The euro’s mindset in context

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In a July 30 PRIME publication (pdf) titled Why the euro is the gold standard writ large – and like the gold standard, will fail, Ann Pettifor states the following:

The plain truth is that the euro is a product of utopian neoliberal economists and their ambitions for a monetary system governed only by market forces, beyond the reach of any European state. It is this utopian vision and its embodiment in “rules” that is the cause of economic failure, divergence, social and political instability across member states.

I find Ms. Pettifor’s argument to be very persuasive. Indeed there are strong parallels between the gold standard and the euro, which intuitively lead one to conclude that Europe’s experiment at a stateless single currency is destined to fail.

While encouraging the reader to study Ms. Pettifor’s article, I here elaborate on a topic not analysed therein: the underlying politics of the Economic and Monetary Union (EMU) in the context of European integration. This is not a comment on her work, but only an examination of a closely-related subject.

The gradualist tradition

The EMU is an extension of the gradualist modus operandi that engendered Europe’s sui generis political order. Namely, a supra-national level of rules and politics, founded on international Treaties, whose midpoint is inter-governmentalism, and whose effective mode of conduct is technocratic. Though there are important modal differences between the EU and the EMU, their “essence” is the same.

Considered in outline, the gradualist tradition is described thus:

  • by means of an international Treaty, establish the minimum necessary of supra-national rules and institutions over a specific range of policies;
  • expect their interplay to deliver secondary rules and to gradually bring about the functional necessity of another Treaty that will broaden and deepen the scope of those policies;
  • the new Treaty shall iterate on the previous one, initiating another phase of gradual change to the broader edifice, which is epitomised by yet another Treaty, and so on.

I would contend that the original cause for the euro’s possible demise, is to be traced back to this approach, central to Europe’s integration process.

The architects of the euro laboured under the impression they could replicate the processes that led to the creation of the single market, i.e. introduce something that barely works until prevailing conditions necessitate its improvement and the expansion of its scope, to the point where the original end is met.

Though clearly not the most rational and direct of approaches, it has nonetheless given us such things as the four freedoms, European citizenship, the principles of direct effect and subsidiarity, to name only a few.

Similarly, the assumption was that a single currency would inevitably engender the need for further integration, towards the formation of a top-down “political union” of sorts. Since the July 12 Euro Summit on the Greek crisis, we go through the stage of facing the “eventuality” of having to strengthen the EMU.

Anatomy of Euro Neoliberalism

In order to be fair to the economics’ discipline, I would like to consider “neoliberalism” more of a political than an academic world-view, without however ruling out the possibility that economists qua scientists have unscientific predispositions. By that, I mean that political expedience often takes precedence over ideology, so that e.g. Milton Friedman’s and Friedrich Hayek’s brands of minarchist libertarianism would be inconsistent with the kind of “neoliberal” reforms introduced since the beginning of the eurocrisis, which feature, among others, large bank bailouts.

Though “neoliberalism” is not the most precise of definitions, it names a range of political views that share a given set of values. Instead of a general assessment, I here consider the paradigm of the EMU, as also manifested in the recent report of the five presidents on the future integration of the euro area. In this light, neoliberal policies are characterised by the following items on this non-exhaustive list:

  • private sector superiority: the presumption that private entities enjoy an inherent competitive advantage over public ones;
  • wage repression: competitiveness is presented as the central criterion of an economy’s robustness, and one which is a function of implicit and explicit labour costs;
  • individualism: individuals are a priori free agents, which pursue their rational self-interest, implying that freedom is an apolitical quality, so that in practice it is treated as inversely related to the presence of the state: “more state” entails less freedom, “less state” leads to more freedom;
  • de-politicisation: economic policy is depicted as a purely technical activity, best left to experts that are perfectly insulated from meaningful parliamentary scrutiny, while governors and ministers are reduced to mere filling clerks for enforcing the otherwise predetermined and automatic rules.

To these tenets, we may counter at some length, dedicating a section to each.

Private sector superiority

Private entities tend to be more competitive than the state’s enterprises provided they satisfy two important criteria: (a) they have the necessary scale to access the kind of resources necessary for their commerce, including the ones made available by or thanks to the state, and (b) they operate in the milieu of a well-functioning market.

Concerning scale and scalability, it is not safe to presume any random business to be superior in efficiency to a given state venture, as for instance they may not be in a position to attract the necessary human capital or access money markets in the same way the state might.

As for market efficiency, there are very few instances, if any, of perfect competition operating in conditions of full information. Even financial markets, which internalise information almost immediately—an indication of efficiency—are anything but perfect.

The problems—the calamities—that are caused by the overall irrationality of a market, such as those germane to the [ongoing] financial crisis, are emergent phenomena where even if every single actor acts in their rational self interest, the sum of their actions is not a “greater” rationality or some general interest (also because they often cancel each other out).

