Part front matter for Part III On Becoming Federal

There have been two major transitions toward federal governance over the past fifty years. The first is Europe’s efforts to establish an economic union and, for its most ardent supporters, perhaps a full political union. The second is South Africa’s creation of a new democratic state, for which shared powers between elected national and provincial governments were essential for a peaceful transition from apartheid to democracy. The recent histories of the European Union and democratic South Africa are instructive as to what is needed to become a well-functioning federal democracy. Simply writing a federal constitution is not enough. Citizens must embrace Democratic Federalism as their preferred form of governance and be willing to debate and balance its benefits and costs.

Chapter 9, “The European Union: Federal Governance at the Crossroads,” traces the evolution of the European Union from a six-nation compact to manage the production and distribution of coal and steel to its current configuration as a twenty-eight nation (perhaps twenty-seven after Brexit) customs and currency union. Economic Federalism provides the conceptual foundation for the union’s guiding principles of subsidiarity and proportionality. Cooperative Federalism provides the institutional foundations now in place for the implementation of those principles. For the twenty-eight members of the customs union, union governance now decides policies for the funding of regional public goods, income transfer to poor regions, transfers to agricultural producers, regulation of union-wide market competition, harmonization of Member State taxation, and most importantly, the lowering of barriers to trade and the movement of people between member nations. In addition, for the nineteen Member States that also belong to the EU’s currency union, known as the Economic and Monetary Union, policies also include the provision and management of a common currency (euro) and the regulation of member countries’ banking and financial institutions. By most measures, the EU’s customs union has been a success, adding 1 to 2 percent per year to Member States’ real GDP. Less clear are the net benefits of membership in the currency union. While the common currency has lowered the cost and uncertainty of financial transactions, it has also reduced the ability of Economic and Monetary Union members to manage their aggregate GDP fluctuations, and it has introduced new temptations to abuse a now wider access to international lending. The EU’s slow recovery from the global recession of 2009 and Greece’s fiscal collapse and subsequent bailout are costly examples of Cooperative Federalism’s inability to manage the details of running a currency union. Further, setting EU policies by the institutions of Cooperative Federalism requiring (near) unanimity among country-level officials has led to inaction on important issues and a feeling of irrelevance by EU citizens, a sense of frustration and isolation known as the “democratic deficit.” Finally, Cooperative Federalism’s rule by unanimity makes disciplining Member States for rights violations very difficult; Hungary and Poland are now testing the limits of EU enforcement. One proposed solution to the EU’s current institutional failings is to become a full political union guided by the principles of Democratic Federalism. We are doubtful the union is ready for such a step. Successful political unions require a commitment to democratic rule and a willingness to make mutual financial and personal sacrifices for the benefits of citizens from nations other than one’s own. At the moment, a majority of EU citizens lack the common political ethos necessary for such compromises. We suggest a more modest path of reforms that stays within the current structure of Cooperative Federalism.