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In a July 23 article titled “The Eurozone’s German Problem” Philippe Legrain notes the following:
The eurozone desperately needs mainstream alternatives to this lopsided “Berlin Consensus,” in which creditors’ interests come first and Germany dominates everyone else. Merkelism is causing economic stagnation, political polarization, and nasty nationalism. France, Italy, and Europeans of all political stripes need to stand up for other visions of what the eurozone should be.
Mr. Legrain’s analysis is quite cogent. Though much of what he depicts as Germany’s misdeeds actually points towards the inadequacies of the Economic and Monetary Union’s (EMU) “peer pressure”, inter-governmentalist instrument for economic governance: the European Semester. While encouraging the reader to study the afore-referenced article, I proceed to elaborate on my disagreement with certain analytical aspects of the broader anti-German rhetoric.
I think placing the brunt of the blame on Germany is reflective of a rather simplistic method of understanding the multiplicity of phenomena peculiar to the eurocrisis. At best, the agenda forwarded by the German government, or by any other euro area government for that matter, concerns but a facet of the broader issue, a subset of the totality of events witnessed.
There are three separate issues germane to the systemic crisis of the EMU that, courtesy of their overlap, are often perceived as one. These namely concern: (1) the ill design of the euro in not having predefined methods for resolving its own asymmetries, (2) the absence of a democratically legitimised and accountable government standing for the interests of the euro area at-large, and (3) the excessive, albeit circumstantially necessary, reliance on inter-governmental modes of policy formation that are, by their very design, engendering antagonistic mentalities as the demands of several electorates collide.
In the following three sections I proceed with the examination of each of these. The gist of my argument is that the anti-German rhetoric can only explain but a fraction of the problem. To elevate it to the whole, to suggest that Ms. Merkel or Germany in general are the primary cause for the failure of Europe’s experiment at a stateless currency, is to remain oblivious to the historical context and the structures framing the [inter-]actions of situational agents and patients.
The euro was never prepared for a financial crisis of this magnitude. Prior to the crisis, there were no credible tools for enforcing the very rules of the single currency. The overall architecture lacked a robust fiscal backstop, capable of raising funds to address asymmetric shocks. There were no means by which to handle bankruptcy within the euro. While no provisions for the mutualisation and rationalisation of the system’s sovereign debt existed to provide the foundation for a “federal” layer of debt that would stand for the issuance of “eurobonds”, euro-area-specific sovereign bonds. Furthermore, the EMU had no fiscal capacity of its own, no means for raising taxes, managing debt instruments, conducting autonomous fiscal policy for the interests of the euro area as a whole.
In short, the euro was a monetary union with no predefined procedures for dealing with the asymmetries it would eventually engender. This has led to policy that is necessarily reacting to events, rather than having anticipated them. Further, it has forced policy-makers to adopt working arrangements within very rigid legal, economic, and time constraints. Ad hoc measures are inherently inferior to carefully calculated, strategic policies. Yet these are the only ones that could have been introduced in the prevailing conditions. Even if decision-makers were to move towards an entirely different direction, say, federalism, they would still fall short of what would have been a proper procedure for federalising the EMU.
Most of the euro’s structural flaws persist, in varying degrees of intensity. There still exists no credible fiscal backstop. The European Stability Mechanism, while quite well capitalised, is a paradigmatic platform for inter-governmental bargaining. The European Central Bank still lacks a counter-party treasury mandated to conduct fiscal policy for the euro area as a whole; a European Treasury with full fiscal capacity for raising taxes and issuing debt instruments of its own. Furthermore, the euro continues to have no provisions for handling bankruptcies within its system, hence this protracted, ill advised pretence that Greece is solvent.
These all describe the institutional uncertainty at the heart of the single currency. We have no prescience of future actions, we do not know what tools might be used henceforth for dealing with a number of challenges. Most of what we get is some heuristic device, concocted for a specific task: a half-measure that is hardly sufficient for what is actually needed (e.g. the troika).
The euro’s failure is in part attributed to its very nature of being a stateless currency. There is no republic underpinning the euro area at-large and, a fortiriori, there is no government with the power to actually govern, to resolve whatever tensions among its parts, to conduct fiscal policy for the general good, and to issue debt for the purpose of financing whatever investments necessary for addressing cyclical fluctuations.
