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Europe is at the mercy of a common currency that not only was unnecessary for European integration, but that is actually undermining the European Union itself.Those who agree that the cost of dismantling the euro is too high to contemplate are being forced into a species of wishful thinking that is now very much in vogue, especially after the election of Emmanuel Macron to the French presidency. Their idea is that, somehow, by some unspecified means, Europe will find a way to move toward federation. To make this proposal palatable to Germany's government, the suggested common budget is tiny (around 1 percent of aggregate eurozone income) and will fund only the basic structures that a federation-lite entails, like common deposit insurance to give substance to Europe's (so-called) banking union and a portion of unemployment benefits.Second, the ECB will service (without buying) the Maastricht-compliant part (60 percent of GDP) of maturing eurozone sovereign bonds, by issuing its own ECB bonds.Notice also that this simulated federation can indeed be brought about tomorrow morning, without falling afoul of the existing EU treaties.Today, a new gradualist fallacy threatens Europe: The belief that a federation-lite will evolve into a viable democratic federation.
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