One of the most well used arguments to criticize anything that directly or indirectly relates to a dissolution of the Euro (be it Grexit or other assumptions) is that this would significantly weaken the European Union or cause its dissolution. In saying this, those who defend this argument move seamlessly from an analytical finding (a crisis of the Euro or more precisely the Economic and Monetary Union (EMU) would cause a crisis of the EU) to a prescriptive argument: the EU is a “good thing”, we must defend the euro because the latter is the EU’s ultimate defence. In fact, this argument must be deconstructed. We must look at both legal and functional links between the EU and the Euro (EMU / UEM) and discuss the arguments that directly affect the EU.
Europe and Euro zone
The Economy and Monetary Union (the “Eurozone”) is not the EU. This is obvious, but it should be remembered. A number of countries have not or could not join the EMU. Some are “original members” of the European Union. For example, Denmark, which voted no to the Maastricht Treaty, had obtained four derogations, including one on the single currency. This country rejected the euro in a referendum in September 2000. Sweden also rejected the adoption of the euro in a referendum in September 2003. Finally, the UK has a permanent derogation allowing it to not to join the euro area. Moreover, among the new EU members, Bulgaria, Croatia, the Czech Republic and Poland have not indicated any deadline for accession to the eurozone. Hungary hopes to join the euro area at the earliest in 2020, and Romania in 2018. It can therefore perfectly be an EU member without being in the Eurozone. In these conditions, it is not clear why an individual output of the Euro or dissolution of the Eurozone calls into question the European Union.
It is however true that EMU was conceived by some as a federal institution that would gradually be adopted by all EU countries. In fact, two conceptions have clashed since the establishment of EMU. One, defended by French economists (Pisani-Ferry [1] or Aglietta [2]), is that this “Union” would quickly be accompanied by a fiscal union and a social union. That was the vision of Jacques Delors. Another conception has prevailed, however; that of a stability pact with a relatively weak multilateral governance, based on the idea that the task of managing public finances and its economy was up to each government. [3] In reality, governments have been opposed to Delors’ plan for various reasons. The German government because it understood that if EMU brought it considerable benefits by shielding it from currency devaluation by its economic partners and ensuring a lower exchange rate than the Deutschemark, it did not want to enter into the logic of a transfer union. We know that for a currency area to function properly despite the high heterogeneity of the member countries, it is necessary that major financial transfers take place. Other countries, such as France and Italy were also opposed to this integrating vision for essentially political reasons.
The crisis we are experiencing since 2008 has caused a tightening of these positions. Germany is more than ever opposed to a transfer union, but it managed to impose its own logic of managing the Eurozone by the various solidarity ‘pacts’ that have been signed since 2011 [4]. This is what we call the “six pack”. This was consolidated in the TSCG, of Fiscal Compact, signed in 2012 [5], which entered into force on 1 January 2013. These treaties only reinforce the austerity mechanisms imposed on European economies. From this perspective, a EMU (i.e. Euro) exit would invalidate these various treaties, is likely to mean a country exits all the treaties signed since the beginning. But large scale euro exit (or dissolution of the EMU) would end the rules deciding economic policy in the major countries of the EU.
Thus if the Euro is not the EU, what is now called “Euro-austerity”, that is, the set of policies put in place in different countries, is directly related to the Euro. The questioning of the latter necessarily leads to a rethinking of these policies.
Dissolve the Euro, dissolve Europe?
A question remains that haunts long-time pro-Europeans: if one dissolves the Euro is there not a risk that the European Union will dissolve too? One can understand where the idea comes from. These former pro-Europeans, or “Euro-realist” as they are sometimes called, acknowledge the mistakes that were made, whether in the design of the Euro or in its implementation. But they add that the obvious remedy might be worse than the disease, in that a dissolution of the Euro might cause an end to the EU. In fact, the question can be put back to them.
Many voices, whether economists or sociologists today say that it is the very existence of the Euro that is jeopardizing the European Union. There are technical texts, such as Stefan Kawalec and Ernest Pytlarczyk [6], or that of Brigitte Granville and HO Henkel [7], or that of Flassbeck and Lapavitsas [8]. More recently, Stefano Fassina, an Italian economist from the Democratic Party (the party of PM Renzi) and former Deputy Minister for the Economy and Finance in the Letta government, has crossed the Rubicon. [9] Similarly Wolfgang Streeck, a sociologist and economist published in Le Monde a long opinion piece indicating that Europe should abandon the single currency [10] Streeck shows that when Mrs. Merkel said, “If the euro fails, Europe fails,” she is not just defending the position of Germany. She also expresses the fear of German elites to be yet again accused of “breaking up Europe” as was the case in 1914 and 1939.
