How to Make the Euro Project Work
The euro seems to be on its last legs, and the vision which inspired its genesis seems to have vanished from the politicians sponsoring it. The recent spat with England and Prime Minister Cameron has only served to highlight the vacuum in vision. Previously, whenever England was scapegoated, English politicians skulked like whipped curs, and Euro-politicians adopted that practiced condescending, look-askance stance toward the wayward one. This time around, the feeling among English politicians and electorate was more relief than abashedness, and the pose of superiority by the likes of Premier Sarkozy could hardly be attempted, let alone maintained. The media did its best to foster the impression, and the attempt failed.
So what now? What of the grand vision of a single currency binding fiscally responsible, growth-oriented economies into a viable, synergistic whole? What we now have is a ramshackle construction inviting the incurrence of debt and inhibiting its repayment, a growth-crippling currency combined with a debt overhang that makes the US dollar seem a safe haven.
But was this ever the end which was envisioned? Was the euro ever simply to have facilitated fiscal responsibility and economic growth? Was there perhaps another goal envisioned by its founders, a goal which perhaps now has been lost sight of by those who were to carry the torch?
In point of fact, the euro is simply one building block in an entire agenda. What is needed to save the euro is to understand that agenda. The euro needs to be set off against other, equally desired, institutions in order to take firm root.
There is a simple calculus that all politicians from Northern to Southern Europe have to make: the euro comes with a price, and that price is for the nothern nations to assume the fiscal burden of the southern nations. That burden consists of, on the one hand, debt, and, on the other, the continued flow of transfer payments. These transfer payments are the key to the entire project. Welfare payments, subsidies, pensions, they all need to be included in a blanket agreement without which a common currency cannot survive.
Of course, the southern countries would be only too happy to establish such an arrangement, and so the northern countries need to make specific that this takeover involves not only liabilities but assets — specifically, control of the political machinery by which the decisions are made over such transfer payments. The southern countries have to relinquish political control of their citizenries.
In turn, this cannot be done only for the southern countries. Such an arrangement will require the transfer of political responsibility over welfare-state decision-making to the level of the European Union, for the northern as well as the southern countries. Germany, the Netherlands, France, Belgium, will likewise have to yield democratic control to Brussels and Strasbourg.
Can such a system be called democratic? Strictly speaking, yes, because it will still be a one-man, one-vote system. But as it stands here described, the price would be too high for the northern countries to pay. They will not relinquish their national parliaments in favor of the European Parliament without, to use a common-law notion, “consideration.”
That consideration must be a form of control. Behind the democratic facade, there must be a predominance of control lodged in the northern countries. How can this best be achieved?
Through control of the central bank, and short-term interest rates. A tight monetary policy favors the more economically powerful areas — the “core” — of a currency region, and keeps the weaker areas — the “periphery” — more or less in thrall.
Would that be enough? Possibly. A monetary policy geared to the needs of the northern countries would ensure enough prosperity in those countries to shoulder a good deal of the welfare-state burden of the southern countries, without precipitating an inflationary spiral, which is what would take place if monetary policy were geared toward the southern countries. And the southern countries would console themselves with the awareness that their sky-high unemployment rates and exuberant levels of welfare payoffs were covered. The facade of a European Parliament would give the impression of democracy, and, for the rest, all residual conflicts could be worked out on the pitch — of what use is the UEFA Champions’ League if not this?