At the birth of the euro it was plain to all the major players that while there was sufficient will and agreement among the European Community to move to a single currency, there was no such good will or agreement for any move to a single, pan-European government. Individual politicians might dream the dream, but there was no way that any of them were going to get the majority of their countrymen to vote France or Germany or, indeed, any other member state out of existence in favour of a new pan-European government.
Instead, what the wiser heads amongst them counselled was patience – a monetary union without a fiscal union would lurch from crisis to crisis, the theory went, and each crisis would enable steps that were previously impossible to move into the realm of the possible. Europe, in other words, would overcome the centuries-old penchant of its citizens for independent national states through the solutions that were developed to cope with crises. Hence we have the theory of the benign crisis.
Dreams of a united Europe
Jean-Claude Trichet, the president of the European Central Bank, is a firm believer in the European vision. In a speech in Aachen on June 2, where he was presented with the Karlspreis for 2011 from the Karlspreis Foundation, Trichet sketched out where he thought people wanted the European project to go. The citizens of Europe, he told his audience “want to be told why European unity is more important than ever in the present globalised world to ensure peace and security; why the European Union is vital to ensure and promote the interests of the European nations; why the European economies and societies are much more interdependent today than immediately after World War II; and how these interests and this interdependence should be best governed.”
In his view the answer lies in “reinforcing in a decisive way the institutions of economic and monetary union”. The “M” in European Monetary Union, which is epitomised by the ECB and the Eurosystem, is doing very nicely. What is needed is a lot more focus on the “E”. For Trichet, “E” here doesn’t stand for “Europe” so much as for “the institutions of economic union”. The European Union has seen its combined trade with the rest of the world increase by over 80% through the first decade of the euro’s existence. Employment has increased by 14 million, as against just 8 million jobs created in the US over that period of time, he told his audience.
At the same time the euro has replaced volatile currency relationships with price stability, with the average yearly inflation rate in the euro area during its first 12 years being just 1.97%. Going forward, addressing the multiple difficulties affecting EMU requires “strengthening the rules to prevent unsound policies”, and it requires this strengthening to be treated as an “urgent priority”, Trichet says. He wants “a quantum leap” in governance, the kind of oversight that would prevent “individual countries from pursuing policies that harm themselves and the euro area as a whole.”
For countries who do get themselves into difficulties, Trichet wants to see a two-part solution. First he wants formal approval for “financial assistance” (at present existing bailouts are flying in the face of the “no-bail out clauses in the euro’s founding Treaty):
"As a first stage, it is justified to provide financial assistance in the context of a strong adjustment programme. It is appropriate to give countries an opportunity to put the situation right themselves and to restore stability."
Potentially a nightmare?
If the errant nation doesn’t look to be getting back on track, Trichet would rather like the EU to have the power to step in, and to have “a direct influence, well over and above the reinforced surveillance that is presently envisaged” (to quote him directly). This may sound well and good to a committed Europhile, but think about it in practice for a second. Imagine what would happen in Greece if a squad of EU “supervisors” took up the reins in Greece and started driving through stronger austerity measures, for example. The present rioting in the streets of Athens would look like a Sunday School outing by comparison. The EU would ultimately need the full panoply of enforcement capabilities if it wanted to turn Trichet’s little suggestion into a reality – including its own police or even army. Telling the crowds, “it’s ultimately for your own good,” would not go down well and I personally would hate to be one of the EU officials dispatched on this “intervention” mission. The chances of making it back home again would be thin… Such is the gulf between theory and practice.
Further reading on the European Union, sovereign debt and globalization:
- The Tragedy of the Euro by Philipp Bagus
- No Quick Fix for the Eurozone by Joseph Trevisani
- Nothing but Painful Choices Ahead as the Global Debt Supercycle Ends by John Mauldin
Tags: Aachen , employment , EMU , EU , EU unity , European Monetary Union , European Union , eurozone , global government , globalisation , globalization , Greece , Jean-Claude Trichet , pan-European government , sovereign debt , unemployment , united Europe