'Why Nations Fail': Can the eurozone hang together?
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“Let me take you back to the United States. The United States went through the same process with the Articles of Confederation. The thirteen [former] colonies were linked in a weak umbrella organization, but not linked politically and not linked fiscally. And that became unworkable. What the US Constitution achieved was a very rapid process of political centralization which went hand in hand with fiscal centralization, meaning that the states transferred their debt to the central government but the central government got political power over these states and that system became extremely stable, of course. And the basis of the nineteenth century growth in the United States.”
He adds: “It would seem that a similar sort of solution might be optimal for Europe as a whole.”
Many, including the US, are pushing Europe to join in a stronger fiscal union, meaning especially shared powers of borrowing. But that’s not very attractive to the Germans.
“A fiscal union without a political union means that Germany and the European institutions have no say over what budget deficits, what tax rates, what spending other countries have but are ultimately on the line for their shortfall.”
The solution needs to be both a fiscal and political centralization like the US Constitution. That would share both voice and accountability along with the money.
Eventually, Acemoglu foresees that some countries will have to drop out of the union and set their dreams of greater prosperity aside for a time.
Further conversations with Daron Acemoglu, coauthor of “Why Nations Fail”:
Marshall Ingwerson is the Monitor managing editor.