An underlying theme of the report is that the task of European policymakers has been made broader and more complex that it was back in the 1990s, before the euro came into existence. Kierkegaard and Posen write in an introductory essay: "Monetary unification cannot stand stably on its own without additional integration of banking and capital markets, and some fiscal policies." Thus, the list of essays is:
Of course, the point isn't that Europe is or should be following in the footsteps of US history. As the authors write:
- "Realistic European Integration in Light of US Economic History," by Jacob Funk Kirkegaard and Adam S. Posen
- "A More Perfect (Fiscal) Union: US Experience in Establishing a Continent‐Sized Fiscal Union and Its Key Elements Most Relevant to the Euro Area," by Jacob Funk Kirkegaard
- "Federalizing a Central Bank: A Comparative Study of the Early Years of the Federal Reserve and the European Central Bank," by Jérémie Cohen‐Setton and Shahin Vallée
- "The Long Road to a US Banking Union: Lessons for Europe," by Anna Gelpern and Nicolas Véron
- The Synchronization of US Regional Business Cycles: Evidence from Retail Sales, 1919–62," by Jérémie Cohen‐Setton and Egor Gornostay
"It is not important whether the European Union is integrating more or less quickly than the United States did. Such abstract benchmarking misses all the important points about the nature and sequencing of integration as political processes. The many fundamental differences between the United States and the European Union prevent drawing too precise, let alone literal, a mapping from US economic development to Europe’s path forward today. ... Rather than pointing towards the current state of US continental integration as the guide for the European Union, we analyze the US responses throughout history to economic and political challenges and to numerous domestic political constraints—some not unlike what Europe faces today. We believe that EU leaders should draw lessons from these US responses for how, how far, and how fast their aspirations for EMU should progress. Yet, it must be acknowledged that the United States solved most of its political and economic challenges through centralization and federal government institution building."Kierkegaard and Posen put together a thought-provoking list of nine "Themes of US Economic Integration over the Long Run," which are of course explored in more detail in the essays that follow. Here's a sampler:
Institution Building Requires Repeated Attempts and Often Constitutional Revision: ... The US Constitution itself has been updated, or amended, 27 times. ... [T]he first two central banks in the United States were closed down, and the initial monetary policy architecture of today’s Federal Reserve required repeated and far‐reaching reform in the first two decades after its founding. ... Economic integration cannot be limited forever to satisfy those who are averse to change. ...
Fiscal Integration Takes a Very Long Time: From the beginning the US federal government had the power to issue its own debt, but for the first more than 130 years of American history it did so sparingly and essentially only to finance the nation’s wars. Only by the 1930s did outstanding US federal government debt permanently exceed total state and local government debt. ...
The Right Fiscal Sequencing Is to First Identify the Need and then to Find the Resources: The US federal government budget expanded gradually, but each expansion generally followed the same clear political sequence. Congress would identify a problem that required a nationally consistent solution and would then proceed to find the necessary funding for it. Frequently, the federal government dedicated or earmarked particular revenue sources to solving specific preidentified problems. ...
Large Centralized Fiscal Capacity Synchronizes Regional Business Cycles: The increasing synchronization of US business cycles across a diverse and continental‐sized economy occurred only after the dramatic increase in the federal government’s fiscal role in the 1930s New Deal (and subsequently World War II). Previously, a pattern of divergent regional booms and busts was the costly norm even as markets integrated over decades. ... US history suggests that European policymakers ought instead to contemplate the creation of a specialized asymmetric shock absorption instrument for at least the euro area. ...
New Centralized Institutions Unite Opposition and Can be Vulnerable to Regulatory Arbitrage: ... In Europe, EMU itself, as originally designed in the Maastricht Treaty, is of course the most prominent example of a half‐built house that ultimately suffered a regionally driven crisis. This led to scapegoating for being too centralized, when the problem was that it was insufficiently so.
Only Complete Fiscal Support for the Lender of Last Resort Removed Redenomination Risk: During the early decades following the Federal Reserve System’s founding in 1913, negative feedback (or doom) loops akin to those in the euro crisis materialized between regional banking sectors, state governments, and the nonfinancial private sector in the same region(s). Only after the comprehensive reforms initiated by President Franklin Roosevelt—including the potentially unlimited fiscal support for the Federal Reserve Board and regional Federal Reserve banks and the establishment of the Federal Deposit Insurance Corporation (FDIC) with a federal fiscal backstop—did interregional differentials in interest rate and risk perceptions end. US history thus implies that only similarly credible actions to support the European Central Bank (ECB) and banking supervisors will alleviate stubborn country‐specific redenomination risks inside the euro area.
Central Absorption of Government Responsibilities Often Occurs Following State‐Level Policy Failures: Important additions to US federal government responsibilities historically took place as partial state‐level services provision collapsed financially. ... Generally available old‐age pension provision through Social Security and unemployment benefits were introduced during the Great Depression, as similar programs existing in just a few states became unsustainable. And federal deposit insurance was similarly adopted in 1933, following the largest financial panic in a
sequence of them, when a wave of failures spread among smaller state‐level insurance
schemes. ...
Few Core Government Functions Are Exclusively State or Federal Responsibilities: ... [I]n practice, the federal government has only very few exclusive responsibilities, such as defense or foreign affairs. Many core social insurance and regulatory responsibilities are in practice carried out through state‐federal government partnerships both institutionally and financially. ...
National Security Crises and Other External Pressures Are Important Integrationist Forces: Jean Monnet is famously credited for suggesting that the European Union would be forged from the group’s responses to its successive crises. The same is true for many of the core institutions of the American central government, but primarily these were security crises (economic crises, as noted, were usually insufficient to prompt greater integration on their own, despite their evident costs). ... The vast majority of American federal government institutions created in crisis periods have subsequently been maintained. ...
For some earlier thoughts about US history and lessons for European economic unification, see:
- "Lessons for Europe's Debt Crisis from Early US History" (January 20, 2012)
- "Lessons for the Euro from Early American History" (May 26, 2016)