The Aspect of Sovereign Federalism
The sovereigns are to include all 27-nations that represent the entirety of the European Union (EU). The political, administrative, executive, and legal bodies of the EU are highly integrated under a centralized system of pan European governance. Sovereign federalism seeks to decentralize such governance to the extent of enabling greater fiscal, economic, & monetary integrity to the system. The overarching protocol of governing jurisdiction of the EU supra nationals represents the centralization of the European Union. The important areas of decentralizing power yet keeping the spheres of influence of regulatory oversight with the supra nationals include the political, economic, fiscal, and monetary aspect of European integration.
The 27-nation EU & 17-nation EMU comprise a politically federated union however the monetary union remains disintegrated given the level of moral hazard in the system. Banking and sovereign insolvency has brought economic instability to the peripheral nations of the union. Sovereign federalism of the EU & EMU will require the stabilization of the peripheral banking system as well as enabling sovereigns to meet outstanding debt requirements. Additionally, the integration must establish the EMU as a non-threat to the operation and activity of the EU. To establish the EMU as a non-threat to the EU, greater financial controls must be implemented.
Currently, the centralization of the EU concentrates the due diligence with the Court of Auditors. The Court of Auditors may remain as a supra national authority to balance the EU budget given the mark down of austerity obligations and the financing of growth strategies within the EMU. The Court of Auditors autonomously & in conjunction with the European Commission provide auditing and third party investigations into potentially unlawful financial management practices. The oversight from the supra national to the national and sub administrative levels must be integrated with internal controls corresponding to external mandates from the supra nationals. Integrating financial controls into the Information Management Technology platform will allow for the decentralized flow of information from EU members to the EU.
Decision-making w/in the EU is a function of the TEU & TEC treatise. The enabled powers in the treaty will have to be negotiated in upcoming meetings to the extent of centralization vs. decentralization. Growth is better under the model of decentralization as long as costs aren’t increased tremendously through bureaucratic brick building & hiring. Article 133 of the TEC specifies the centralization of the decision-making authority with regard to external trade agreements of EU member nations. The Nice Treaty essentially decentralized decision-making authority to which similar action may be taken to decentralize authority based on negotiations & discussions at upcoming meetings.
The legislative activity & action with regard to foreign policy (immigration), security policy, judicial/legal framework, and police administration of criminal matters in EU member nations have been centralized matters governed by the European Commission with opinions of the European Parliament as interpreted by the European Court of Justice. These supra national bodies may act as a ‘Supreme Court’ to which decentralization of political & social legislative activity & action to the sovereigns. The overall administrative cost after decentralization should be less. The manner of decentralization is likely to be different with each member nation given the system of national officials & Council legislation. Conformity of operations is not a mandate as the European Commission & Parliament remain the supra national bodies with overriding jurisdictional authority. Each sovereign should have representatives from the European Commission & the European Parliament serving the equivalent of a ‘Board of Director’s’ role within each sovereign.
To create a decentralized union, each EU member state must be able to opine on the budget and economic plan of member states under the auspice of the macroeconomic strategy of the EU. Such checks & balances does prevent burdensome bailouts by member nations w/stronger balance sheets, over compensating & creating additional liability to their internal growth rate due to extraneous risk taken by neighboring EU members.
The monetary union is tied to the relative value of the euro reflective of the EMU member nations under the auspice of the EU. The political integration provides the economic framework for the monetary union as the fiat value of the € reflects the EMU aggregate rather than individual member nations.
The fiscal integration of the EU underscores the economic and monetary union of the EU under the auspice of the political framework. The fiscal integrity of the sovereigns is threatened due to the lack of checks and balances from EMU member nations. To reestablish the fiscal strength of the EU, the ECB must further integrate with the IMF to form a banking syndicate with the specific intention of backstopping the €. The ECB/IMF alliance provides a ‘fortress balances sheet’ capable of open market transactions that enable the issuance of sovereign federation bonds backed with physical assets.
European TARP: Rather than bond issues being financed by EU/EMU member governments, the ECB will issue euro-bonds to purchase open market fiat and open market metals (gold, platinum) necessary to clear the fiscal balance sheet of peripheral nations (after write-downs) & to finance the growth necessary to rejuvenate the economies represented within the euro zone. The IMF financing represents the financing received from G20 nations which allows for currency diversification as well as greater leverage with global banking operations, which alleviates pressure from the ECB to finance the entire process via interest earned & the printing of new €’s. The IMF/ECB is capable of issuing bonds and using the proceeds to purchase all of the ‘toxic’ debt held by the banks and by the sovereigns. The debt will be marked down so that the IMF/ECB really takes the loss away from the banks & sovereigns. As the bonds are not backed with the toxic debt but rather the asset valuation of the currencies & precious metals held, the interest rate paid on bond issues should remain relatively low & stable.
The underlying assets of IMF/ECB syndicate arm is capable of floating 10yr issues to purchase hard assets including precious metals & currencies. These assets, in-turn, are used to float 50yr bonds, which are used to clean up the sovereign balance sheets & to stabilize the banks. The IMF/ECB also will float notes against revenue(s) to each bank & to each sovereign with the written down debt amount amortized over a 50yr payback period.
The interbank loan services that European banks provide to each other must be protected and stabilized via provisional lending from the IMF/ECB. The financing received from the European TARP should be placed in the national & central banks of the peripherals against the ratio of deposits held to deposits in transit to prevent a rising interbank rate. This action should stabilize the banking system and prevent a run on the €. Additionally, the ECB needs to issue a proclamation to each EU bank specifying Sovereign Banking Deposit Insurance (SBDI) on euro deposits of each personal and small business account held in EU banks. The amount of insurance should be high enough to provide confidence in the banking system (at least €100,000). Capital requirements are to be set by the EU and monitored by communicating with the sovereign central bank, which communicates with each national bank.
Fiscal Federalism & Economic Integration
The economic integration is a unification, a function of the political and social dynamic of the EU. To achieve full economic integration, symbiotic exchange of goods, services, and a non-prohibitive system of taxation must exist across borders. Fiscal Federalism enables this component of economic activity. Fiscal Federalism need not be a bureaucratic arm that links the supra nationals to the sovereigns, & then to the sub-nationals. Ideally, integrated Information Management Technology systems will track and append the economic velocity of monetary exchange as the economy shifts more to a mobile based economy based on information management, engineering & technological progress. Such a system allows for activity to be taxed and tracked at all levels of Federalism.