The US Federal Reserve would never be allowed to conduct such a regionally imbalanced policy. The Fed cannot even provide credit to specific regions, let alone states on the verge of bankruptcy (for example, California).
Now, European Council President Herman Van Rompuy, backed by most of the troubled eurozone countries, is again proposing eurobonds and debt-mutualization schemes. These ideas go well beyond the US system. The kind of fiscal integration and centralized power that they would require do not even remotely resemble those in place in the US.
Van Rompuy’s proposals are extremely dangerous and could destroy Europe. The path toward a union based on joint liabilities, against the wishes of large parts of its population, is not leading to a federal state in the true sense of the term — that is, to an alliance of equals, who freely decide to unite and promise to protect each other.
Nor can this path lead to a United States of Europe, simply because a large part of Europe refuses to follow it. Europe is not identical with the eurozone. It contains many more countries than those that use the euro. As useful as the euro could be for Europe’s prosperity if its obvious flaws were corrected, the way that the eurozone is now developing will split the EU and undermine the idea of unity in diversity.
The assertion that the eurozone could be transformed into a United States of Europe is no longer convincing.
The path toward joint liability is far more likely to lead to a deep rift within Europe, because turning the eurozone into a transfer and debt union that can prevent the insolvency of any of its members would require more central power than currently exists in the US.
Hans-Werner Sinn is professor of economics and public finance at the University of Munich and president of the Ifo Institute.
Copyright: Project Syndicate