The only way that the European Union can survive is to resemble Switzerland! This shocking statement from acclaimed historian Niall Ferguson in Davos.
To be fair, Ferguson is not the only one to champion the transformation of the EU into a more complete federation. Many others are questioning how monetary union can exist without member states ceding more control of budgets, spending and borrowing to a central authority.
“Is it possible for Europe’s diverse people to live in a federal system?” he asked. “The diverse people of Switzerland have been able to live together in a federal system,” he answered himself.
Fiscal federalism involves the stronger members subsidising the weaker, in exactly the same way that Swiss cantons iron out inequalities in regional wealth.
Ironically, Switzerland was also used as an example of the price to be paid for dissolving the euro and returning to sovereign currencies. Germany’s currency would soar and its exporters would face the same problem that Swiss counterparts currently do, Ferguson argued.
Switzerland’s success at avoiding the worst ravages of the financial crisis soon turned into a burden as investors flocked to the franc, inflating its price against other currencies at breakneck speed.
The Swiss National Bank has resorted to printing money like fury to prevent adverse exchange rates from crippling the export industry.
“This super virtuous country, in fiscal terms, suddenly found itself in the position of dealing with an appreciating currency, to the point that its central bank had to throw caution to the wind,” Ferguson said.
Responding to a question from the audience, Ferguson dismissed the idea that an EU fiscal union would extend to unified tax rates among member states. The EU and Switzerland have been debating this same point for years, with the Swiss rebuffing EU demands to get in line and reset its “uncompetitive” corporate tax rates.
If Switzerland handed out knighthoods then Mr Ferguson would arise as Sir Niall and walk out of Davos with a big gong around his neck.