Mario Draghi, President of the European Central Bank Daniel Roland/Getty Images

Does Europe Really Need Fiscal and Political Union?

There is a growing sense in Europe, among conservatives and progressives alike, that fiscal and eventual political union is necessary to maintain the euro without damaging economic performance or democratic values. But there is also an alternative, much less ambitious view, according to which only banking union is needed.

CAMBRIDGE – Greece’s combative former finance minister, Yanis Varoufakis, and his nemesis, former German finance minister Wolfgang Schäuble, were at loggerheads on Greek debt throughout Varoufakis’s term in office. But they were in full agreement when it came to the central question of the eurozone’s future. Monetary union required political union. No middle way was possible.

This is one of the interesting revelations in Varoufakis’s fascinating account of his tenure as finance minister. “You are probably the one [in the Eurogroup] who understands that the eurozone is unsustainable,” Varoufakis quotes Schäuble as telling him. “The eurozone is constructed wrongly. We should have a political union, there is no doubt about it.”

Of course, Schäuble and Varoufakis had different ideas regarding the ends that political union would serve. Schäuble saw political union as a means to impose strong fiscal discipline on member states from the center, tying their hands and preventing “irresponsible” economic policies. Varoufakis thought political union would relax creditors’ stranglehold on his economy and create room for progressive politics across Europe.

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