The United States of Europe

As the European economic and banking crisis continues to deteriorate, I’m struck, incredulously so, with the direction of the proposed political and financial solutions. Politically, the people of the affected countries seem to have their heads in the sand, and refuse to acknowledge their predicament and reject the market-based proposed solutions. The French have elected a president who ran almost exclusively on an anti-austerity ticket, and despite the fact that the newly-elected Greek government talks the talk on reform it remains unclear whether or not it will have the political fortitude to deliver. 

Financially, the latest solution proposed by the Spanish government to prop up their faltering banking system, if accepted, would put the Eurozone on a path to having the entire banking system of Europe governed and regulated by the European Central Bank (ECB). A number of the largest Eurozone banks outsize the governments in the countries where they are domiciled and are inherently connected to these governments. If the ECB were to supervise them, the bank would in essence be governing the economy of these countries and therefore the continent of Europe. In order for the consolidation of the financial system to happen, these impacted countries would be forced to surrender some of their sovereignty. Take this another step further and this situation evolves into the United States of Europe.

Can’t happen! Won’t happen! Guess what? In the past several months, I’ve had the opportunity to meet with a number of senior European officials and broach this very scenario. Their responses floored me. They accepted the premise of my discussion and accepted the idea of a centrally-governed Europe.  Experts in the U.S. readily admit that, in order to survive in the foreseeable future, the Eurozone needs a more centralized financial structure, something that will help rebuild confidence throughout Europe’s economic system. 

Obviously, German leaders will have something to say about this, but they are being put in a political box. Do the German people and their northern neighbors, who have been prudent and frugal in their spending and live under a more responsible system of government, bail out their southern neighbors who have not? Or do they allow them to fail and start over?

Their predicament reminds me of the fairy tale about the three little pigs. If Germany is the little pig that built its home of bricks, does it save the other the little pigs that built their houses of sticks and straw from the big, bad wolf that is economic collapse? Or, does the industrious little pig tell the others to go home, get busy building their own homes of bricks, and suffer the consequences in the mean time? Oh, if this were only a fairy tale.

Luetkemeyer is a member of the House Financial Services Committee and the subcommittees on Financial Institutions & Consumer Credit and Domestic Monetary Policy & Technology.

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