The statelessness of the euro

It perhaps is presumptuous to elaborate on a chapter that asserts the statelessness of the euro. This is, after all, a perfectly good currency: fiat money issued by an institutionally independent central bank that is the legal tender of nineteen European Union Member States, representing a total population of around 340 million people. The euro actually is the official currency of the European Union, so any claim on its statelessness seems tenuous at best.

While these are valid considerations, the fact is that the political entity whose fiat makes the euro a legitimate currency—the EU—is not actually a sovereign state, certainly not in terms of its international standing. Though every Member State whose currency is the euro does have an international personality as sovereign, the euro is not any one nation’s currency, for it is shared among a group of states. What is here meant by “statelessness” is simply the realisation that the supranational level where this shared reality is made manifest is not qualified as sovereign. As was noted in the first part of the handbook, the European Union is a union of states founded on inter-state treaties, whose main feature is an interplay between intergovernmental rule formation and supranational rule making.

Characteristic of the euro’s stateless nature is the absence of a government for the system at-large. The Economic and Monetary Union (EMU) is a rules-based formation, an interweaving web of regulations establishing and defining the qualitative features of economic governance. Attention should be given to that very last term, since by “governance” we do not signify a person, political body or institution, but only a set of provisions that are supposed to be implemented by national governments with the guidance, support, and involvement of certain EU institutions, primarily the European Commission, and under pressure from their peers.

The closest approximation to a government of the euro is the European Council, the rule forming institution consisting of the heads of state or government of the EU Member States. However, since the euro area and the broader EU represent different degrees of integration, the former being much deeper than the latter, the intergovernmental entity that may best qualify as a pseudo government of the euro is the Eurogroup: an informal entity made up of the finance ministers of the states whose currency is the euro.

Strictly speaking, neither the European Council nor the Eurogroup may qualify as a proper government, for none of them performs the vast majority of the executive functions: those are trusted in the European Commission.

In the absence of a clearly-delineated decider, the only way to regulate Europe’s single currency is to rely on a far-reaching nexus of rules that are legally binding on all of its Member States. The two-pack and six-pack of Community regulations as well as the Fiscal Compact (formally referred to as the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union) provide the framework within which economic governance takes place. These rules focus on budgetary surveillance and economic coordination, which are meant to achieve the two-fold objective of (i) keeping states aligned with the Maastricht criteria, especially the targets on budget deficit and public debt, and (ii) preventing the accumulation of macroeconomic imbalances.

The shortcomings of a uniformly rules-based system can be summarised thus:

  • Decontextualisation: the targets are predetermined, permanent and legally-binding, implying that neither the prevailing economic conditions nor the peculiar needs of each country are considered in the impact assessment of the policies that need to be introduced by virtue of European law.
  • Retroactivity: the rules on economic governance, albeit anchored in the European Treaties or prior institutional arrangements, are to a large extent the product of the EU’s reaction to the financial crisis. It is no surprise that the provisions therein are geared on limiting budget deficits and public debts, while monitoring macroeconomic imbalances, for these are perceived as the ultimate causes of the concurrent sovereign debt and banking crises. While understandable, this approach is not the most prudent, as it provides a solution to a crisis that has, for the most part, already run its course. There are no flexible instruments for dealing with new and emerging challenges that are beyond the scope of the existing legal framework. In such a scenario decision-makers will again be caught unprepared, seeking to produce yet another retroactive response.
  • Arbitrariness: the European Semester, where economic governance takes place, is a heavily modified version of the Open Method of Coordination. This is a largely intergovernmental instrument involving EU institutions that seeks to harmonise the procedures while relying on “peer pressure” for the enforcement of the rules. What may first appear as a structure that guarantees the equality of Member States, is in fact a recipe for potentially abusive conduct. Inter-state affairs are subject to situational power relations, where it is more expedient to elaborate on some quid pro quo than force a given government to conform with its obligations and commitments. We thus can have arbitrariness in the form of intergovernmental bargaining that occurs behind closed doors.
  • Inflexibility: the rules are rather fixed in an effort to limit disputes over interpretation, as well as minimise the margin for discretion. This has been considered the most preferable state of affairs as it would otherwise be near impossible to achieve the desired end of a more centralised control on economic policy. Yet the inflexibility of the rules can, in and of itself, be a cause for crisis, as it engenders a certain behaviour of prioritising formalities over substance, which can lead to the implementation of policies that exacerbate rather than ameliorate an economic slowdown. A law-abiding national government may have to introduce spending cuts because the rules demand so, not due to some immediate practical necessity.

Assuming the system was a federal republic, we would have a European government capable of implementing measures in line with evolving needs and conditions, being proactive, and acting in a flexible way wherever necessary, always within a comprehensive legal framework that would prevent the disproportional centralisation of power. The euro as it currently stands leaves much to be desired. From a technical perspective, it hampers any effort to conduct rational economic policy. By “rational” one must also signify “context-aware”, for the optimality of a certain measure can only be understood in relative terms, in relation to the interoperating factors of the case. The euro has to be reformed, something that the Five Presidents’ Report also admits. As the euro crisis has shown, the statelessness of the EU’s official currency cannot be preserved without cost to the integration process.

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