Euro integration cannot proceed along its current path
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Recent events have changed my attitude towards all things pertaining to European Union affairs. As I explained in my previous article, the July 12 Euro Summit ushered in the era of Realism, in what is a troubling sign for the future of this continent. I used to be an optimist. The Euro, I thought, was essential to the political unification of Europe. That potential alone was enough to justify any effort aimed at preserving the single currency. Today and though I still believe in the end of a politically unified Europe, I can no longer consider the applied means to be appropriate.
The Euro never was the product of economic necessity brought about by the deep integration of national economies within the single market. It rather was and remains a political project; a catalyst in the formation of a top-down “political union” of sorts. The underlying idea is that a unified monetary policy will inevitably engender the need for a fully integrated financial sector, a unified fiscal policy, and a common political sphere.
The problem with that line of reasoning, which I present in the following sections, is two-fold:
- it frames the end of political union as a technical requirement, instead of depicting it as a rational and conscious choice sovereign peoples could make for the formulation of their lifeworld in line with cosmopolitan values of trans-border solidarity and coexistence;
- the fact that the need for a single currency did not emerge organically through single market dynamics is indicative of the Euro’s ill design; a design which is geared to exacerbate economic shocks, and which is inevitably poisoning European unity because it pits Europeans against each other.
Necessary instead of voluntary
The formation of the single currency and the integrationary trajectory it follows, represent a concerted effort to bring about a fait accompli, i.e. to make what should otherwise be the choice of further integration_ _a functional necessity.
Let us assume that, ceteris paribus, the Euro will inexorably foster a political union, as per the desire of its architects. We still face an intermediate issue. The process is gradual and will likely be completed within decades. Even the optimistic report of the five presidents for the deepening of Europe’s Economic and Monetary Union, which I have already criticised, expects to make some important steps towards further integration by 2025, with much more to be needed afterwards.
Until then and notwithstanding whatever economic shocks, we are left in a sub-par state of having common rules without common politics. We maintain Euro-level technical instruments which frame and condition national-level politics, but we lack Euro-level politics to modify and to control those very instruments in accordance with the principles of representative democracy, i.e. with what we Europeans have come to expect from our polities. In conjunction with the emergent contradiction of Europe’s inter-governmentalism, this inevitably makes the Euro/EMU edifice a supra-national technocracy.
As a democrat, I think that to want a genuine political union is to tacitly express faith in the capacity of sovereign peoples to make meaningful decisions for their present and future. I think a European Democracy has a couple of normative prerequisites:
- it must come about from the sovereign will of people, not from the questionable stratagems of detached institutions;
- it must be the extension of such will, for the emergent polity is not a one-off arrangement, but an inalienable aspect of the citizens’ intersubjective lifeworld.
I shall call the state which is predicated on the above, the European Peoples Covenant. A political order that will be established voluntarily and which will, among others, stand as a token of true trans-border unity and solidarity.
In contradistinction, to cling on to the paradigm of the Euro’s engineered necessity is to believe in the desirability of elites introducing states of affairs through the back door. These are exercises in mendacity that show contempt for popular sovereignty.
Uniting corporations not peoples
The gains from the single currency area are realised disproportionately, with multinational corporations reaping the profits while locality-confined labour suffers from wage repression and, when recession hits, from internal devaluation (austerity). This is the case for two very specific reasons:
- contrary to goods, services, and capital, labour mobility in the Euro Area is relatively limited and is severely hampered by language barriers;
- no common fiscal instruments, including taxation, are in place to correct eurozone-wide imbalances, prevent high-profile tax evasion, and ease the pressure on wages.
Monetary policy should be able to adapt in a timely fashion to the economic cycle. Money is to an economy what a lubricant is to an engine: there always needs to be the right quantity of it for the system to work as intended. With monetary policy being determined centrally by the European Central Bank, and without common fiscal policy to correct area-wide imbalances, there eventually occur phenomena of abundance or shortage in the supply of money, both of which cause distortions to the economy.
The national level has no monetary tools at its disposal to deal with such cyclical challenges. The only option for the government is to apply policies for internal devaluation to achieve the same result as monetary depreciation. Yet, cutting wages and public spending amid a recession results in a further decline in aggregate demand, coupled with a reinforced pressure for welfare payments (due to higher unemployment). The downward trend pushes states to violate the public deficit and sovereign debt criteria of the EMU, which then calls for further cuts and so on—a vicious cycle.
Add to that the feedback loop between stressed sovereigns and illiquid or insolvent banks, and you have the perfect cocktail for turning recessions into depressions. The Euro is designed in such a way that it inevitably lengthens and deepens economic downturns, all while amplifying asymmetric shocks.
In Europe we have managed to re-introduce the deflationary economics of the gold standard together with the toxic politics of the era of mercantilism. By having a common currency that belongs to no [federal] state with inflexible rules that apply to all member states, we have created an order of things that only benefits multinationals who are not confined to locality and can thus siphon their profits, often using sophisticated techniques for tax evasion, away from the parts that experience economic slowdowns.
Furthermore, the Euro has contributed to a false understanding of a fiscal union as a transfer union. As we have witnessed with rescue packages such as the Greek one, popular opinion is strongly against fiscal transfers, because it perceives of them as handouts to less laborious people. This has, among others, contributed to banal nationalism and racism found in stereotypes that depict specific groups of people as “lazy”, “profligate”, and the like. The gist is that the Euro is poisoning European unity.
The Euro is a failed experiment
The Euro and the European Union are two distinct magnitudes. The former is a misguided attempt at political change, the latter is a credible response to the global challenges of our epoch. Though we should strive to preserve what the EU has to offer in the domain of civil liberties and everything pertaining to quality of life, such as environmental standards, we ought to acknowledge the fact that the Euro is not worth our efforts.
I used to believe that the single currency was good, that the European integration process could, would, and should be accelerated through functionalist arrangements. I admit, I erred lamentably. As the old adage goes “to err is human”. But to commit the same mistakes systematically, while willfully remaining oblivious to events as they unfold before one’s eyes cannot be anything other than dogma.
It is preferable to be open-minded and pragmatic rather than remain blinded by one’s own vaunted beliefs. If we insist on the Euro’s integrity we risk losing Europe’s unity, simply because the way the single currency is designed, the legal-institutional-economic order in place, cannot deliver anything other than the kind of suboptimal-to-outright-divisive politics we have had from the start of the eurocrisis hitherto.
At this point, there are but three general choices for the way forward; two good, one bad:
- the report of the five presidents, and the mindset underpinning it, will be swept into the dustbin of history to be replaced by a European convention tasked with transforming the EMU into a genuine federal republic;
- the Euro will be dismantled in an orderly fashion so that the common European cause may be salvaged, buying us time to revaluate the particularities of future integration;
- European leadership will cling on to its failing traditions, increasing the risk for the disintegration of the Union.
I hope we get either of the first two. Alas, and based on the articles I have published since relaunching my euroblog less than a month ago, I have good reasons to fear we will end up with something along the lines of the third.