Fritz Scharpf on the Eurozone mess

by Henry Farrell on June 7, 2011

This “recent lecture”: by Fritz Scharpf provides the most compelling analysis of the political fallout of the eurozone mess that I have yet seen. Readers who aren’t familiar with political science debates on democratic legitimacy may find the opening pages hard going. But they should persevere. The synthetic analysis of the initial politics of the euro, and of the roots of the German monetary regime are excellent (although for my money he puts too much of the blame on the ECB, and too little on the governments of countries like Ireland, which were, as “Niamh has noted”: less models of fiscal rectitude than temporarily lucky), and provide a lot of detail that is poorly understood among US commentators. But his conclusions are even more interesting and depressing. I quote at length, because blog readers are disinclined to read PDFs, and because this piece deserves wide circulation.

bq. The opposite is true under the “rescue-cum-retrenchment” program that is presently being enacted. Here, all cruelties must be proposed, defended, adopted and implemented over an extended period by the national government. In fact, the program amounts to a greatly radicalized version of the supply-side reforms adopted in Germany during its (much milder) recession before 2005 – which destroyed the political support of the Schröder’s Red-Green government. But whereas Schröder had the chance of developing and defending self-chosen reforms, governments in Greece, Ireland and Portugal must implement policies which are likely to be seen as dictates of Commission bureaucrats and of self-interested foreign governments trying to protect their own banks, investors and export industries.

bq. If these are extremely difficult political conditions, they will be exacerbated by the distributional implications. … As was true in Germany, the inevitable result will be a rise of social inequality and social protest. …. EMU member states cannot expect any help from the European level in managing the macroeconomic imbalances that are induced by European monetary impulses that do not fit the specific conditions of the national economy. Instead, they are expected to deal with potential imbalances through the use of their remaining policy instruments − but in doing so, they will be constrained by the rules of the Excessive Deficit Procedure and they will be controlled by the Commission’s discretionary interventions under the Excessive Imbalance Procedure.

bq. … member states in the reformed Monetary Union will indeed find themselves in the worst of three worlds. Like the provinces or cantons in a federal state, they lose control over the instruments of macroeconomic management, and they are likely to suffer from uniform national policies that do not fit their regional economy. At the same time, however, the EU budget is miniscule in comparison to the budget of federal states, there are no European taxes and there is no European social policy to alleviate interregional imbalances. Instead, member states are expected to cope with all economic problems by relying entirely on their own policy resources. In contrast to members of the earlier EMS, however, EMU member states cannot use these policies autonomously, but are subject to the intrusive supervision and potential punishment imposed by supranational authorities – which are not themselves democratically accountable and have no reason to be politically responsive to the citizens affected by their policies. In fact, no democratically accountable national government in a federal state has ever claimed such control over the fiscal, economic and social policy choices of its constituent provinces, states, Länder or cantons.

bq. From the perspective of citizens in Greece, Ireland and Portugal, the European and international agencies imposing the “rescue-cum-retrenchment” program are not, themselves, supported by democratic legitimacy. … political resignation, alienation and cynicism, combined with growing hostility against “Frankfurt” and “Brussels”, and a growing perception of zero-sum conflict between the donors and the recipients of the “rescue-cum-retrenchment” programs, may create the conditions for anti-European political mobilization from the extremes of the political spectrum. In the worst case, therefore, the attempts to save the Euro through the policies presently enacted may either fail on their own terms, or they may not only undermine democracy in EU member states but endanger European integration itself.