Unfinished business: reforming the Economic and Monetary Union

Europe’s citizens must put pressure on their leaders to reform the Eurozone – before the next crisis hits

Peter VerovsekThe crisis of the Eurozone, which began in 2010, was part of a global economic downturn. Its effects were felt across Europe but had the biggest impact among the member-states of the European Union (EU) that share the Euro.  This was due in large part to the incomplete institutional architecture of Europe’s Economic and Monetary Union (EMU), which created a joint currency without its own treasury and a common market without shared economic governance. Additionally, the inability of the member-states to devaluate their currencies meant that they faced the risk of sovereign default. As a result, the southern states were coerced into adopting austerity, while members in the north were forced to fund successive bailouts, increasing distrust between north and south, between creditor and debtor.

A full ten years after the start of the so-called Great Recession, there finally seems to be light at the end of the tunnel. Growth in the Eurozone is up and the unemployment rate is falling. However, despite predictions of a ‘golden decade’ for the Eurozone, now is not the time for complacency. While economic growth may solve the immediate problems of the Eurozone, the deficiencies of the Maastricht model – named after the treaty that laid the legal and institutional foundations for the euro – have not been resolved.

Luckily, there is hope on the political front as well. A year ago in the aftermath of the Brexit vote in the UK and the surging economic nationalism of Marine Le Pen in France, there seemed to be little chance of reforming the basic structure of the EMU.  However, with the victory of Emmanuel Macron, an enthusiastic European whose reform agenda was confirmed by a landslide legislative win for his En marche movement, the Franco-German motor of European integration is sputtering back to life. Even Brexit, which promises to remove British obstruction of European efforts at reform, is increasingly seen as an opportunity, at least from the perspective of the continent.

The question is, where will the intellectual and motivational resources for this revival come from? From the start there has been little question about what is necessary to fix the flaws in the construction of the common currency.  Christine Lagarde, the head of the International Monetary Fund, which helped finance the European rescue measures, made it clear from the start that the Eurozone had to ‘get done with the union. Make sure you have a banking union, down the road fiscal union, and that you keep that currency zone together and solid’. However, in the course of the crisis the desire to protect national interests has clashed with the supra-national imperatives of the economic system.  As Jürgen Habermas has observed, Europe was caught in the horns of a ‘dilemma between, on the one side, the economic policies required to preserve the euro and, on the other, the political steps to closer integration’.

Fixing the problems in the institutional architecture of the Eurozone will require the citizens of the EU to expand their conception of the politically possible so that it subsumes the economically necessary.  Commentators seeking to spur this process along have imposed external standards of critique to show that it is in the interests of the citizens of Europe to accept the steps needed to make EMU into a political union. They usually assume greater material welfare as the goal of the EU and then show how this could be achieved through deeper integration.

Unfortunately, these external arguments have proved unconvincing. To understand why necessitates a switch from external to internal criticism.  Instead of seeking an objective Archimedean point to explain and resolve an ongoing crisis, the method of immanent critique borrowed from political theory seeks to show how contemporary social structures are inadequate in terms of their own stated goals.

The project of EMU was originally designed to limit the economic and political influence of a reunified Germany by replacing the continent’s dominant currency and central bank – the German Deutschmark and Bundesbank – with equivalents under joint European control.  The actualization of EMU has failed spectacularly in fulfilling these goals. Instead of limiting German power, the introduction of the euro turned Germany into Europe’s ‘reluctant hegemon’, a position neither it nor the rest of the member states want.

While the crisis has uncovered the structural deficiencies of the EMU and the responses to it, including the tentative steps towards a banking union as well as greater economic coordination, have set the Eurozone on the path to a de facto political union.  Although these changes have sought to do the bare minimum necessary to hold the system together, the development of EMU since 2010 has been astonishing, especially by the slow-moving standards of the EU.  This push is not the result of Hegelian Geist or other mysterious forces. On the contrary, it is a product of the endogenous commitment of the Eurozone states of both the north and the south to the Euro.

Without delving too deeply into all of the Eurozone rescue packages, the general pattern of crisis management shows that the leaders of the northern creditor states have repeatedly been forced to take up measures they had previously assured their constituents that they would never agree to. German Chancellor Angela Merkel, who Der Spiegel dubbed the ‘master of crossing red lines’, is the most glaring example of this trend. From the perspective of immanent critique, the developmental pressure exerted on the Eurozone over the last decade has shown that common economic governance, fiscal transfers from richer to poorer regions, and the presence of a lender of last resort are internal to the very idea of a monetary union.

Even if I am right about the internal resources present within the concept of a common currency, there are limits to how far integration can go without developing its own democratic legitimacy. The gradual narrowing of the distance between the economically necessary and the politically possible has left the leaders and the peoples of Europe in what Hegel calls ‘a state of unthinking inertia’. The EU’s increasing tendency to act as a political union must also be complemented by democratic decision-making procedures that resemble a political community as well.

Despite Germany’s hegemonic position, the answer to the question of rule should focus on the citizens of Europe.  This realization is reinforced by the fact that the crisis has caused the EU to impinge on the welfare and fiscal policies of member-states, i.e. upon issues that are of great interest to the citizens of the EU.  Although the crisis has had many negative effects, these transnational economic difficulties have furthered the creation of a continental public sphere, pushing European citizens to discuss issues relating to monetary and political union across national borders through transnational opinion-formation. This process takes two forms, including both the increasing Europeanization of national newspapers as well as the establishment of European media such as Euronews. It has also been pushed forward by social media, which has been used to organize transnational protests against austerity during the crisis of the Eurozone.

Before 2010 the EU was often seen as a technocratic organization that had little effect on daily life. The crisis since then has shattered both of these myths.  It is now clear that the EU is immensely political and has huge effects on the lives of its citizens.  It is still unclear whether the rise of these common debates will engender the kind of social solidarity necessary to promote fiscal policy across borders.

Despite these difficulties, it is important not to fatalistically bow to difficulties, but to reassert the hope that the agitation of active European citizens unsatisfied with the status quo – as all in both the north and south seem to be – can make a difference. Ultimately it will be up to citizens to put pressure on their representatives and leaders in EU institutions to ensure that the EMU’s basic structure is fixed before the onset of the next economic crisis.  Although recent developments in both the economic and political spheres give us reason to hope, these hopes must be backed by action if they are to realize their own internal potential.

A longer version of the argument made in this blog can be read in Peter’s recent journal article ‘The Immanent Potential of Economic and Monetary Integration: A Critical Reading of the Eurozone Crisis’ which is published here (open access)