Policies of Scale: Efficient Global Policy

Europe must realize nations matter more than the euro

Someone had to make the point to the EMU leading lenders and the troika that they can’t take away a country’s right to be itself. I explained in 2012 in these pages that the EMU has always been an inherently undemocratic enterprise led by the continent’s elites, and that a real resolution to the euro crisis required acknowledging the centrality of the nation. Today Greece made that point by announcing it won’t be making its next IMF repayment.


In August of 2012 I wrote my very first Economonitor article, which was entitled “The EMU Crisis is a Battle of Nationalism Versus Transnationalism, not Economic Prescriptions.” Not the most compelling title, I admit. In it I charged that:

“[Whether] the debate’s outcome [about how to handle the euro crisis] is austerity and budget controls, “pro-growth” policies, or some compromise of the two, the debate (and therefore the outcome) overlooks the reason for the crisis and its persistence: nations still exist and are the most relevant actors. The EMU is a disparate collection of seventeen nations whose differences, always present, have been made increasingly obvious by the crisis. As the nation is still the primary level of political analysis, only once the nation becomes the central concern can a final solution be found.”

I argued that the on-going debate missed the real mark: finding more ways to integrate the zone’s members is geared towards “the secondary problem of collective action. It perpetuates the inherent weaknesses of the EMU, the design of which cannot adequately accommodate differing national priorities, or equally important, values, thereby setting in motion the current mutually assured destruction facing the members of the union.” Rather, a “more appropriate debate would focus on the strategy for saving the economies of the euro zone.”

Another problem, I pointed out, was that the EMU creates winners and losers. “Greece, for example, cooked its books for its own gain and later its people protested the terms of financial assistance to correct the impact of their fraudulence on others. Germany, too, has acted contradictory to the interest of others by keeping its domestic wages down to prioritize its exports and maintain its high employment while demanding measures of Greece that worsen its already dreadful unemployment and exporting industries.”

Further, because the EMU lacked full integration between the nation and the supranation, “every euro spent by national governments at the national level adds to the aggregate demand at the euro level. The two levels are neither independent of each other nor shielded from one another. The national allocation of resources therefore has ramifications for all euro zone customers that need to be internalized by aggregate stabilization policies,” like normalizing public spending. Public spending not only has dramatic effects on the economy, but it represents a country’s social and human values, the combination of which is unique to each nation, even within Europe. In 2010, public spending ranged from 41% of GDP to 67% across the EMU. In 2014, that range is from 34.5% to 56.47%. Stabilization of national policy across the EMU has not happened.

Another way to understand this is redistribution. Because the EMU has been an attempt to open and integrate the members’ economies, aspects like mobilization of labor and capital are key. As this integration deepens, redistribution becomes harder because it puts the nations’ values in direct and explicit competition with each other. Efforts to redistribute within nations shape the movement of labor and capital, creating winners and losers. I then put redistribution within the context of the EMU creating winners and losers:

“A ramification of this winners and losers reality is that, although not unique to a European supranational system, taxpayer resentment toward being a high net contributor is generally widespread in the richer EMU states. It was prevalent in the Dutch referendum and public sentiment during the French presidential election, and has dominated German politics for a long time. The idea of sacrificing for an international union, as Germany and the AAA-rated countries would need to do to save the euro, is a meaningless concept when faced with unavoidable divergent national priorities, as those of Greece, Spain and others no doubt are. Yet if Germany and other AAA-rated countries make sacrifices,and the union is preserved, those making the sacrifices will not only feel economic pain, but national pain as well as other countries increasingly dictate their options for self-governance.

Greece and the EMU leaders have consistently proven this point. Joseph Stiglitz writes today in Project Syndicate/WEF Agenda:

“European leaders are finally beginning to reveal the true nature of the ongoing debt dispute, and the answer is not pleasant: it is about power and democracy much more than money and economics.”

He goes on to say:

“That concern for popular legitimacy is incompatible with the politics of the eurozone, which was never a very democratic project. Most of its members’ governments did not seek their people’s approval to turn over their monetary sovereignty to the ECB. When Sweden’s did, Swedes said no. They understood that unemployment would rise if the country’s monetary policy were set by a central bank that focused single-mindedly on inflation (and also that there would be insufficient attention to financial stability). The economy would suffer, because the economic model underlying the eurozone was predicated on power relationships that disadvantaged workers.

“And, sure enough, what we are seeing now, 16 years after the eurozone institutionalized those relationships, is the antithesis of democracy: Many European leaders want to see the end of Prime Minister Alexis Tsipras’s leftist government. After all, it is extremely inconvenient to have in Greece a government that is so opposed to the types of policies that have done so much to increase inequality in so many advanced countries, and that is so committed to curbing the unbridled power of wealth. They seem to believe that they can eventually bring down the Greek government by bullying it into accepting an agreement that contravenes its mandate.”

In January of 2015 Greece decided to give its people the right to decide their country’s economic policies and they went with a collection of parties who promised to end austerity. Stiglitz accurately points out that Greece’s national desire to go in a different direction is at odds with the major EMU powers.

This was all very foreseeable. I wrote in 2012, after others wrote similar things years, even decades before me, that:

“[Proponents of the EMU] rarely acknowledge issues like national interests or sovereignty while debating the euro crisis because the focus has been on how to keep the union together, and keeping the union together becomes significantly harder when the differing interests of the member states are recognized. Even many of the euro skeptics have backed away from putting the interests of nations ahead of the union because the potential for pain with an EMU dissolution seems too much to bear. The easier debate is therefore how to maintain the status quo, when in fact the more appropriate debate, and its central question of whether the reality of the EMU is the best reality for individual nations, is far more important for the lives of the people living in Europe.

“The crisis may subside with greater fiscal integration, but it will not be resolved. Robert Mundell, the father of the optimum currency zone, said in 2003 that “Money has a cultural dimension; it has been called the centerpiece of civilization. Money integration in past centuries paralleled the forging of the nation states, entities linked together usually by culture, language, religion, and political aspirations.” At this point in time, the countries of the EMU are linked neither by culture, language, religion, nor common political aspirations, and the crisis reflects this.”

The Greeks first issued coinage sometime around the year 600 BC, and they’re not willing to give up their culture and their country to accept the euro. Perhaps Europe will finally have the discussion I hoped for in 2012.

Leave a Response