The Flaw in the Construction of Monetary Union

The financial question of whether the stability mechanism agreed in Brussels, which will repay in 2013 the bail-out fund agreed in May 2010, will end speculation about the Euro, I shall leave open. What is more important is the political issue of the flaw in the construction of monetary union, about which speculation on the financial markets has now opened everyone’s eyes.

When the Euro was introduced in 1999, a few people were still hoping that the political process of unification would continue. Other proponents believed in the orthodox liberal text book, which gives greater credence to the economic system than to democracy. They thought that adherence to simple rules for consolidating national budgets would have to suffice in bringing about the harmonisation (as measured by the unit labour costs) of national economic developments.

Both expectations have been dramatically disappointed. The rapid succession of crises in terms of finance, debt and the Euro has revealed the erroneous construction of a huge economic and currency area, which lacks the tools for a common economic policy. Eurosceptics like Angela Merkel have been reluctantly compelled under these systemic pressures to move towards integration. With the decision by the European Council of 25 March this year, the error should be eliminated on the informal path of ‘open coordination’. This compromise has, in the view of those involved, the advantage of letting sleeping dogs lie. On the other hand, its effect, insofar as it functions at all, is undemocratic and conducive to fuelling mutual resentment among the populations of the various Member States.

Heads of government have committed themselves to implementing a catalogue of measures on financial, economic, social and wage policy in their own countries, which to all intents and purposes would be matters for national parliaments (or the social partners). A policy model bearing the German imprint is reflected in the recommendations. I do not wish to talk about the politico-economic wisdom of the decreed austerity, which threatens to result in counterproductive, long-term deflation in the periphery. I shall concentrate on the process: heads of government want to be looking over their shoulders at one another every year to see whether colleagues have been adjusting the debt level, retirement age and the deregulation of the labour market, the benefits and health care system, wages in the public sector, the wage level, corporate taxation and much more to the ‘guidelines’ of the European Council.

The wrong Method

The lack of any legal commitment of inter-governmental prior understanding on policies that interfere with core competences of Member States and their parliaments creates a dilemma. If the recommendations on control of economic policy have no effect, the problems that it should resolve will persist. If governments, however, do actually coordinate their measures in the manner proposed, they have to ‘secure’ the necessary legitimation for this at home. This must, however, generate a claire-obscure of gentle pressure from the top and involuntary-voluntary accommodation from the bottom. What does the Commission’s right to check Member States’ budgets ‘in good time’, i.e. prior to the decision by parliaments, therefore mean if not the arrogance of creating active prejudice?

Under this grey veil the national parliaments (and possibly the trade unions) are not able to elude the suspicion that prior decisions taken elsewhere are still simply letting things through on the nod, that is to say reconstructing in more tangible ways. This suspicion necessarily eats away at any democratic credibility. The twaddle of coordination, the legal status of which remains deliberately vague, is not sufficient for regulations that require joint action by the Union. Decisions such as these need to be legitimised on both paths planned for Union decisions – not just on the indirect path via the governments represented in Council, but also directly via the European Parliament. Otherwise the familiar centrifugal dynamic of finger pointing at ‘Brussels’ is merely ramped up even further with the wrong method acting as a catalyst.

As long as the citizens of Europe have only their national governments in view as actors on the European stage, they will perceive the decision-making processes as zero-sum games in which their own players must prevail against the others.

The national heroes line up against ‘the others’ who are responsible for what the Brussels monster inflicts on, and demands from, ‘us’. Only when looking at the Parliament in Strasbourg elected by them and constituted along party and not national lines have the citizens of Europe been able to perceive the tasks of controlling economic policy as tasks to be accomplished together.

And the Alternative?

A more ambitious alternative would be for the Commission to perform these tasks on the democratic path of  ’ordinary legislative procedure’ and therefore with the approval of Council and Parliament. This would admittedly demand a shift in competence from the Member States to the Union, and such a radical change to the agreement appears for the time being to be unrealistic.

It is probably right to expect that populations who are weary of Europe would under current circumstances reject a further transfer of sovereign rights even at the very heart of the Union. This prognosis, however, is too convenient when the political elites are thereby relieving themselves of the responsibility for the piteous state of the Union. It is not self-evident that decades of broad approval of European unification has waned substantially. The process of European unification, which has always been conducted over the heads of the people, is now at an impasse because it cannot go any further without being adapted from the commonly accepted administrative mode used to date to greater participation by the population.

Instead of which the political elites are burying their heads in the sand. They are unapologetically continuing their elitist project and the disenfranchisement of Europe’s citizens. To date there has not been a single European election in any Member State and hardly any referendum in which decisions have been made about anything other than national matters and tickets. Political parties do, of course, avoid making unpopular issues the subject of discussion. On the one hand this is petty, because the aim of parties must be to win elections. On the other hand, it is by no means a trivial issue as to why European elections have for decades been dominated by subjects and people who are not up for decision at all. The fact that citizens are wrong about the relevance of what goes on in the subjectively remote cities of Brussels and Strasbourg effectively constitutes an obligation to deliver, but one which the political parties persistently escape.

This column was first published in German by the Blaetter fuer deutsche und internationale Politik