Wolfgang Streeck – The Euro is Not Without Alternative

The Euro is unsuitable for many of its member nation. Still the agony – increasing inequality, high youth unemployment, emigration – continues. The result has been the demise of democracy, rise of the far right, and increasing resistance, as with Brexit and the yellow vest movement in France.

Wolfgang Streeck is emeritus director of the Max Planck Institute for the Study of Societies in Cologne.

European Monetary Union was a historical mistake, not for Germany –which originally didn’t want it but then became its main beneficiary –but for the Mediterranean countries including France, who had for different reasons been eager to “Europeanise” the German currency. They suffer, not so much because of high debt, as the Germans claim, but because different national capitalisms need different monetary regimes – different moneys, as it were –allowing their different social and institutional structures to be internationally competitive. As early as 1992, the late Ralf Dahrendorf, then Director of the London School of Economics, pointed out that some countries, like France, have historically fueled economic growth by public debt, while others, like Italy, relied on relatively high inflation to drive domestic demand. A heavily export-dependent country like Germany, by comparison, needs nothing more than monetary stability. Imposed on Europa as a whole, as happened with the EMU in the neoliberal 1990s, a German-style monetary regime secures captive markets for German ex-ports by making it impossible for other countries to use occasional devaluations to defend their international competitiveness.

Under EMU, countries not adapted to a hard currency regime are doomed to turn into peripheral provinces of a Northwestern European centre, in particular Germany, predestined to be the European economy’s growth pole. The structural “reforms” other countries would need to close the gap would be so harsh that they are bound to meet with heavy popular resistance, making them unlikely to happen in a democracy. This is why someone like John Maynard Keynes concluded in the interwar years that an international gold standard money regime was incompatible with national democracy, because it prevented governments from doing what their citizens demanded: protecting them from shocks emerging from international markets. European Monetary Union as instituted in the Treaty of Maastricht, creating a common currency for a group of highly heterogeneous economies governed by sovereign democracies–a monetary union without a political union –is bound to cause international conflict over fiscal policy, trade imbalances, supranational supervision of national budgets, and demands for economic discipline on the one hand and economic redistribution on the other.

Can countries crippled by the euro get out of it? Merkel’s slogan, “If the euro fails, Europe fails”, has turned adherence to the common currency into a “pro-European” moral duty, as opposed to a political-economic choice. This was intentional, including the slightly threatening undertone. Undoubtedly there would be costs to a euro exit, unpredictable but also likely to be exaggerated by the winners of EMU. To be balanced against them are the costs of remaining, which are structural and accrue in the long term. Also, Germany and France, the masters of the EU, might try to raise the costs of exit, as they did and still do with the Brexit. Would there be a golden handshake, of the kind offered in the end by Schäuble to Varoufakis? Theoretically in any case there are alternatives to the one-size-fits-all monetary union, and discussing them seems timely, also in the context of the necessary search for a post-neoliberal money regime at the global level. Issues there include the role of the dollar, how to integrate the Chinese currency into the global financial system, and the “quantitative easing” and zero-interest rate policies of the leading central banks. As to the euro, it would seem quite conceivable for countries like Greece and Italy, but perhaps also Spain, to introduce a second, national currency alongside the euro, fluctuating against it; in Italy preparations for this seem to be underway.

Another arrangement, also allowing for more monetary flexibility, is already in existence. Before their exchange rates were finally locked in order to be replaced by the euro, national currencies were linked in an exchange rate mechanism that allowed for limited adjustments within a band of plus-minus X percent. Currencies that were at risk of being pushed outside that band could ask for support from the European Central Bank. When in the last moment Denmark decided not to join the Euro, it remained in that system as its only member country, up to the present day. The system gives Denmark a degree of monetary sovereignty while insuring it against excessive exchange rate volatility. In principle it should not be impossible to allow countries to join that are now using the Euro but prefer to return to a national currency.

