The Euro Saved — or Not?
How Europe has sacrificed prosperity to “unity” — and how it can stop.


John O’Sullivan

Restructuring the euro so as to place these countries outside it — and thus able to adjust their economies by allowing their currencies to fall — would be painful too. But it would be pain with a time limit. As the Mezzogiorno has shown, the time limit for ending the pain of restructuring these economies while keeping them within the euro is — appropriately enough — the Greek kalends.

The second criticism is that the policy is an expression of institutionalized historicism. Admirers of Karl Popper will recall his criticism of historicism as an impoverished theory. It replaces serious debate about policy choices with a defeatist accommodation to some supposed inevitability. As Keynes remarked, however, “The unexpected always happens; the inevitable, never.”

In this case the policy reflects a determination never to retreat from a previous advance toward the “ever closer union” of the European Union promised in the treaties. This myth of inevitability is the very definition of historicism. And the statements of European leaders on the euro repeatedly endorse it. One might have thought that Europe had already suffered quite enough from the politics of historical inevitability in the 20th century. What purpose does it serve on this occasion? Not prosperity or economic welfare — they are to be sacrificed in order to ensure that the inevitable actually happens. As an old-fashioned Anglo-Saxon empiricist, I find this exchange of real wealth for the fool’s gold of political prestige simply silly. But apparently I lack idealism.

The third criticism is that this policy is incompatible with democracy. The remedies embodied in the fiscal union essentially entail promises by the governments of nation-states to keep their structural deficits within agreed limits and to submit their budgets for approval to Brussels before presenting them to their national parliaments. How will this work in practice? Let’s look, for instance, at Ruritania. If the Ruritanian budget is presented to Brussels and passes with distinction, not a great deal happens. If the budget is disallowed by Brussels, however, will the parliament be able to proceed with it? Or will the government feel it cannot proceed even if it retains a residual right to do so? And what if the budget reflects a wider set of government economic priorities that has just been endorsed by the voters in a general election? In each of these examples the EU has intervened, perhaps decisively, in Ruritanian domestic politics.

We can sum it up as follows: If the Ruritanian budget does not need to be approved by Brussels, then the fiscal union rests on the same shaky foundations as the 1997 Stability and Growth Pact. If it does, then the sovereign power in Ruritania is the EU — and Ruritania has ceased to be governed democratically in fiscal matters (which are 90 percent of politics). That is altered not in the slightest by the fact that Ruritania might be represented on the Brussels decision-making committee. Nor can it be seriously argued that Ruritania would be sharing in “pooled sovereignty” or “shared sovereignty” with its European Union partners. Shared sovereignty creates a new sovereign power, namely the EU, and therefore deprives the previous sovereign power, namely Ruritania, of its authority. All assurances to the contrary are bogus.

But perhaps the point is best explained metaphorically: A bachelor is a sovereign power; a married man enjoys the benefits of “shared sovereignty.” Married men will know what I mean. And the conclusion follows that the Ruritanian people have lost their democratic rights to control their government on economics.

The fourth criticism is that there is no guarantee that the policy can actually be implemented successfully. Married men, I’m told, sometimes break their marriage vows, because there is no guaranteed way of holding them to their word. Similarly a government may agree to submit its budget for approval, but how will the EU enforce a judgment that the government or the electorate rejects? That is the weakness of fiscal union from the joint standpoint of Brussels, Paris, and Berlin. The behavior of the Greek government over the last few months illustrates the point.

All the major Greek political parties signed on to a Memorandum of Understanding (MOU) with the northern-European troika that imposed heavy spending cuts on the country. There followed a crisis and an election in which a new party, the Coalition of the Radical Left, broke through on the basis of rejecting the memorandum. That led to a further crisis and a new election, in which the Radical Left party was narrowly defeated by parties that had agreed to support the memorandum. But the creation of a government that will carry through that program is proving difficult. Earlier this week the finance minister resigned even before he was sworn in. The new government is demanding changes in the MOU from the IMF and the EU. (We’re facing a dictatorship of acronyms.) And the likelihood is that another election will have to be held before long because there is simply not enough popular support for the policies outlined in the memorandum. Governments in democracies cannot simply impose unpopular policies on their voters. They are even less able to do so when the policies are imposed on them from outside. And when they attempt to do so, they sow dragon’s teeth in the form of extreme populist movements that promise to reject what the orthodox democratic parties have accepted.


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