To better understand the euro crisis, imagine Calivada, Mondaho, and Wiscesota agreeing that Alassippi must cut spending. (More)

The EU and Greece, Part II: What It Is

This week Morning Feature looks at the European Union, Greece, and the ongoing eurozone crisis. Yesterday we discussed what the crisis is not: a small-scale model of the U.S. future. Today we explore what the crisis is: a predictable and perhaps inevitable stage in the EU project. Tomorrow we’ll conclude with what the U.S. should and should not do as the challenge evolves.

The American Union

No, this isn’t a conspiracy theory based on a proposed highway. Instead it’s a quasi-union of 25 countries: from Mainachussetts, Vermampshire, and Rhodecticut in the east to Calivada, Washegon, and Hawaska in the west. Only 17 of these 25 countries use the dollar; the rest have their own currencies. (New Yorksey still uses the giant.) Indeed many New Yorksey leaders never believed the dollar – or the American Union – was a good idea. But after the two Western Wars, which spread around the world, killed a combined one-tenth of the world’s population, and left most of America in ruins, a horrified continent said “No more.”

The American Union didn’t form all at once. It began with trade deals between long-time rivals Calivada and Washegon, and slowly grew in scope and membership. Alassippi joined – and adopted the dollar – just nine years ago. Then Alassippi sank into a recession, in part because bonds from Calivadan banks were worthless after the South American housing bubble burst. Alassippi is now struggling, with high unemployment and high debt. The AU are willing to lend Alassippi money, but Calivada – backed by Mondaho and Wiscesota – insist the terms include Alassippi adopting a balanced budget. That would mean deep cuts that already-hurting Alassippians don’t like.

An Arcane Government

There’s an AU government of sorts in the District of Columbia. The American Council – the leaders of the 25 AU countries – propose a head of the American Commission, who is somewhat like a prime minister. The proposed Commission head must be approved by the American Parliament. The Parliament totals 750 members, elected within their own countries. If the Parliament agree to the candidate proposed by the Council, the Council then appoint the other 24 Commission members, one from each AU member country, again subject to approval by the Parliament, who act as the AU cabinet. If the Parliament are unhappy with the Commission, they can vote them out of office. But they can’t vote out the Council members, who are elected within their own countries.

Only the Commission can propose new laws, except for laws on intergovernmental issues, which must be proposed by the Council. Both the Council and Parliament must approve new laws by majority vote. The Commission then enforces the laws, appealing if necessary to the American Court of Justice, which also ensures that new laws are consistent with the several treaties under which the AU was formed. There is no single AU Constitution, as attempts to enact one were blocked a few years ago.

The Real Power

Because the AU’s government is so arcane and its powers so limited, the real power lies in the economic clout of AU members … and that’s why Calivada could demand the Alassippi government slash spending to get that AU loan. When the Alassippi government agreed, the citizens of Alassippi voted those leaders out of office. But no party or coalition won enough seats to form a government in Alassippi, so they’re going to hold another round of elections.

Unless they elect a government who can make a deal with the AU, Alassippi may have to drop the dollar and return to their old currency, the hushpuppy. No one is sure how that would happen or what it would mean, and that uncertainty has the financial markets spooked. It doesn’t help that Florgia’s banks are also in trouble, and there are signs that austerity may be slowing the broader AU economy.

Indeed, Florgia’s leaders say this is “the hour of truth” for the AU. Everyone agrees that economic growth would solve the problem, but they don’t agree on how to make it happen. Calivada insists that fiscal discipline and balanced budgets will solve the problem. But Washegon just elected a new president, and he thinks Calivada’s strategy is wrong. He’s proposing amerobonds, which would allow members to borrow based on the combined economic strength of the AU. Those bonds would reduce the interest rate for debt-laden Alassippi, but raise the interest rate for stronger economies like Calivada. Calivada’s Chancellor nixed that idea, but opposition parties in her country are willing to consider them.

Regardless, there is a growing sense that Calivada will no longer dominate the AU by sheer economic clout, and that the broader solution – if the AU is to hold together – is a more effective and more democratic central government.

Back in Realworldia, the United States decided on the same solution back in 1787. Even the timing is similar, with roughly a decades’ experience having shown the Articles of Confederation left the federal government without enough clout to resolve disputes between the states.

The economic crisis in Greece has exposed the structural weaknesses in the EU, and with the EU the world’s largest economy … that has a lot of people very nervous.

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Happy Friday!