A dual currency, or whatever the escape would be from the euro’s gold standard reformatory, would mean more national sovereignty, i.e., more freedom and more responsibility. We are not talking here about a “return to the nation-state”, as an isolated political entity in a hostile world. In fact, as the euro divides Europe rather than uniting it, less monetary centralisation, and this holds for centralization on other matters as well, can lead to more and better integration: more egalitarian and therefore more peaceful relations between our countries. Europe cannot be held together by a straightjacket; it must be a free association of free countries, or it will not be. This requires realistic recognition of national differences and different national interests. No country in Europe is willing to give up its sovereignty, and all of them want to remain democracies. This being so, they should as little as possible be at the mercy of other countries. Europe should not be an empire, neither a German nor a German-French one. Reliance on the “solidarity” of a stronger country is risky. Self-denial happens between individuals; between states,support by one country for another must be in the “national interest” of the former, or else it will be unsustainable. In a democracy, it must be “sold” to an electorate busy with its own life and having to cope with its own problems.

If the German government was accountable only to the German export industry, it would happily pay whatever entrance fee would be asked for German products getting access to the captive markets of EMU, enabling “pro-European” local elites to keep their voters sufficiently happy with the joint currency. But Germany is a democracy, and one with a balanced budget constitution to boot. There will therefore be no “transfer union” compensating less competitive member countries for their losses –and in any case the amounts required would be far too high even for Germany. Moreover, in the long run reliance on transfers from a richer country will undermine national self-government, as the giving country will want to have a say on how the receiving country will use what it is given. Sticking to the euro in the hope for Germany paying off the losers under its hard currency regime would be a big mistake.

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1 Comment

  1. What to do? Democracy can be interpreted to suit. One would have thought, it is at least a system whereby a change of control not necessarily involves civil war, indeed, necessarily involves no civil war or anything like it. However, it has been obvious for quite some time that the incumbent authorities have total control and aim to keep it come hell or high water. Opposition has long been a sham performance. Whether it be a two party system or a multi-party system, it is all Establishment. There is genuine political opposition in the democracies, but they are not allowed to be part of the political equation. The mainstream media is used as a tool for propaganda purposes, to brainwash the electorate and, as important, the young who will be voting in the near future. Whether the brainwashing works is not important. The media functions as a way to excuse what the Establishment does. If people do not believe what they are told, not agree with what the Establishment does, it matters not. Perhaps the media gives comfort to those in power. It gives immoral support for the supporters of the Establishment. Those at the top of the hierarchy have no need for justification. The power of unchallengeable control brings its own justification.
    As with the ECB, the Euro is a political tool. A solution to the problems it has caused, is causing, will have to be forced by circumstances or strong and effective resistance against the EU federalisation project. Will the EU elite accept the Euro be made a parallel currency in some Eurozone countries? Only if this elite finds it essential for its survival at the top, to maintain full and unchallenged control. In other words, if, for instance, Italy decides to return to the Lira and keep the euro as well, the EU Commission, or whosoever is really in charge, will give Italy a hard time.
    The EU has found its strength in wrangling, threatening, and so on. It is a standover mob. That works in politics, because politicians are always ready to compromise for some short term gain against greater longer term loss, because they get the deal while someone else will pay for it. However, who prevails by means of standover methods will ultimately fail by the same methods. Buying support and making the disenfranchised pay for it builds a growing store of resistance which can not be ameliorated. Creating money from thin political air is self-defeating. The people who do the essential productive work will eventually get heartily sick of being short-changed and, if replaced with cheap labour from outside the EU, will reject being disposed of. The latter item is the most crucial from a democratic perspective. As political, financial and exonomic power is increasingly concentrated in the hands of those in control, and those in control set about disposing of the also-ran in the democracies, the disposables soon realise they have everything to lose by not taking action and nothing to lose by taking action in any way which takes their fancy.
    Presumably, the Establishment has plans, and engineering a final show-down crisis must be part of that plan, if the behaviour of the EU nation-states’ elites and EU elite the last few decades is any guide.
    When the peoples in the EU member states start pushing back, we’ll find out for certain what the EU federalisation project leaders are about.

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