We are thus confronted with a fundamental flaw of the EU/EMU edifice: what I consider a sovereignty mismatch, where decisions are taken for the full compass of the system, without being legitimised by—and be accountable to—a uniform constitutional subject. No European Demos is in place to outright approve of a European government.
Instead, and to quote myself from my latest analysis on the views of future European integration, we have the following:
partial and indirect legitimacy: [European governance] that is severally legitimised, with legitimation applying to each head of state or government of the Member States but never to the body as a whole;
partitioned accountability: [European governance] that acts for the whole Union yet whose members are accountable only to their own country (e.g. Ms. Merkel is not accountable to the Greeks);
democratic incompatibility: in light of the above two, [European governance] that does not have a democratic mandate, due to the lack of a constituted European Demos—the constitutional subject.
The statelessness of the euro is a constitutional matter, one that touches on the normative aspects of euro area governance. In the absence of a genuine state, the single currency lacks the policy-related framework for grounding, specifying and substantiating decisions that promote the interests of the system at-large.
The present order has no direct legitimacy, no uniform accountability, no compatibility with democratic norms. What exists instead, is a quasi-confederal order that inevitably manifests as a technocracy.
Again, this is not a problem peculiar to Germany or any given Member State, nor is it contingent on the German—or any other—government’s policies. It is a constitutional flaw—a design flaw—of the EMU, tracing its roots back to the history of the European integration process, culminating in the negotiations that led to the Treaty of Maastricht.
In light of the above, eurocrisis-related decisions are adopted in a formal institution, the European Council, or a quasi-legal entity, the Eurogroup, by a group of heads of state or government. Each government is solely accountable to its own electorate and, as is expected of a democratic administration, it has to work within its popular mandate, i.e. to meet the demands of its voters. This applies to all governments congregating as Europe’s inter-governmental entities. It holds true for Mr. Tsipras as it does for Ms. Merkel and all other leaders.
In the context of inter-governmental policy-forming-policy-making, where diametrically opposed views clash, the group of states with the dominant position will inevitably prevail. Emphasis should be added on the group, as Germany alone cannot force its views on all the rest, exaggerations to the contrary notwithstanding.
In fact, Greece’s official views were not shared by any other Member State. For instance, the Spanish and Portuguese governments, presumed allies to Greece, stood against the Greek government’s demands. The reason is two-fold: (i) they are ideologically opposed to Mr. Tsipras’ radical leftist politics, and (ii) they hold elections in the near term.
Also related to national specificities are the objections of other states, such as the Baltic ones. From their perspective, if they could endure and indeed pass the test of grinding austerity, then any other country could. Hence, Greece’s unwillingness to implement the programme is misplaced.
In short: every government has had its own reasons for objecting to Mr. Tsipras’ demands. The problem is that a common decision is to be found through the conflict of these agendas, with the system as a whole having no representation of its own.
Structures must change
The above are meant to contextualise the eurocrisis: to suggest that what we are confronted with is a multitude of interlocking issues. By that token, the argument by which a given person or group of persons is to be blamed for the euro’s failure must be considered an analytical error: the mistake of not accounting for the very constitution of the case, for all the factors that inter-operate to deliver the concatenation of events thus experienced.
For the record, I am not an exponent of German Chancellor Merkel’s politics. Were I a German citizen, I would vote for the Greens (Die Grünen) or the leftists (Die Linke). Yet the fact that I, a non-German citizen, cannot control a government whose decisions may affect my life as a European, is precisely why the EU/EMU’s inter-governmentalism inexorably and necessarily alienates us to our own institutions: it creates heteronomy (see my analyses here, here, here, and here).
Lastly and based on my studies in the social sciences and philosophy, I am of the view that structures condition the behaviour of agents. Besides, this is the lesson we learn from the history of democratic revolution: just by substituting a vicious autocrat with a benevolent one, we do marginally improve our material conditions, without going as far as we need to; instead, it is autocracy—the structure—that has to be abolished.
For our purposes, this means that the very design of the euro is the problem, not just the people operating within its constraints. If we change the decision-makers, without addressing the system within which they operate, we will most definitely encounter the same or similar crises.