On the political telos of the euro

Writing for Project Syndicate, Yanis Varoufakis discusses how the euro did not catalyse the integration of its Member States as was its original promise. Instead, the EU’s single currency exacerbated the economic crises post 2008 and divided Europe.

[About institutional reforms to prop up the euro] These are undoubtedly large changes. But they constitute the minimum that was needed to keep the euro afloat without changing its character. By implementing them, the EU confirmed its readiness to change everything in order to keep everything the same – or, more precisely, to avoid the one change that matters: the creation of a proper fiscal and political union, which is the prerequisite for managing macroeconomic shocks and eliminating regional imbalances.

What we need to consider here is how the European integration process works. There has never been a case of thoroughgoing reforms that refashioned the EU (and its predecessors). Change happens gradually with each crisis being treated as an opportunity to address some of the apparent shortcomings in the institutional setup of the project.

Consider, for instance, the most obvious flaw in the design of the euro: the lack of a counter-party treasury to the European Central Bank. The euro was conceived as a stateless currency that had no system-wide fiscal mechanisms to complement the nascent monetary union. The only Europe-wide provisions on fiscal affairs were limited to essentially arbitrary targets for the budget deficit and public debt (I say “arbitrary” because they are not hard science). Those have eventually developed into the European Semester that underpins the economic governance of the Union. This “economic governance” is a concerted effort to approximate the fiscal positions of all Member States, though it still lacks the tools and concomitant legitimacy to, say, redistribute wealth between regions.

While we can think of this state of affairs as a major problem, there is a sense in which it is a feature of the overall conduct of European affairs: that of letting things reach a tipping point before introducing controversial reforms under the pretence that they are absolutely necessary technical measures to prevent impending doom. The European Semester and all its underlying regulations are a product of this method, as they were introduced at the height of the post 2008 financial calamity. Same for the infamous Troika regimes that enforced austerity in hard-hit countries.

The euro occupies an unsustainable spot between the statelessness of its original conception in the Treaty of Maastricht and the eventuality of a fully fledged EU-wide statism. Which is why even folks who are constructively critical or sceptical of the EU’s merits call for the creation of the necessary legal-institutional arrangements at the supranational level to ensure the viability of the euro, namely, the creation of an EU fiscal capacity that can have its own debt and issue the corresponding financial instruments (let’s call them “eurobonds”), eventually culminating in a European government.

There are no accidents here. No careless omissions and mysterious structural shortcomings. Fundamentally, the euro has always been a long-term project to concentrate sovereignty at the supranational political centre and to do so as a matter of technical necessity, not bottom-up initiative. The euro epitomises the elitism that has always kept the European integration process away from citizens. People were fed lies about how the single currency would bring paradise on earth, which helped the apparatchiks circumvent the messy politics of having to gain popular support for a European superstate.

It is not trivial to unite Europeans and have them support a single [federal] government. Their cultural diversity renders the task virtually impossible, especially if it is supposed to be implemented outright. EU policy-makers are well aware of the difficulties with such an endeavour and thus adopt their incrementalist, top-bottom method to integration. Side effects of this process are (i) the predominantly technocratic and intergovernmental nature of EU affairs, (ii) the overall indifference of citizens to what is happening in “Brussels”, where Brussels represents the political centre of the Union and not necessarily the Belgian capital.

Against this backdrop, the normative questions surrounding the very existence of the euro are set aside or relegated to matters of secondary importance. The debate revolves around how to iterate on what Maastricht set in motion with regard to monetary union. In other words, we are not presented with real options, with genuine alternatives. There is the awkwardness of the status quo and the prospect of ever-closer Union, which means more power for the supranational level.

As we have seen with the European Semester or with the establishment of the European Stability Mechanism, “more Europe” does not simply rectify errors in the institutional architecture of the EU. It rather reinforces the established economic-political order, granting it the means to impose its ideocentric will while masquerading it as political pragmatism. Instead of talking about a class-conscious set of measures that favours business cronies, we are regaled with seemingly neutral terms like “economic governance”. Instead of the impoverishment and marginalisation of the lower parts of the income distribution, the lack of state intervention for those in need combined with the presence of interventionism when it comes to supporting corporate interests, we deal with “fiscal targets” as part of some “semester” of ordinary bureaucratic dialogue.

The euro then symbolises—and accelerates—the further depoliticisation of the narrative of European integration. A Eurostate is discussed in terms of filling in the gaps of the existing design, though not on its own merits of whether it would do us good to actually have such a polity. This aspect is totally absent from the debate or, if it is recognised, it is dismissed in advance as populism, europhobia, and the like.

Then we have other normative considerations that are cast to the margins, pertaining to the presence of a European fiscal capacity. Has there ever been a sovereign that did not ultimately develop its own security forces and army or failed trying? Not only do we have to consider how new fiscal powers are to be [mis-]used, we must also look at the prospect of perpetually addressing the ostensible design flaws of the status quo because it will always be lacking some important feature of a state until it becomes one.

Put differently, the idea that we must create a fiscal union to make the euro viable comes with the latent risk of then having to expand the fiscal union with a police union, a military union, and so on. There is nothing in the nature of things that will halt that momentum and instead give us free eurobonds without any of the downsides of an omnipotent supranational authority.

It still is not clear that the euro needs to be saved. Perhaps it is better to organise its orderly disintegration and keep the future EU limited to what it once was: a free trade area comprised of otherwise independent states. At least that will save us from the interdependence we currently find ourselves in where we are powerless to deal with one asymmetric shock after another or are forced to cope with it in an inefficient way.

Consider then the political telos of the euro, its role in the bigger picture of European affairs, and stop worrying about some lacunae in its institutional makeup.