A New Deal to Save Europe

LONDON – “I don’t care about what it will cost. We took our country back!” This is the proud message heard throughout England since the Brexit referendum last June. And it is a demand that is resonating across the continent. Until recently, any proposal to “save” Europe was regarded sympathetically, albeit with skepticism about its feasibility. Today, the skepticism is about whether Europe is worth saving.

The European idea is being driven into retreat by the combined force of a denial, an insurgency, and a fallacy. The EU establishment’s denial that the Union’s economic architecture was never designed to sustain the banking crisis of 2008 has resulted in deflationary forces that delegitimize the European project. The predictable reaction to deflation has been the insurgency of anti-European parties across the continent. And, most worrying of all, the establishment has responded with the fallacy that “federation-lite” can stem the nationalist tide.

It can’t. In the wake of the euro crisis, Europeans shudder at the thought of giving the EU more power over their lives and communities. A eurozone political union, with a small federal budget and some mutualization of gains, losses, and debt, would have been useful in 1999, when the common currency was born. But now, under the weight of massive banking losses and legacy debts caused by the euro’s faulty architecture, federation-lite (as proposed by French presidential hopeful Emmanuel Macron) is too little too late. It would become the permanent Austerity Union that German Finance Minister Wolfgang Schäuble has sought for years. There could be no better gift to today’s “Nationalist International.”