EU vs. US
What’s the difference between the structure of the United States of America and European Union?
In semi-technical terms: The EU “is more than just a confederation of countries, but is not a federal state,” whereas the US is composed of member states that are overseen by a federal government.2 In plain language: countries like Germany, Spain, and Portugal play largely by their own rules and are only bound together by the Euro, whereas states such as Alaska, South Carolina, and Hawaii, although very different in almost every way possible and eager to set off in their own direction, are all squeezed back into the mold of the general US will by a strong federal government. Sure, they might leak a little at the edges with respect to marijuana legalization, gun rights, and gay marriage, among other topical issues, but at the end of the day they are all tethered to the Federal government.
Effectively, this means that the EU functions like a club of adults that can meet and engage without much supervision, whereas the US is more of a family of juvenile delinquents that needs the supervision of a parental entity. The social bonds of the member countries of the EU are almost purely economic whereas the social bonds of the member states of the US are more of a mixture of economics, Constitution-steeped ideology, mild contempt for one another, and collective angst against the Federal government – a powerful glue to be sure.
In short, the EU is only a monetary union, whereas the US is both a monetary and “political” union.
Let’s return to Varoufakis’ argument. He states that the Greek economic crisis would not have occurred if the EU had a Federal government akin to the current US Federal government to regulate the actions of its member countries.
Here is why I disagree: the United States at the height of the economic crisis in September 2008 is equivalent to Greece at the height of its economic crisis in April 2010, when it lost access to capital markets.
Private creditors in the United States watched the sub-prime mortgage (debt) market explode, as they knew it would because they had created the crisis with the help of the credit rating agencies,3 investment banks,4 and truly awful federal oversight.5 They were subsequently bailed out by the US Federal Government with US taxpayer money6 when the troubled banks should have defaulted.7
Private creditors in Greece watched the government bond (debt) market explode, as they knew it would because they had created the crisis with the help of credit rating agencies,8 investment banks,9 and truly awful federal oversight.10 They were subsequently bailed out by the EU, IMF, and EFSF with EU taxpayer money11 when the government should have defaulted.12
The key takeaway that refutes Varoufakis’ argument: the Federal government in the United States did not even come close to preventing the economic crisis; therefore, if the EU had been set up with a similar type of Federal government system, there is no reason to believe that it would have succeeded where the US government failed.