Philip Coggan gave an interesting interview this morning to NPR in which he discussed the effect of the of the United States’ bailout failure on the European markets. The primary purpose of the short interview was to describe the European perspective on the global impact of the U.S.’s financial crisis and the speculation on Congress’s activity surrounding it, though one incidental point caught my attention.
Coggan mentions that a concern in Europe at the moment is that a large Swiss bank might fail. This would be quite problematic because, while these types of firms are probably considered "too big to fail" for the European economy, the Swiss government could not afford to bail them out. Europe has a strong interest in the survival and growth of European financial markets–whether they are located within an EU constituent state or not. However, the EU does not have a treasury of its own, so it doesn’t have the power to spend taxpayers’ money on economic bailouts–it doesn’t even really taxpayers in the strictest sense.
The European confederal animal may not quite qualify as a confederation,* but it’s not a federal state at the moment either. The lack of a treasury and the ability to directly tax EU citizens is certainly one of the reasons that the EU doesn’t really qualify as a state–if we think that a state should at least have the authority to raise revenue through taxes. Were the large, TBTF banks in Europe to threaten collapse, it seems almost unquestionable that the EU would muster together the funds and assert the authority to bail them out.
In Europe, it seems, necessity is the mother of EU consolidation (or at least, it is the mother of the suggestion of consolidation). The more frequently cited evidence that the EU is not a state lies in the fact that it does not have a unified foreign policy directed by European Union authority. As I noted in a previous post about Spain’s use of universal declaration, the incidence of piracy affecting Spanish and French commercial and luxury boats has led to the call for a unified European Navy. Presumably, an EU armed force would necessitate a unified foreign policy to control it.
So, the creation of an EU military force and the assertion of the power to raise revenue to a single European treasury and to redistribute that revenue under a multinational economic policy might ultimately make the European Union look a little more like what we think of when we consider the sovereign state. For now, at least, it looks like individual member-states or groups of member-states are handling the problems that have arisen. It might take something as catastrophic as the collapse of a large Swiss bank to act as a catalyst for further European consolidation.
*Thanks to Will Heller for a brief discussion today in which he expounded upon the point that the exit costs are too high for EU member-states to leave at will, so the EU can’t really be called a confederation.