The Eurozone: Nation-States With Benefits
By Shadi Bushra, published November, 2011
It’s a common issue in romantic relationships in college, where one partner is ready to move forward faster than the other. His or her opposite number, wary of committing too soon, but enjoying the benefits of such a relationship, plays along for a while. The other, afraid of pushing a relationship his or her counterpart may not want, agrees to try the friends with benefits route. Although they both get some of what they want, eventually the relationship falls apart amid bitterness and resentment.
Similarly, Europe has spent half a century on a project of integration, only to find that some of its participants are not ready to do what it takes to see the project through to its logical conclusion. The governments of Europe do not seem interested in a true relationship with one another based on trust, cooperation, and a shared destiny. Rather, they are acting like nation-states with benefits – at one moment fully embracing the idea of a common Europe, and then retreating to the safety of parochialism when Europe’s unity necessitates real sacrifices.
There are understandable reasons for this vacillation. A common Europe was always a dream more of European governments than citizens, who view Brussels as a faceless, invasive bureaucracy. The decision to join the EU and then the Eurozone was long and contentious for governments beholden to their voters. The tension between democratic governance, economic integration, and national sovereignty is, after all, the classic “trilemma” of international political economics.
Granted, Europe has always integrated in fits and starts. And for good reason: it is an unprecedented project of voluntary transnational integration. But while there are good reasons to proceed with caution, the current crisis emphasizes the need for greater and swifter political integration if the euro – and with it, common Europe – is to survive.
The newest plan includes many of the measures suggested by economists: a more robust bailout fund, an agreement with banks to reduce Greece’s debt burden, and a plan to recapitalize Eurozone banks. But few have made an issue of the fact that there is effectively no Eurozone government. The European Commission is the executive branch for the EU, which includes ten non-euro countries. Even there, the Commission cannot enforce laws currently on the books, such as the Stability and Growth Pact that could have prevented Greece from reaching such a point. When Greece’s crisis came to a head, there was no European government with the capacity to act decisively.
Europe’s economic potential without political unity is holding Europe back from playing its role in an increasingly multipolar world. According to the IMF, in 2009 the euro accounted for 37% of foreign exchange market turnover, 31% of all international bond issues, and 28% of the foreign exchange reserves made public by central banks. As UC Berkeley economist Barry Eichengreen notes, it is second only to the dollar on all these dimensions of “international currenciness.” However, it remains a distant second largely because investors and states are wary of becoming too reliant on a currency not backed by a government.
As Greece shows, this level of economic integration is downright dangerous without comparable levels of political harmonization. The question is no longer what measures should be taken, but if Europe’s leaders have the stomach for greater political integration at a time when nationalist impulses are at a peak.
Helmut Schmidt, the 92 year old former chancellor of West Germany and a chief architect of the project of European integration, said as much in a speech on October 19. Mr. Schmidt praised Europe’s common economic institution, the European Central Bank from his wheelchair before delivering a harsh admonition of the political bodies and leaders: “The ECB, led by [Jean-Claude] Trichet, is the only body that has proved itself to be capable of action and effective during the financial and sovereign debt crisis … What we have, in fact, is a crisis of the ability of the European Union’s political bodies to act. This glaring weakness of action is a much greater threat to the future of Europe than the excessive debt levels of individual euro area countries.”
If Europe’s leaders do not want to be part of a common Europe (and there are plenty of good arguments for that point of view) they should admit so and work to extricate themselves from an increasingly complicated Eurozone. Instead, Europe’s leaders say with one breath that they want to maintain the union, and with the next refuse to make the tough decisions it would take to do so. Uncertainty of the Eurozone’s future as a currency union terrifies investors – as evidenced by their skittishness about continuing to prop up Italy and other heavily indebted countries.
However, if Europe is serious about maintaining its influence in the world, the continent’s leadership must look beyond the Greek crisis and begin rewriting the treaties that bind them together. Europe’s aging population means that the continent’s comparative advantage will be in its unity and size. As Mr. Schmidt put it, anyone who considers his own nation more important than common Europe is “acting against the fundamental strategic interest of their own country not to become marginalized in the global arena.”
This situation of being nation-states with benefits, rather than truly sovereign states able to pursue independent interests, or a true union of states capable of jointly addressing existential issues will put the European Union in history’s wastebasket of commendable, but ultimately failed, ideas and institutions. Europe’s leaders should stop leading themselves and their citizens on with this fanciful idea of a relationship that does not require shared sacrifice.
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