Europe’s Federalist Future

WASHINGTON, DC – A quiet breakthrough occurred recently in Europe. After more than two years of vacillation, policymakers have moved decisively toward economic and political union. Some have even used the “f-word” – federalism – igniting controversy and fueling urgently needed debate.

European Central Bank President Mario Draghi has decided to use the ECB’s considerable firepower as a financial backstop for indebted eurozone countries. Additional plans aimed at increasing eurozone countries’ accountability and effectiveness have followed, including a Europe-wide banking union, a common eurozone budget, limited debt mutualization (such as Eurobonds), and even a eurozone parliament separate from the existing European Union parliament. European Commission President José Manuel Barroso capped off the developments with a dramatic – even historic – speech, in which he called for a “federation of nation-states.”

But Europe’s new course has left many wondering whether more integration is really necessary. Reacting to the global economic crisis and the perils of austerity is a complex issue for Europeans. Although economists and commentators have tended to view austerity in the United States and Europe through the same lens, conditions in the world’s two largest economic areas are very different.

The US has long had a federal system. Americans in all 50 states pay federal taxes into the national treasury, and elected federal representatives then allocate the funds to the states. Little protest is heard over which states contribute more to the national pot, or from Californians and New Yorkers, for example, who transfer some of their wealth to Alaskans and Mississippians year after year. Indeed, in the US, the prevailing philosophy is printed on every dollar bill: E pluribus unum (out of many, one).