[Though not related to the current subject, I have discussed emergence in another article concerning Europe’s inter-governmentalism]

The gist is that policy-makers need to be a bit more sceptical of their own assumptions. Either their certainty is unfounded or they are blinded by ideology, such as when they ascribe a higher level of efficiency to private entities that are tasked with managing natural monopolies/oligopolies.

When it comes to politics, private sector superiority usually translates into crony capitalism.

Wage repression

If the cost of labour were the sole criterion for competitiveness, then most of what makes up the value of, say, a start up firm would be of secondary importance. Mojang, the makers of Minecraft (a video game), was not sold to Microsoft for $2.5bn simply because of its cut-throat labour costs. If the market value of a company is indicative of its actual competitiveness, then it hardly is the case that labour costs are the main factor at work.

What really matters in determining micro-economic competitiveness is such contextual parameters as access to sufficient and effective funding, capacity to attract human capital, degree and scope of innovation, relevance of the project, appeal of the supplied product or service, brand quality etc.

For the macro level, “competitiveness” can only concern parametric and not strictly “economic” magnitudes, such as the historical-cultural path dependencies that foster institutions, social expectations for the content and quality of education, the potentiality of the political system to deliver justice and ensure stability, the capacity of market sectors to adjust to climate change and to contribute towards the reduction of their environmental footprint, and so on.

The idea that competitiveness is a function of wages, as it appears in the afore-mentioned five presidents’ report, is either dangerously simplistic or yet another facet of class ideology aimed at suppressing the wants of those at the lower parts of the income distribution.


[In full transparency, I should note that I am a former libertarian. I have reviewed that position in favour of free will scepticism]

The decontextualised individual who enjoys their freedom outside civilisation is but a romanticised chimera. All human inter-action occurs in a certain milieu consisting of explicit or implicit rules, social norms, political values, cultural presumptions, myths and narratives of tutelary figures, etc.

What the Socratic/Platonic/Aristotelian tradition (among others) contributed to our understanding of human ethos, is that ethics is profoundly political, and hence liberty, can only be made manifest in a polity, in a nominal context (the natural context being all mind-independent factors that influence or determine human qua materially constituted entity).

It is pointless to think of a certain human’s liberty as being present in nihilo as no such exalted being exists. Rather and as republicanism also asserts (and even minarchists admit), liberty is actually rendered possible by the constitutional order, and is, I would argue, contingent on both the vertical and horizontal relations—the distribution of power—within the polity.

This is a broad understanding of freedom, constistent with a holistic approach to social science that conceives of both agency and structure. It emphasises the contextuality of human experience. To that end, such social-cultural forces as structural poverty, implicit racism, gender politics, are understood as limitations to overall freedom—they condition the behaviour and prospects of individual agents operating within their constraints.

The point is that “less state” does not automatically lead to “more liberty”, or vice versa. The inherent complexity of human experience, the fact that “experience” is immanent and emergent, suggests that one had better avoid sloppy assumptions, especially if/when these inform a government’s reform agenda.


I have dedicated a series of posts on the subject. Instead of rephrasing my arguments, at the risk of tiring the reader, I provide the list of articles to read:

Suffice to state that the “de-politicisation” of economic policy and instruments thereof is central to the EMU’s quasi-confederal technocracy.

Politics, all too politics

The gist is that inter-disciplinary methods need to be applied to matters of politics. Reducing the inherent complexity of human affairs to relatively simple magnitudes that are tailored to the requirements of any given political agenda, is bad science and narrow-minded politics.

The euro is a political project that is rooted in Europe’s history of integration:

  • it rests on the principle of “common rules without common politics”;
  • it extends and preserves the gradualist approach to integration;
  • it engenders heteronomy by virtue of lacking a genuine, constitution-based political sphere;
  • it strengthens inter-governmentalism by being founded on inter-state treaties, including a couple outside the community acquis, and by trusting excessive power to an opaque, quasi-legal entity: the Eurogroup.

Furthermore, the euro is underpinned by a brand of neoliberalism that is:

  • statist in the crony capitalist sense;
  • scientistic in that its class ideology is concealed by a patina of science;
  • anti-democratic in that it expects its rules to have a permanent character and be applied automatically regardless of prevailing social-political conditions;
  • technocratic in that it effectively places technical experts in the position of making qualitative judgements—an accountable politician’s job.

Given all of the above, the EMU’s specifics are anything but a suboptimal state of affairs caused by unfavourable conditions. They are so by design, even if certain of the broader architecture’s flaws may have been exacerbated by the vicissitudes of international capitalism.

The euro as is reflects the balance of political power within our localities and across the Union. It can be changed for the better, provided a cogent narrative for its reform gains enough momentum. This requires time, effort, and commitment, all while avoiding the fatalistic fallacy of “no alternatives” to the neoliberal juggernaut.