Eurocrisis and the Myths of European Redistribution : Illegitimate, Unsustainable, Inefficient?

Criticism of European solidarity relies on three cornerstone arguments with mythological features. First is the “Myth of the Beggar”: it is believed that supranational solidarity is self-defeating, as it produces a moral-hazard scheme where endogenous incentives to reform (otherwise known as “market pressure”) are artificially removed. Second stands the “Myth of the Efficient Markets”: it is believed that solidarity, through its market-distortive effects, artificially allocates resources into less productive activities, thus decreasing the overall growth rate of the economy. Third is the “Myth of the Demos”: it is believed that democracy -- and thus redistribution -- can endure only within a single Demos, and thus no solidarity can exist outside of a Demos. As for any legend, there lays some truth in the three myths of supranational solidarity. Nonetheless, this paper aims to challenge the view that any scheme of solidarity is self-defeating, inefficient and illegitimate. The first section discusses under which conditions a solidarity scheme does not fall into a moral-hazard trap. The second section deals with the efficient market hypothesis, showing that -- if the moral-hazard issue is dealt with -- it would be inefficient for markets not to finance the economy in distress, regardless of the existence of a solidarity scheme. The third section deals with the issue of legitimacy outside the Demos. We found that, despite its highly disputed nature, this problem constitutes the most challenging issue for a working solidarity scheme, because it calls into question the philosophical foundations of democracy and the personal beliefs of individuals concerning what a demos is about. The paper argues that, while particular institutional arrangements may deal with the weak form of the no-demos thesis, no solidarity scheme can be introduced if we stick to the strong version of the thesis. In the conclusive section the findings of the previous parts are brought together to define a comprehensive set of conditions required to have a sustainable, effective and legitimate solidarity arrangement in the EMU