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Following my last article on the inaccurate notion of “shared sovereignty”, I here elaborate on a subject I have thus far only been mentioning in passing. This concerns the quantitative approach to rule formation, which is germane to the predominant method of integration followed in Europe. The gist of my argument is that as concerns the Economic and Monetary Union (EMU), functionalist arrangements have been proven wanting. They actually stand as impediments to the ultimate telos of European unification.
Considered in outline, the quantitative approach goes as follows:
- by means of a Treaty, establish the minimum necessary of supra-national rules and institutions over a specific range of policies;
- allow their interoperation 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 will iterate on the previous one, initiating another phase of gradual integration, which is epitomised by yet another Treaty, and so on.
This is what characterises the European integration process from the 1950s hitherto. It guided the first European Communities along their evolutionary journey to become the European Union; it was also applied to the creation of the Economic and Monetary Union, an economy-focused order aimed at realising a political end: the creation of a “political union” of sorts.
What may have worked for the EU, does not necessarily deliver the same results for a single currency area. The conditions and requirements are different. It is in the nature of monetary policy to require far more than what the architects of the Euro were willing to provide and, by the same token, it is not enough to just increase the kind of instruments the EMU has had.
A stateless currency
A common currency is the legally-confirmed-and-instituted epiphenomenon of economic convergence; of markets that already have achieved a high degree of interconnectedness, where goods, services, capital, and labour can move unencumbered, and where the necessary state structures are in place to ameliorate any cyclical, area-wide macroeconomic imbalances.
A common currency area must, in effect, be a single economy, underpinned by a coherent, consistent, and credible institutional-political framework. As concerns the former, time is needed to reach an optimal state; whereas for the latter the EMU has heretofore been a system where:
- Member States have a common monetary policy, yet each maintains its fiscal sovereignty which is conditioned along a common set of rules;
- There is no counter-party Treasury to the European Central Bank, fitted with a common budget as well as the adequate fiscal capacity to issue [euro-]bonds, raise taxes, and mitigate asymmetric shocks;
- No Euro-wide state has ownership of the Euro, as there exists no EMU-specific political sphere, encompassing an executive and a legislative function that operate along the lines of modern representative democracy.
Due to the [gradualist] quantitative approach, the EMU started off as a partially realised ambition. It evidently did not satisfy a number of prerequisites that would qualify it as a meticulously drafted project or, indeed, as a well-calculated venture.
Binding states under a single currency has far-reaching ramifications. The experience of the [ongoing] eurocrisis has shed light on the following:
- market expectations are shaped in such ways that all Member States are treated as if their risk profiles were identical, fostering the convergence of interest rates on sovereign bonds;
- capital flows adapt to the opportunities that arise from such expected and perceived convergence, leading to unsustainable market distortions that are made manifest in bubbles of various sorts;
- Member States forgo any monetary instruments at their disposal to respond to downward pressures and are thus forced by economic conditions to compensate such powerlessness with measures on the fiscal front, resulting in the implementation of policies of internal devaluation and wage repression (aka “austerity”);
- banks are encouraged to take on public debt, not least due to its increased attractiveness as a safe asset, inadvertently creating a feedback loop between themselves and sovereigns, which in times of crisis makes for a toxic interplay between concurrent financial and sovereign debt crisis;
- domestic banking systems in localised crises may not enjoy the benefits of a domestic lender of last resort, and therefore are potentially subject to pressures from two directions: (i) the stress on the sovereign’s finances to which they are creditors, and (ii) depositors withdrawing their savings out of fear they may experience loses in the case of either state or bank defaults (the recent collapse in the money supply in Greece—a cardinal ECB failure—is the latest case in point).
The above provide an outline of the material implications of having a monetary union that was ill constructed. I contend that the primary cause of such suboptimal states of affairs is the manner in which integration was conducted: the quantitative approach.
European leaders were led to believe that what [mostly] worked for the EEC/EU would also apply to the EMU, thus failing to grasp the specifics of a common currency area. Whatever potential problems were considered manageable, perhaps due to an overestimated belief in the willingness—indeed the capacity—of European leaders to provide retro-active solutions via their cumbersome and largely inefficient inter-governmental processes.
Change in Quality
Couched in those terms, we may appreciate the need for a change in the qualitative features of the approach towards further integration. As concerns the EMU, this entails a reconsideration of the underlying assumptions of the broader venture, coupled with constructive criticism of the architecture’s readily apparent design flaws.
This is not mere esoteric discussion. It needs to be conducted in order to reach clear conclusions on a very specific set of objectives:
- federal republic: the democratic legitimacy of the project, as pertains to the legislative and executive functions (see analysis The emergent contradiction of Europe’s inter-governmentalism);
- optimal currency: the operational viability of the EMU, in particular the substantiation of its fiscal capacity, to have a common budget, raise its own taxes, and issue its euro-area-specific bonds (see analysis Euro integration cannot proceed along its current path);
- social union: the normative aspects of the policies it will be expected to implement, commensurate with the necessary input/output legitimacy (see opinion piece Is European Leftism compatible with the Euro and the EMU?);
- common politics: the revaluation of the “de-politicisation” of institutions and mechanisms that has so far contributed to the technocratisation of the EMU (see analysis Notes on Completing Europe’s Economic and Monetary Union);
All of the afore-enumerated cannot be the outcome of the continued application of the quantitative approach to integration. An increase in existing structures and mechanisms, conducted in gradual fashion over an extended period of time (decades), will engender intermediate tensions, with the eurocrisis being but one in a number of possible instances.
If “more Europe” means “an increase in the quantity of what we have had thus far”, then it simply is a false way to proceed. It also is dangerously oblivious to the modal differences between the EU and the EMU.
For the EMU to undergo a democratic turn and for its course to be corrected, there needs to be a change in how we do things, a qualitative shift in the approach to integration.
“More Europe”—more of the same—will perpetuate the politics of extending, pretending, and dithering. This will compound existing problems, create yet more factors that may cause division and fission, provide further grist to the mill of those who labour to dismantle the Union, and will generally place the project of European unification in jeopardy.
Based on all of the above, I state this: No, I don’t need “more Europe”—I want European Democracy, which is profoundly different from what we have been getting so far.