Pat Dollard

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New York Times:

As leaders in Europe try to contain a deepening financial crisis, they are also increasingly talking about making fundamental changes to the way their 17-nation union works.

The idea is to create a central financial authority — with powers in areas like taxation, bond issuance and budget approval — that could eventually turn the euro zone into something resembling a United States of Europe.

Officials have been hesitant to publicly endorse such a drastic change. But privately they say the issue has gained urgency in recent months, as it has become clear that Europe’s current approach, which requires unanimity on any significant moves, is unwieldy and inefficient. The idea is being promoted by some global financial officials, who worry about the risks that continued uncertainty in Europe poses to the global economy.

Recently, for instance, when an official from a European central bank met with a financial official in Washington, his host brandished the Articles of Confederation, the 1781 precursor to the United States Constitution, to use as an example of why stronger unions become necessary.

The story of America’s failed early effort to operate as a loose confederation of 13 states is looking increasingly relevant for many European officials. The lack of strong central coordination of the euro zone’s debt and spending policies is a crucial reason Europe has been unable to resolve its financial crisis despite more than 18 months of effort.

The lack of progress has contributed to steep declines in European stocks recently, sending tremors through markets in the United States as well. On Monday alone, several major European markets fell more than 4 percent while markets were also down on Tuesday morning in Australia and Japan.

And that is why, despite all the political obstacles, Europe appears to be inching closer to a more centralized approach, and some officials are going public on the issue.

“If today’s policy makers want to successfully stay the course, they will have to press ahead with structural changes and deeper economic integration,” António Borges, director of the International Monetary Fund’s European unit, said in a recent speech. “To put the crisis behind us, we need more Europe, not less. And we need it now.”

“If they had the equivalent of the U.S. Treasury, then this treasury could have formulated proposals with the collective objective in mind, rather than 17 national objectives competing with each other,” said Garry J. Schinasi, a former official with the International Monetary Fund who now privately advises European central banks and governments. “Instead, they fumbled around and took two baby steps forward and three backward.”

The idea of a European Treasury that would enforce fiscal discipline on wayward countries, while also having the power to spread European Union wealth from healthier countries to ones struggling to pay their debts, is fiercely unpopular among voters in many countries. Those in prosperous nations like Germany do not want to see their taxes used to bail out countries that borrowed their way into trouble. And those in weaker nations are reluctant to allow outsiders to dictate how their governments spend their money and tax their citizens.

If and when that happens, said Graham Bishop, an independent financial analyst who has advised the British and European Parliaments, it “would be the moment of collective control of an errant state — the final step toward a de facto political union.”