It may appear as a paradox to claim that the euro is a currency without a state. It is, after all, fiat money issued by a central bank, and is the official legal tender of 19 European Union (EU) Member States, representing a total population of around 340 million people.
Still, the polity whose fiat makes the euro a legitimate currency—the EU—is not actually a state: it is an inter-state organisation founded on international treaties, whose default modus operandi is an interplay between inter-governmental rule-forming and supra-national rule-making. The EU is on a league of its own, it is sui generis. To be more descriptive, we may label it a quasi-confederation: an inter-state order featuring a supra-national level—the confederal layer—that is nonetheless contingent on the collective decisions of the Member States.
Governance not government
Indicative of the euro’s statelessness is the fact that the system as such has no government of its own. There is no sovereign state nor unified citizenry for the euro area at-large. The Economic and Monetary Union (EMU) is a rules-based formation, a nexus of regulations establishing and defining the modes of economic governance. By “governance” we do not refer to an institution, to a political body, but to a set of procedures that are supposed to be followed by national governments with the guidance, support, and involvement of certain EU institutions.
The closest 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 inter-governmental entity that may best qualify as a pseudo government of the euro is the Eurogroup: a quasi-legal entity made up of the finance ministers of the states whose currency is the euro.
For all intents and purposes, neither the European Council nor the Eurogroup may qualify as a proper government. In strict terms, they do not perform the executive functions: those are in the hands of the European Commission. Also and while their authority covers the full compass of the system, it is not underpinned by popular legitimation from a unified body of citizens.
The European Council or the Eurogroup are forming the rules: they provide the general direction and political vision. The making of the rules, their substantiation, is handled by the European Commission, most often through the ordinary legislative procedure. Put simply, the Member States congregating as Council or Eurogroup have the first and final say on all things concerning the Union.
Flaws of rules-based governance
In the absence of a genuine government, the only way to regulate the euro is to establish a set 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 is realised.
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 targets on budget deficit and public debt, and (ii) preventing the accumulation of macroeconomic imbalances.
[see analysis: On Draghi’s “political centre” for the euro]
The shortcomings of this system can be summarised thus:
- Decontextualisation: the targets are predefined and are permanent in nature, meaning that neither the economic environment nor the specificities of each country are considered in the evaluation of the policies that need to be introduced. We thus witness recommendations from the European Commission for implementing recessionary measures that are intended to reduce the budget deficit in an economy that is already experiencing a downturn, without considering the real social costs or circumstances-specific needs.
- Retroactivity: the rules on economic governance are the product of the EU’s reaction to the financial crisis. It is no surprise then 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 crisis. While understandable, this approach is not prudent, as it provides a solution to a crisis that has, for the most part, already run its course. There are no instruments in place for dealing with new crises, with 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 formulate yet another ad hoc, retroactive response.
- Arbitrariness: the European Semester, where economic governance takes place, is a heavily modified version of the Open Method of Coordination. This is an inter-governmental arrangement 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 abusive conduct. Inter-state affairs are subject to situational power relations, where it is almost always more expedient to elaborate on some quid pro quo deal, some “gentlemen’s agreement”, rather than force a given government to conform with its obligations and commitments (especially if that government happens to be powerful). We thus have arbitrariness in the form of inter-governmental bargaining.
- 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 top-down 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 economic necessity. What is sometimes referred to as an “austerity obsession” is actually an emergent quality of a given legal order; an order that otherwise incorporates and renders concrete the unique brand of euro-neoliberal mentality.
The items on the aforementioned list provide an outline of the technical flaws of the euro’s statelessness. As for its most evident normative shortcomings, we may document the following:
- Heteronomy: from the ratification of the rules henceforth no national parliament has any say over large parts of their content and of their ultimate objective, meaning that elections have a far less significant impact on the qualitative aspects of policy. Further, no government can deviate from these rules, as their binding nature is superior to national law. We therefore witness a phenomenon whereby both the executive and legislative functions of a given Member State are bound to implement measures they may not agree with. This lack of genuine self-rule contributes to a debasement of democratic life.
- Technocracy: given the quasi-permanence of the rules, the exercise of governance becomes a matter of experts enforcing legal provisions regardless of the context-specific will of citizens. Any modern democracy relies on technocrats for the substantiation of technical aspects of policy, yet the interpretive and discretionary power over day-to-day affairs is always trusted in the hands of elected officials, people that citizens may opt to remove from power through ordinary democratic procedures. This cannot be the case in a rules-based system, for the main provisions are predefined, while technocrats are the ones to decide on matters of discretion and evaluation, with no body of citizens ever being in a position to vote them out of office.
- Opacity: the inherent complexity of the system, the fact that arcane workarounds have been sought as a means to circumvent the statelessness of the euro, makes it near impossible for non-specialists to grasp the way in which governance is conducted. Though one may always read articles such as the present one, there is no easy way of communicating the actuality of things. To speak about the euro one must either end up being pedantic or simplistic. The flip-side is that citizens are not as aware as they could and should be, making it ever-more challenging to pinpoint the source of a given problem and to seek ways of addressing it. Compounding this constraint is the fact that such entities as the European Council or the Eurogroup operate behind closed doors. We citizens have no means of knowing exactly what happens there, what is being discussed or decided without our informed consent.
All of the above are predicated on the status of the euro as a stateless currency. Assuming the system was a genuine republic, founded on a codified corpus of primary law, and operating as a federation for practical purposes, we would have the following:
- on the technical front, a legitimate government would always be implementing measures in line with evolving needs and conditions, have the capacity to be proactive, and act in a flexible and immediate way wherever necessary, while overcoming inter-governmentalism;
- on the normative side, the European republic would have the capacity to be self-ruled, would feature the virtuous feedback loop between rule from the bottom (popular sovereignty) and rule from the top (state sovereignty), all while operating in a much more transparent and democratically configurable fashion.
[see analysis: Why not inter-governmentalism?]
The euro is suboptimal
There is nothing intrinsically wrong with having a single currency for the EU. What is questionable though, indeed what I disapprove of, is to have this awkward situation of a quasi-confederation that features a stateless currency.
The euro as it currently stands is more of a liability than an asset.
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 inter-operating factors of the case.
As for political life, the euro has inevitably, though perhaps inadvertently, become the instrument for the debasement of democracy. It is the tool for repressing popular sovereignty and for aggrandising a multi-faceted technocratic regime. With the euro, we do not get some “greater” democracy or sovereignty. We only have a system of “common rules without common politics”.
The euro has to be drastically reformed. Its statelessness cannot be preserved. To that end, I am in favour of proceeding with the creation of a European Democracy, a constitution-based federal republic. If that will not happen, then the second-best option is to orderly dismantle the euro, tacitly acknowledging the failure of Europe’s misguided experiment in stateless fiat money.