No to a Transfer Union, Yes to an Economic Justice Union
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One thing that economists agree on is that in order to move out of the crisis rather than have it continue indefinitely, losses have to be allocated sooner rather than later. Only once this politically painful step has been taken, can Europe move on. But who should pay for the mess? If the crisis were the result of profligate spending of some states, then it seems logical that these states should bear the burden of their actions before they can count on European support, and that this support should come with strict conditions. This, in effect, is what the ESM and Fiscal Compact are meant to ensure. But if, as is considerably more plausible, the sovereign debt crisis is, to a large extent, the result of a banking crisis, the answer may turn out to be very different. There is something arbitrary about burdening the states in whose jurisdictions the banks requiring bail-outs happen to be domiciled. The banking crisis would not have had the same intensity and structure if it were not for the European common currency and European freedom of capital guarantees. The EU has exercised its concurrent competencies over the area of banking and financial markets and is in the process of deepening its involvement in the sector by the establishment of a Banking Union. Furthermore the bank-bailouts themselves have considerable cross-border positive externalities. Given the interdependence of the banking sector, the failure of major banks in one state would have had difficult-to-control contagion effects across Europe. Under such circumstances, it seems more plausible to allocate financial public sector risks resulting from financial sector failings at the European level. The costs of bank-bailouts are, to a significant extent, the result of genuinely European risks, for which it would be appropriate to hold the European Union, as a whole, accountable. But if the European Union as a whole, rather than individual states like Spain, Ireland or Slovenia, is to be held accountable for the costs of the bank-bailouts, inter-state transfer mechanisms, such as those foreseen by the ESM, should not be used. These costs should be paid for by genuinely European funds, raised by European taxes or levies. The way money is raised and spent comes with its own political presumptions and burdens of justification. It should not be seen as just a neutral technical device. There is something deeply incongruous and misleading in first having individual states bail out banks, and then transferring money from one state to another, so that stronger states end up supporting weaker states. This mechanism misguidedly creates the impression that stronger states have to bail out weaker ones because the weaker ones cannot handle their responsibilities, even when the original responsibility belongs to the European Union. Inter-state transfer mechanisms corrode solidarity in Europe, because they give the misleading impression that one state has to ultimately pay for the failures of another.
Source Publication
Political, Fiscal and Banking Union in the Eurozone?
Source Editors/Authors
Franklin Allen, Elena Carletti, Joanna Gray
Publication Date
2013
Recommended Citation
Kumm, Mattias, "No to a Transfer Union, Yes to an Economic Justice Union" (2013). Faculty Chapters. 1060.
https://gretchen.law.nyu.edu/fac-chapt/1060
