Both recommended:
First: Kevin O’Rourke’s “more general take”:http://ineteconomics.org/sites/inet.civicactions.net/files/BWpaper_OROURKE_040811.pdf (PDF) on the trilemmas facing the eurozone.
bq. What we have seen instead is a series of ineffectual moves on financial regulation, and now a complete unwillingness to confront the European banking crisis head-Ââ€on. Rather than promoting pan-Ââ€European growth strategies, the institutions of the Union have been enthusiastically promoting pro-Ââ€cyclical fiscal adjustments in the periphery, even as they insist that heavily indebted governments repay private creditors of private banks in full. Not only is the policy incoherent, making sovereign default more likely on the one hand, while preaching austerity on the other; the insistence that taxpayers rather than investors pay for bank losses is also setting the stage for a potentially very damaging confrontation between core and periphery taxpayers. The political consequences of this are unknowable, but in Ireland, just three months after the troika’s intervention, the political party that had been dominant since the 1930s was annihilated at the polls, with the radical and Eurosceptic Sinn Féin now sniffing at its heels: and this in one of the most conservative, and Europhile, countries in Europe. What three or four years of the current policy mix will do is anybody’s guess.
The paper is particularly interesting in its focus on the _politics_ of Eurozone governance, which does not get nearly as much attention as it deserves. John Quiggin and I have a piece forthcoming in _Foreign Affairs_ which talks to the medium-term consequences of institutionalized austerity at the European level – O’Rourke’s piece provides a good general take on the same set of issues, as well as discussing topics (class and distributional divides) that we don’t get into. The paper is being presented at INET – there is much other interesting looking material available “here”:http://ineteconomics.org/initiatives/conferences/bretton-woods/agenda.
Second, Kate McNamara’s more “topical piece”:http://www.foreignaffairs.com/articles/67710/kathleen-r-mcnamara/can-the-eurozone-be-saved arguing that the European Union needs to take the plunge and become more like a state.
bq. In the eyes of markets and skeptical observers, the European Union is more than an intergovernmental organization but not yet a state. When the European Union bickers and dithers, the markets have no idea what may happen. The euro is the only single currency in history that has not been tightly linked to broader state- and nation-building efforts (often following wars, during which military action required budgeting and taxation). Although the euro is an extraordinary peacetime achievement, it suffers from a lack of supporting political institutions that can make broader macroeconomic policy. The European Union needs to change that and move beyond the structure of its current economic and monetary union — which were seemingly designed for a world in which private and public actors never over-borrow and financial markets never question their ability to repay — to real political and economic cohesion, something international markets would recognize as parallel to a nation state.
As she recognizes (and O’Rourke argues too) there is little enthusiasm among European leaders (let alone publics) to make this jump. This obviously generates normative objections (some perhaps fundamental) as well as practical ones. But equally, it is not at all clear that the European Union can survive as it is, as a kind of ungainly half-way house between an international organization and a genuinely federal system.
{ 19 comments }
Marcos 04.08.11 at 8:34 pm
Major Alfonso 04.08.11 at 9:31 pm
There isn’t a hope of further integration under these conditions. Neither side of the periphery/core chasm would be happy. Those who seek it must prepare to take advantage of the window that would open when, or rather if, the crisis is solved. Until then they should cross their fingers. Right now the actors in all the decisions appear to be the heads of Government. The actual European institutions have not seemed so sidelined for many years. The EU and Eurozone appears increasingly inter-governmental. The attempt to contain the economic crises in individual economies is suspicious given the supposed integrated nature of the Eurozone and highly destructive to sentiment in those countries towards the EU. And the ECB is pretending it’s business as normal, raising interest rates to ensure price stability and signal wage restraint, which is fine for core economies but disastrous in economies where wages have been cut to the bone. Lay offs rather than wage restraint or wage cuts will result in economies and states that are struggling to remain solvent or are availing of bailouts. This makes peripheral countries’ workers suspicious of just who is being served by the instititutions. Very troubling times. And the word “peripheral” is embedding itself in the national discourse in Ireland. It might be heard to make a population shake the impression that it will only ever be “peripheral” in the interests of the EU.
Andrew C 04.08.11 at 10:11 pm
Because when I am thinking about not giving up my national sovereignty, my first worry is “will I be making the international money markets get all teary because of the uncertainty I’m causing them.”
piglet 04.09.11 at 4:07 am
It’s a bit offensive to suggest that the EU needs to do this or that because otherwise “the markets have no idea what may happen”, and that its shape has to be determined by what “international markets would recognize”.
TamBram 04.09.11 at 4:27 am
If you saw how EU nations are fighting with each other in diplomatic/commercial terms outside of the EU, you would not put too much weight in it becoming a “state.” Look, for example, at the French role in UAE vs. the UK or Germany.
canablach 04.09.11 at 8:43 am
I enthusiastically support any move beyond the structure of its current economic and monetary union. But now more than ever there seems to be no political vision at all about the future of Europe, as the member states are more divided on every single affair, from economy to foreign politics. Bruxelles and Strasbourg have become a hive of frenzy burocrats more apt at codifing sets of administrative norms that have derailed the idea of the union and, in the end, might prove utterly useless.
Doug 04.09.11 at 10:21 am
Given Irish rejections of Nice (2001) and Lisbon (2008), and very plausibly the Constitutional Treaty (2005), I’m not sure that describing Ireland as one of the most Europhile countries in Europe is all that accurate.
The EU is as Heraclitean as it is sui generis; it’s almost never the same institution twice.
