Monday, July 20, 2015

Jean Tirole: "Europe's future is federal"

It seems that I am neither crazy nor alone. It is not me, it is Jean Tirole who says it, so perhaps federalism advocated by an Economics Nobel Prize will be paid more attention:
"The federalist vision requires two pre-conditions. First, any insurance contract must be signed behind a veil of ignorance: you wouldn’t include solidarity in a buildings insurance plan if my house were already on fire. It would eventually be possible to resolve the current asymmetry between northern and southern countries by identifying and isolating problems inherited from the past in order to confront them; this is complex but can be done.
Then, and in the main, countries sharing the same roof must have common laws in order to limit moral hazard. It goes without saying that legal uniformity must apply to laws which may create collateral damage for other European countries and not, shall we say, the “pasteurisation” of supplies consumed in the member state: subsidiarity must apply in areas where it creates no costs for the rest of Europe.
The ECB’s centralised supervision within a banking union raises a sliver of hope and might pave the way for common deposits insurance since centralised supervision reduces the chances that countries supervising their banks prudentially end up paying for lax ones.
A Necessary Loss Of Sovereignty
But mutualisation cannot be achieved regarding unemployment insurance. Effectively, the unemployment rate in Eurozone countries is only partly determined by the economic cycle and is very much linked to choices regarding employment protection, active labour market policies, contributions to social security, professional training bodies, the type of redistribution (minimum wage or fiscal allowances), etc.
Clearly, countries electing institutions that enable them to obtain a 5% unemployment rate won’t want to “co-insure” countries that, de facto, opt for 20% joblessness. The same holds for pensions and the mutual sharing of debts. Against all this evidence, Europeans still cannot bring themselves to think of giving up their sovereignty.
We Europeans must accept the loss of sovereignty that’s necessary to live under one roof. And, to do so, we should rehabilitate the European ideal and unite to defend it against populist nationalism – and this is not easy these days…"

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