Saturday, January 15, 2011

Monnet's Legacy, Europe's Nightmare

"The countries of Europe are not strong enough individually to be able to guarantee prosperity and social development for their peoples. The States of Europe must therefore form a federation or a European entity that would make them into a common economic unit.”

Jean Monnet, Chief Architect of European Unity, addressing the National Liberation Committee in Algiers.
"Europe is an economic giant, a political dwarf, and, even worse, a worm until it concerns itself with elaborating a defence capability."

Mark Eskyns' (then Belgium's Foreign Minister) frustration concerning the European Union's ("EU's") lack of responsiveness during the First Persian Gulf War.


"I trust that the ESRB (European Systemic Risk Board) will introduce a new policy function at the EU level with great potential for enhancing the ability of European and national authorities to safeguard the stability of the EU financial system as a whole."

Jean-Claude Trichet, ECB President, at the Quarterly Hearing before the Committee on Economic and Monetary Affairs of the European Parliament amid the sovereign debt crises befalling the Eurozone's peripheral nations, Portugal, Ireland, Italy, Greece and Spain (referred to pejoratively as the "PIIGS").


"This moment is a turning point for Emu, and for the future of Europe. Most observers point to the high risks – which cannot be denied."

Otmar Issing, president of the Centre for Financial Studies and a former member of the ECB's executive board, writing in the Financial Times (Feb. 15, 2011) that "Europe cannot afford to save Greece."

Where does Europe -- and for the sake of brevity Europe refers nominally to European monetary union ("Emu" aka the "Euro zone") -- go from here? Euro skeptics have warned that the idea of a single European currency was at best a fanciful experiment in idealism and at worst doomed for failure amongst a people -- Europeans -- who could not agree on anything, let alone questions such as:
  • who are the greatest European leaders, thinkers, and artists?

  • what are the most important ideas emanating from the continent?

  • which are the significant monuments exemplifying European identity?
Surely there would be a short-list of answers forthcoming to all but the most casual and vacuous observers who live on a diet of thoughtless reality television? No -- for the real-life experiment that is the Eurozone, and the disconnected bureaucrats in Brussels who are its modern architects -- these are seemingly insurmountable questions that have no readily available answers. The designs on Euro banknotes are a manifestation of this predicament and symbolic of Europe's monetary union fallacy:
Owing to the ubiquity of countless historic bridges, arches, and gateways throughout the continent, all the structures represented on the banknotes are entirely fictional syntheses of the relevant architectural styles, merely designed to evoke the landmarks within the EU.
From Jean Monnet's exhortation for a united Europe to Otmar Issing's warning of moral hazard in the bailouts of profligate states, the idea of a Europe united has been laudable but the concept of monetary union within that framework has been flawed: history will judge it to be an experiment in the audacity of hope over pragmatism which happily put the political cart before the economic horse.[1]
It is precisely economics and not an over-riding political philosophy of a greater "United States of Europe" that attracted individual nation states to clamor for entry into the old EEC (European Economic Community).[2]
However, the current EU has four times the membership of the original EEC -- Estonia joined earlier this year and is one of the many Eastern European members that are interested in market access rather than a the supra-nationalism proposed by the Western European elites.
Nationalism lives: Europeans identify their nation state as the focus of their allegiance and under the EU structure, the European Parliament's powers remain limited but growing in the aftermath of the global financial crisis. Moreover, the average citizen is disconnected to the policies and rhetoric emanating from the European elites -- consider the abject failure in ratifying the European Constitution -- who are bent upon strengthening integration.
The currency crisis befalling the euro will not stop -- the common currency remains significantly overvalued. The solutions proposed to provide assurance to financial markets are nothing but modern day political legerdemain masquerading as financial panacea -- the European Financial Stability Facility (EFSF) comes immediately to mind -- and the strengthening of the euro as a result of ECB President Trichet's posturing and forewarning about the central bank's intention to aggressively tackle possible inflation are nothing but short-term band aids to a chronic predicament.
Europe's leaders have let down their citizens: they have not had the will in the past to put their fiscal houses in order and now as card carrying members of a neo-liberal globalized economic system where capital flows reign supreme in search for the highest return at the lowest cost, they are wholly incapable of restructuring for the future in an honest manner.
The citizens of Eurozone member states in particular will wake up eventually to a new reality: one where the current and next working generation must toil significantly harder than the generation that is currently on the throes of retiring albeit with reduced benefits; they will do more for less. And, to complicate matters, the peripheral nations states either requiring or being forced to take economic assistance courtesy of EU-IMF pressure will lose their sovereignty. The Irish understand this already; look for the new Irish government to restructure the terms of Ireland's financial sector bailout and for more selling pressure against the euro this spring.

This entry focused on the political folly of monetary union within the EU -- an exercise in hubris by the integrationists in Brussels -- and the contention that nation states (particularly the junior or more indebted members) must give up sovereignty in order to remain long term EU members. The future solutions -- ignoring outright default -- will be done on the backs of the working people who have little knowledge of policy and utter ignorance in terms of the costs of their entitlements to their government's fiscal positions which are now beholden to capital flows.

The next entry shall focus on the idea of monetary union in general and why conventional wisdom during one period does not necessarily hold when viewed through history's monocle.

[1] Paul Wilkinson has written lucidly on this:"...Political motivation for developing economic integration was the belief that if you could integrate certain key sectors of the economy across national borders you would be able to reduce the war potential of states. The creation of the European Coal and Steel Community (ECSC) in 1951 was a major catalyst in the integration process." International Relations - A Brief Insight, p 199
[2] Recall that the United Kingdom, Ireland and Denmark joined in 1973; Greece in 1981; Portugal and Spain in 1986. The thrust behind every applicant was economic not political.