idea, the newly created fund would use similar bases to its international peer. It is hardly surprising given the economic circumstances. The idea of a monetary fund fit to aid countries struggling with their public finances was born during the years of the Great Depression. Fixed exchange regimes, idiosyncratic shocks, and necessarily pro-cyclical policies to keep the currency rates constant provided no flexibility in budgeting. Contemporary European states make no exception. Without independent monetary policy and the option to devalue the country’s currency, policymakers are often left with an inconvenient choice of attracting investors with higher rates and the widening deficit of the government budget. By applying a monetary fund into the equation, revolving and restructuring credit could become a more feasible option compared to refinancing from the market. Meanwhile public expenditure could be funded without the need to leave the monetary union.

Everyone for themselves

What is the technical message here? Exactly the same as the “not our oat” part in the title. The suggestion completely rejects the idea of a common finance ministry, or fiscal redistribution between member states. A single safety net for the unemployed is unimaginable, not to mention a Europe wide debt policy and bond programme. In the future Schaeuble depicted that everyone should deal with finances and public debt on their own; although the Monetary Fund could help with the latter one. Germany advocated similar concerns regarding the banking union and common deposit guarantee scheme as well.

Naturally, the proposition is aligned with the perspective of economies with balanced budgets. Logically, a wider safety net might nudge countries for free riding, demolish the incentive to implement structural reforms, and boost public projects with negative future value in exchange for potential political support. However, the proposition has one shortcoming.

Two dimensions, same problem

The last couple of weeks European media was rattled by the dispute between Spain and its renegade region, Catalonia. Even though, the people living in the North-East of Spain has no particular problem with the Union, but with Spain, the root of the problem and narrative is very similar to the one in Schaeuble’s suggestion.

Spain has been a customs, monetary, and labour market union for centuries. However, years of collaboration between the regions was not enough to supress the ideological offence Catalonia had to take during the Franco regime. The fascist government was so keen on keeping the politically divided country together that they oppressed every political and/or ethnical minorities, hence the Catalans too. The fact that during the civil war Catalonia stood on the Republic’s side didn’t help their cause for autonomy either. As it is usually the case with oppressive regimes, such endeavour only widened the ideological and cultural gap between the centre and Catalonia.  Given these historical circumstances, if we fast forward to the Financial and Euro crises, we can see that the political idea of affluent Catalans shouldering unemployment benefits for Southerners is a hard sell. Likewise, until the first reference point of identity is on the national level across the continent, it is hard to convince the masses about the benefits of a single European federal budget.

From another perspective, the argument misses the socio-economic advantages of belonging to such a union, hence seemingly nothing counterbalances the fiscal burden of the autonomous region. Meanwhile fiscal contributions are easily quantifiable, the benefits of the union remains hidden without proper accounting an communication. Being part of a wider market has such perks as lower volatility, improved economic predictability, potential for diversification, and higher number of business opportunities. Nonetheless, both negative and positive economic trends can feed back to the source, for instance higher employment and purchasing power through fiscal redistribution may act as a classic Keynesian stimulus for the more affluent regions. Hence, Schaeuble’s argument regarding solutions on the member state level seems to be only built on the ideological bases and missing the supportive facts. Since labour, capital and goods markets are united a Greek crisis suddenly becomes a union-wide problem.

Thus the advocators of federalist policies should focus on two crucial points to form a viable counterargument in order to improve cooperation on the continent. Firstly, working out standardised measures to quantify and communicate the benefits of unionist institutions to show economic perks of federalist policies. Secondly, create an ideology fit to make people offer more than just our lives and blood. Sometimes we have to give the oat as well.