November 2012

OPINION: A European Renaissance?

ViennaSometimes you need to get away from the centre to find the ideas that might help to stabilise the centre. Where is the centre of Europe? Frankfurt? Paris? Berlin? London? (Obviously not London.) It’s a moot question. But I’ll wager that few (answering the question today rather than 150 years ago) would say Vienna – although, geographically speaking, Vienna is just about as central in Europe as you can get. Nonetheless, it was on a recent trip there that I was introduced to the best idea I’ve heard in a long time for fixing the mess in which we Europeans find ourselves. During a presentation on global fixed income markets, Robert Senz, chief investment officer of global fixed income at Raiffeisen Capital Management (RCM), put forward the idea of a Europe of regions. Under this nifty concept, which Senz called European Renaissance, nation states as currently conceived would become less important in Europe. Bavaria might join with parts of Austria. Other parts of Austria might prefer to throw in their lot with Switzerland. Catalonia could be independent – no one would mind. German-speaking Belgians could live in the part of Germany whose German they speak. And so on. It’s easy to see how this could help solve a lot of problems besides the eurozone problem. The Basque question. The Northern Ireland question. The many Belgian questions. Essential to this Europe of regions would be true political union. (Deep breath in.) This would, of course, involve all kinds of things that people find scary, such as fiscal union and a transfer union. We might even get unified electrical plugs (that’ll be the one that causes the most trouble) and a single European finance regulator. (Exhale.) What it wouldn’t need to involve is everyone being the same. A European Renaissance involving a Europe of regions would allow Europeans to embrace diversity and unity at the same time. We are, of course, far from this idyll. Living in the UK, where pockets of resistance to decimalisation are still dug in, that is abundantly clear. My trip home, which involved multiple x-rays, much taking off and putting on of coats, shoes and belts, and a thankless trudge through Paris Charles de Gaulle airport to the dark place where they keep those who live outside the Schengen zone, served nicely to underline the point. If true political union seems like a lot of work or an impossible dream, we need to ask ourselves what the alternatives are. Reminding us that the Austrian economist Paul De Grauwe, professor at the London School of Economics, had “with perfect foresight” predicted that monetary union without political union would fail, Senz put forward two possible scenarios if true political union doesn’t come. First, the eurozone could break up. This would lead to depression. Second, we could carry on doing what we’re doing at the moment: that is to say, muddling through. As we all know, muddling through leads to instability. What’s worse: it could so easily lead us right back to scenario one. As de Grauwe wrote in a 2011 article, Managing a fragile Eurozone: “A monetary union can only function if there is a collective mechanism of mutual support and control. Such a collective mechanism exists in a political union. In the absence of a political union, the member countries of the eurozone are condemned to fill in the necessary pieces of such a collective mechanism. The debt crisis has made it possible to fill in a few of these pieces. What has been achieved, however, is still far from sufficient to guarantee the survival of the eurozone.” Or, as Senz put it: “If we’re not prepared to have true political union, why did we start the whole thing in the first place?” Good question. One thing is for sure: we need a more radical approach if it’s not to be Good Night, Vienna for the European project. ©2012 funds europe

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