CharlieMcMenamin 04.09.11 at 10:32 am
Paul Mason* also covers much of this ground in a recent post, in some sparkling journalism from the all-too-rare perspective of political economy rather than just ‘politics’ or ‘economics’.
“The two, logical, technically elegant solutions are these:
a) the periphery leaves the Eurozone
b) the north takes control of the whole system but pays the price through a fiscal union in which taxpayer Euros in Hamburg and Helsinki pay for benefits in Athens and Athlone.
It will be noted that b) is unpalatable to the electorates of north Europe, and anything approaching it is proving so unpopular that it is altering the electoral landscape – in Germany and Finland and probably soon in France (Belgium doesn’t have an electoral landscape and the Netherlands, with the rise of the right, was already well and truly altered).
However (a) is becoming very palatable: not just to the leftish plebeian masses in the stricken countries but also to the electorate of north Europe.
A way between these two extremes could be negotiated if there were skilled, authoritative, charismatic leaders but… “
*Note for non Brits: he’s the economics correspondent on a BBC programme called Newsnight. This means he’s a moderately sized thing in whatever it is we have rather than a ‘Beltway’.
Hidari 04.09.11 at 12:26 pm
Just as a talking point, how many people posting here think that the Euro is doomed?
zamfir 04.09.11 at 1:36 pm
@hidari, I’d say that in the short run the euro is to stay, if only for no other reason than the lack of a graceful mechanism to dissolve it. The eurozone as a whole has easily enough creditworthiness to pull through, the uncertainty is that the countries with lots of creditworthiness don’t want to share it right now ( rightly or wrongly, judging that is beyond my paygrade). But if the alternative is an uncoordinated collapse of the euro, I suspect there is far more possible than we are now seeing.
The long term is again beyond my paygrade. The Spanish labour market might be the key. If that starts working again within a euro rigid enough for German tastes, the rest of the problems are small fry. But that might need different social institutions for wage negotiation and very different capital flows throughout Europe too. I have no idea hoebthat would look or if it is possible.
Jonathan Hopkin 04.09.11 at 2:35 pm
It’s all very well saying that we should become a democratic EU-wide state, but how are the mechanisms of accountability supposed to work? Who will stand for election on the basis of future policies and past performance? How are people expected to vote for functional interests across national boundaries? What language will public discussion and electoral campaigning take place in? At best we could hope to be a very complicated version of Switzerland, which doesn’t have competitive elections. More likely, we would be 25-language Belgium with a bit of Northern Ireland and the Basque Country thrown in.
There is a literature on democratization. Advocates of a European state should read it.
mpowell 04.09.11 at 3:09 pm
I don’t know. It seems to me like Euro governance is fully broken. The ECB is already talking about tightening. Maybe what’s needed is a reboot. Populism is a shitty form of government, but it seems that it’s the only thing that works. The Euro project is built around technocratic elitism and that seems to be doomed to fiscal and monetary disaster.
Jonathan Hopkin 04.09.11 at 3:46 pm
Just a suggestion about what could happen. Paul Mason’s two options are
‘a) the periphery leaves the Eurozone
b) the north takes control of the whole system but pays the price through a fiscal union in which taxpayer Euros in Hamburg and Helsinki pay for benefits in Athens and Athlone’
but there is a third possibility, which is that a messy compromise of the two will emerge, based on the fact that Germans and Finns don’t really want a) either, because they would have to bail out their banks, and that Southern Europe is actually far more resilient than many imagine. Spain lived with 20% unemployment for most of the 80s and 90s without a social breakdown. Italy has had 2o years of stagnation and growing poverty, but despite the headlines, things are still holding together pretty much as they always have. Wealthy elites in these countries have a huge stake in the euro, and the poor have informal support mechanisms to see them through.
So my guess is, a bit of b) and a lost couple of decades for Southern Europe.
Chris E 04.09.11 at 7:27 pm
“Wealthy elites in these countries have a huge stake in the euro, and the poor have informal support mechanisms to see them through.”
The problem is that with each economic cycle the informal support mechanisms are eaten away.
So whilst there is no guarantee that this time it will be different – at some point it will be.
Thomas Jørgensen 04.10.11 at 7:37 am
Overdramatising – there are a number of things that would rebalance the european economy without any need for massive reforms. For example:
1: German labor telling Merkel to fuck off and insisting on major pay raises.
2- A less destructive ECB boss than Trichet.
hix 04.10.11 at 9:12 am
When it comes to the EU, crookedtimber sounds like Glen Beck.No, the sky is not falling.
Alex 04.10.11 at 12:25 pm
I recommend and endorse 15.
Tim Worstall 04.10.11 at 2:14 pm
“‘a) the periphery leaves the Eurozone
b) the north takes control of the whole system but pays the price through a fiscal union in which taxpayer Euros in Hamburg and Helsinki pay for benefits in Athens and Athlone’”
True, and that’s pretty much what everyone has been saying right from the beginning. Whether you phrase it as “optimal currency area” or “full political and economic union” (the latter being a way of accelerating the former) the end states of the euro project were either failure or that full economic and political union.
Indeed, many euro-enthusiasts specifically went with the euro project precisely because once embarked upon, the only way to hold it together would be that full union.
Similarly, I’ve oppoed it all along because I don’t want the full union: plus quite a lot of knowing how damn painful it’s going to be (as it is proving to be) to shoehorn economies into the desired political shape.
piglet 04.10.11 at 3:49 pm
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