The German Question and the European Question. Monetary Union and European Democracy after the Greek crisis

The dramatic clash between creditor and debtor countries in the EU shows that radical reforms are required. In this paper we argue that the EMU is a political project: it is a European public good, which must be provided by a legitimate democratic government. Yet during the crisis, Germany played the role of leading country, and the old dilemma between a German Europe and a European Germany cropped up again. Here we examine two interjurisdictional spillovers caused by asymmetries among the governance and size of the economies in the euro area: the bank-sovereign nexus and the internal deflation trap. In order to avoid social and economic disequilibria, we propose a European economic model for the euro area based on a long-term balance of payment equilibrium, as an alternative to the German export-led economy model. Current account surpluses and deficits are neither a virtue nor a sin. The euro area should be endowed with a federal budget, enabling the European Commission to employ European savings to spur growth, employment and public and private investments. The new European model must be coherent and compatible with the needs of the other states of the world; the stability of the international economy is also a global public good. Indeed we can look at the European model to draw some principles for reforming the old international economic order set up at Bretton Woods, but now in crisis due to global imbalances and international monetary and financial instability.