We often see intellectually distressing formulas such as “Euro represents peace on the European continent” or “the Euro is Europe.” These are insults to the intelligence that show a disregard for history and realities. Peace on the European continent at first is only partial. Take the Balkans. But if peace is again well established in Western Europe, it is due to the combination of two facts, nuclear deterrence and the Franco-German reconciliation, itself a product of the work that the Germans have done on their own history. None of this is linked to the Euro. Also, do not forget that the 27 countries of the European Union only some of them of them are part of the Euro zone. Once we cast aside these untruths, we can try dispassionately to analyse the issue of cooperation and conflict.
Cooperation or coordination?
Monetary union is presented as a breakthrough in the way European states co-operate with each other, which it is unquestionably. But it is not sustainable in its current form. The countries of the euro zone are very far from being an “optimum currency area”, whatever the meaning we give to this notion. The structural differences between the economies within it, which were already large at the outset, have actually increased since 2002-2003. It would take a considerable fiscal effort from the richer members to harmonize this area. Maintening the Euro is a policy that carries with it the ingredients for a revival of the Franco-German conflict but also the various intra-European conflicts. Instead, an exit from the euro, be it for France or Germany or the relations between Germany and other countries (Greece, Italy), would improve these relationships.
We often tend to be confused about cooperation. It is a question of two distinct concepts. The first is a conscious desire of both parties to achieve a common result. The second is that the effects of the policy pursued separately by each actor can achieve this common result. Cooperation, if it touches on fundamental questions, involves the phasing of political cycles in a number of countries, a very rare occurrence. It is possible for a small number of countries with a high degree of homogeneity. Coordination is, in turn, based on much smaller presuppositions. It assumes that a country reacts to the actions of another, and that the action in response, through largely implicit mechanisms, could achieve a common goal.
Finding coordination again means we need to stop dreaming about an impossible cooperation. The will to cooperate is not enough. It is also necessary that the circumstances and that the balance of power is right. However, a country – Germany – is benefitting too much from the current situation to want to change it. But the desire to cooperate can also raise barriers to possible and immediate policies of cooperation.
In fact, the obsession with defending the euro is leading to a process that will make European Union rip apart. This process was described almost 3 years in the book I wrote, Faut-il sortir de l’Euro ? (Should we leave the Euro?) [11] We must take the measure of what it entails. The longer we remain prisoners of the Euro and more violent the shocks accompanying the Euro exit will be. The risk of a new European conflict grows each passing month. If we are to preserve peace in Europe we must dissolve the Euro.
Notes
[1] Jean Pisani-Ferry, Le réveil des démons (La crise de l’euro et comment nous en sortir), Fayard, 2011
[2] Michel Aglietta, Zone Euro (éclatement ou fédération), Michalon, 2012
[3] Jérôme Vignon, « Trois visions pour un gouvernement économique de l’Europe », La Croix, 23 février 2010
[4] Declaration of Heads of State and Government of the euro area, 25 March (http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/fr/ec/113564.pdf ); Traité instituant le mécanisme européen de stabilité, 11 juillet 2011, http://www.eurozone.europa.eu/media/582863/06-tesm2.fr12.pdf
[5] Voir « Traité sur la stabilité, la coordination et la gouvernance au sein de l’Union économique et monétaire », http://www.senat.fr/cra/s20121011/s20121011_mono.html
[6] Kawalec S., et Pytlarczyk E., « How to Contain Risks Throughout the Process of the Eurozone Dismantlement and Rebuild Confidence in the Future of the European Union», May 2013, Paper for 10th EUROFRAME Conference on Economic Policy Issues in the European Union
[7] Granville, B., H.‐O. Henkel and S. Kawalec, ‘Save Europe: Split the Euro’, Bloomberg View, 15 May 2013. http://www.bloomberg.com/news/2013‐05‐14/save‐europe‐split‐the‐euro.html
[8] Flassbec H, Lapavitsas C., « The systemic crisis of the euro – true causes and effective therapies», Rosa Luxemburg Stiftung, May 2013.
[9] http://www.lastampa.it/2015/02/24/multimedia/italia/fassina-pdla-grecia-esca-dalleuro-q93wq2qG2AlhCuZLRC5FkM/pagi et
http://ideecontroluce.it/liceberg-e-sempre-piu-vicino/
[10] Streeck W., « L’Europe doit abandonner la monnaie unique », Le Monde, March 3 2015, p. 16.
[11] Sapir J., Faut-il sortir de l’Euro, La Seuil, Paris, 2012.
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