American view of the European Project

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Why do Americans have such a dismal view of the European project?  Many American commentators believe that: the common European currency does more harm than good; that it would be better if the Euro was abandoned and Europe returned to national currencies; and that the whole European project is ill-conceived.  The latest comment to remind me of this pessimistic American view of European unity is from Joseph Stiglitz.  He is quoted in the AFR on Tuesday as saying that the Euro is “an experiment that may be faltering”.  Further, “It is perhaps better to admit failure and move on than to extract a high price in unemployment and human suffering.”

It seems to me that the common currency is working quite nicely for Europe.  Without the Euro the Greek Government would not be forced to face up to its structural problems in the Greek economy.  Instead, Greece could devalue its currency and continue on its road to ruin.  The integration of the PIIGS into the financial and political system of Europe is forcing them to take tough measures that will be highly beneficial in the long run.   Because they share the same currency as Germany they are being forced to become a bit more like Germany.  That will be good for them.

A common currency in the absence of labour mobility caused dislocation.  Stiglitz and other American’s think the solution is to give up on the Euro.  Why not stick with the Euro and wait for labour mobility to evolve?  Why don’t Greeks move to Germany to work?  Principally because of cultural impediments and lack of skills, especially language skills.  Moving towards political union in Europe is the process of breaking down those barriers and the common currency helps in that process.

It is easy to forget how young the European project is.  It began in the decade after WWII and it is more or less only 55 years old.  A mere two generations.  That is not long when we consider how far Europe has moved toward integration.  The people of Europe in rejecting proposed European Constitution have said enough integration for now.  I think that is wise.  The economic integration of Europe needs time to evolve and become deeper before any greater political integration can take place.

Perhaps American commentators don’t understand the real purpose of the European project.  It is in essence political rather than economic.  It is intended to end conflict in Europe, and especially conflict and tension between France and Germany which had riven Europe in one way or another from the late 10th Century until 1945.  The American urging of Europe to admit Turkey I think shows the shallowness of their thinking on Europe.  Turkey has as much chance of becoming the 51st state as it has of joining Europe.

Americans should ease up on Europe.  They helped to lay the ground for the European project with the reconstruction of Europe and rearming of Germany.  They should be proud of that.  I bet that Americans will be grateful for a unified, strong and outward looking Europe before this century has run its course.

4 Responses to "American view of the European Project"
  1. Why must we conflate the entirety of the European Project, the European Union and increasing cultural ties and economic mobility with a common currency. It is very easy to criticise the Eurozone for not being suitable for a common currency whilst applauding the rest of the project. It’s absurd to say that critics may not understand that the purpose is political when all the critics I can recall have made exactly that point – that the common currency’s economic justifications were figleafs for the political project.
    The downsides to a common currency over an area as currently unsuited as Europe are obviously significant and well described, so lets look at the upsides you argue for.
    Is the common currency actively working towards cultural union (as in a union that prevents conflict and promotes solidarity)? Well what are the counterfactuals and other examples by which we could judge this? Are the Eurozone countries now coming together at a greater rate than they are with non Eurozone countries (UK, Norway etc.) which are still identifiably part of Western Europe? These countries were somewhat standoffish before the Euro, but has their relative standoffishness increased by not having Euros in their wallets? On historical examples, did the currencies of the Soviet Union and Yugoslavia (and then Serbia and Montenegro) act as a counter to the forces that ripped them apart? Are the integrally interlinked economies of say, the Great Lakes, who have a free trade zone being divided in a way that would not exist with a common currency. Would hostility towards Mexican migrants in the US be lessened if there was a Peso-dollar? America has been to war with both it’s neighbours remember. Would China have more success stemming resentment in Hong Kong if they expanded the Yuan zone?
    All these are possible, but I can’t see the evidence for them. In light of this, the idea that a common currency is promoting solidarity in a way that the rest of the project (which I still stress does not necessitate the Euro) does not, whilst possible, is too tenuous an argument against the massive downsides.
    So does the sheer existence of the Eurozone in itself act to increase mobility and make the zone more appropriate as a currency zone? Since the costs of doing business between currencies has massively fallen because of electronics etc. I don’t see that this can help much either. Labour mobility is high between Canada and the US despite seperate currencies. They are similar cultures obviously. Is the divide that prevents mobility between, say, Ireland and Germany falling at a quicker rate than say, the UK and Germany. I can’t see that, so why should we believe that Greeks are becoming more able and likely to move to Germany in a way that they would not without the Euro (whilst under the EU).
    So we come to the idea that the Euro can force reform on Greece. Faith in the currency and the implicit guarantee by the rest of the debt may have delayed tough decisions, but there is still the chance it would allow German institutional process to be imposed on Greece. This makes more sense, but is a quite interesting argument. In effect, by giving up their monetary sovereignty, the Greeks are giving up significant political sovereignty to a country with better politicians. Maybe this a good deal form them considering the quality of governance in Greece, but it is a form of paternalist justification on it’s own. Not the white man’s burden, since they’re all white. The sausage eaters burden.
    I am very puzzled by the paragraph second last paragraph. France and Germany have had 1000 years of wars and diplomatic exchange, so they belong in the project in a way that Turkey obviously doesn’t. Why? Is the mere 600 years of war an diplomatic exchange (more if we accept Byzantium as Europe, and we accept Greece) not long enough? Is there a cut off mark saying “you must have been fighting us for at least 800 years”?
     
    By all means, three cheers for European unity. Three cheers for the EU. Three cheers for the project. By that fashion, three cheers for growing ties in North America. Three cheers for increased ties between New Zealand and Australia and Asia.
     
    But none of this necessitates a common currency. Whatever hypothetical power it has as a symbol of union seems greatly overwhelmed by the considerably downsides. Other methods and forces are promoting unity with far less drawbacks and demonstrable success.

  2. There is no way the common currency could be described as a success.

    Current unemployment:

    Spain – 20.5%
    Greece – 12.2%
    Portugal – 10.7%
    Ireland – 13.9%

    Source: Eurostat

    Saying Greeks should move to Germany to work misses the point entirely.

  3. Some thoughts spring to mind:

    1. Political integration by stealth via a common currency (monetary) policy. I haven’t kept up with national opinion polls, but i believe that not one EU nation has a popular majority who considers themselves European first and their nationality second. Fail #1.

    2. Having a common currency without having a common (and enforceable) fiscal policy. The debt and deficit rules were openly flouted by France and Germany prior to the southern European national economies going pear-shaped during the GFC. Fail #2.

    3. Moral Hazard (extension of points 1 & 2). Once the lesser nations joined the EU, benefiting from EU central bank credibility (low inflation, relatively lower interest rates) without having to really make any ongoing structural fiscal adjustments, in lieu of any strong oversight on national governments – everybody went along for the ride. Waiting for the GFC as an incentive to fix things seems backwards when the problems were apparent prior to this. Fail #3.

    4. “Gold Standard” constraint by proxy. Germany ended up doing very well out post-GFC. For giving up their Deutsche Mark, they have a majority of EU countries that cannot competitively devalue against the German economy. Pass #1 (for the German state)/Fail #4 for the rest of the EU nations within the common currency.

    The UK was hit by the GFC pretty hard and Sweden less so, but both those nations appear to be benefiting (recovering quickly) from controlling their own monetary policy.

    5. Free movement of goods and people, with caveats. Pass #2

    If the European project means further political integration along the lines of a United States of Europe I believe it will end in failure. Big nation politics and agendas between France and Germany and the UK will see to that.

    If the European project means fixing up the monetary and fiscal framework such that greater wealth can be created (rather than merely transferred) then they will achieve long-term success. That may lead to better coordination politically.

    I might be too critical, however I’m happy for a rebuttal.

  4. What Richard Green said (albeit at too much length).  You can support the European Project as a whole while thinking individual parts of it were ill-timed and ill-done.

    But I am intrigued by the bit about “Without the Euro … Greece could devalue its currency and continue on its road to ruin.”  As Paul Krugman keeps saying economic policy is not a morality play – we should be pragmatic, not religious, about these questions. If the Greeks are willing pay for their party of the last 20 years by continuously devaluing their currency (and so gradually reducing their standard of living), how is that somehow a worse outcome than being enabled to live in a fool’s paradise for that time (through the Euro) and then suddenly having a discontinuous and painful adjustment forced on them? 

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