No euro, no European Union?

The Commission welcomes Estonia into the euro

by Brendan Donnelly

The Lisbon Treaty creates new challenges and new opportunities for the European Union. The enhanced role of national and European Parliaments will make the Union a more democratic and accountable polity; the Union’s institutions will be able to make an enhanced contribution to the physical safety and civil liberties of the Union’s citizens; and the Union’s new External Action Service, combined with the reinforced powers of the Union’s High Representative, may encourage the Union’s members to act more cohesively on the world stage.

None of these pleasing prospects, however, is remotely as important for the Union’s future as a topic on which the Lisbon Treaty has little to say, namely the single European currency. This was an obvious lacuna in the Treaty, caused both by the difficulty of securing agreement at the time for any significant changes in the euro’s governance and the apparently acceptable, if not ideal functioning of the single European currency during most of the first decade of its existence. The events of 2010 have thrown considerable doubt upon the adequacy of euro’s instruments of governance. It remains to be seen whether the Greek and other sovereign debt crises have concentrated minds in the Eurozone in such a way as to make easier than before for national governments to agree on the necessary reform of its institutional structures.  It is no exaggeration to say that the future of the European Union depends upon the achievement of such agreement. The single European currency is the most ambitious manifestation so far of the European integrative project begun by the Schuman Declaration of 1950.  Unless its flaws of design can be rectified, the future of the single currency cannot be guaranteed.  An unstable future for the euro guarantees an unstable future for the European Union, not merely economically, but politically and institutionally as well.

The 60th anniversary of the Schuman Declaration has brought back to the centre of attention its prescient words that Europe will be built “through concrete achievements which first create a de facto solidarity.” That powerful  sentence was itself a successful blueprint for the first fifty years of the European Union’s development. Many of the single European currency’s most enthusiastic original advocates saw the euro precisely in this light, as an overarching concrete achievement which would substantially reinforce the de facto solidarity of the European Union. Some, such as Chancellor Kohl, saw it as marking a qualitative change in the degree of solidarity upon which the Union was based, a degree of solidarity which he saw as being sufficient to make irreversible the integration of the reunited Germany in European institutional structures.

It cannot be said that the history of the single European currency has entirely corresponded to Chancellor Kohl’s hopes.  The euro has been in some measure an integrative tool for the European Union, but it has suffered since its inception from its limited institutional structure, with only the European Central Bank functioning as a genuinely European institution at the level of the Eurozone. When the euro was set up in the early 1990s, national  governments, not least the German government, were eager to retain for themselves the greatest possible autonomy of macro-economic decision-making even within the framework of the Eurozone. The Growth and Stability Pact was their attempt to provide a certain minimal supra-national structure of governance for the Eurozone, without setting up any central institution that could be regarded as a direct competitor with national governments in their responsibility for economic policy-making.  The inadequacies of the Pact as the basis upon which economic policy-making is conducted at the level of the Eurozone was demonstrated in the early years of the twenty first century by the regularity with which its theoretical provisions were set aside; and more recently by cumbrous and uncertain response of the Eurozone to the sovereign debt crisis.

When the sovereign debt crisis began in early 2010, those most mindful of the Schuman Declaration’s predictions hoped and believed that the crisis would lead to a manifestation of enhanced “de facto” solidarity.  Nor have such hopes been entirely disappointed. Faced with the convulsions of the financial markets sparked by the Greek budgetary crisis, the members of the Eurozone eventually showed themselves capable of acting together to confront the most immediate dangers to the financial stability of the Eurozone.   It must however remain questionable how national governments might react to future, possibly even more demanding challenges to the solidarity of the Eurozone.  No objective observer could believe that the Eurozone’s problems have been solved, rather than palliated for the short term. There still remain among the governments of the Eurozone radical differences of opinion as to the future structure of its governance.  Some governments fully understand the intellectual and political tension between the existence of a single European currency on the one hand and the continuation of essentially untrammelled national macro-economic policies on the other. Others, notably the government of the largest member state in the European Union, are reluctant to call into question what they see as the original institutional architecture of the single currency. 

The single European currency is of primordial significance for the future of the European Union because it is the most important field to which until now the Union has tried to apply the powerful prescriptions of the Schuman Declaration;  and it is not yet certain whether this attempt to apply the Declaration’s prescriptions will succeed. It is far from clear whether on balance the single European currency has led to greater “de facto solidarity” among its member states. The ugliness of the public debate in Greece and Germany earlier this year when the Greek sovereign debt crisis was at its height was not an encouraging omen. Against this must be set the eventual realization of the heads of state and government that within a single currency zone, Greece’s problems cannot simply be regarded as the problems of Greece alone. Tardily and perhaps inadequately, the Eurozone’s governments eventually acted in the common interest. “De facto” solidarity within the Eurozone is not dead, but it is certainly less healthy than its well-wishers might hope.

It is clear that that the present governance mechanisms of the Eurozone are only a very imperfect expression of “de facto solidarity.” There is scope for legitimate debate about how these mechanisms might be improved. What cannot be disputed is that they are unsatisfactory, and unsatisfactory precisely because they give inadequate institutional expression to the “de facto solidarity” which ought to be a logical consequence of the “concrete achievement” of the single European currency.   If the euro’s institutional structures remain essentially as they are, then that will represent a definite setback for the dynamic and incremental philosophy of the Schuman Declaration. That philosophy has served the Union well until now. Indeed, it has been the founding and continuing basis on which the whole Union has been constructed. If the member states participating in the single European currency show themselves unable or unwilling to apply the dynamic philosophy of the Declaration to the euro’s future evolution, that will have the most profound and the most damaging consequences for the future of the European Union as a whole. There is no more urgent task than to convince the national leaders of the Union, in whose hands these decisions rest, that the future of the euro depends on their ability to rise above the calls of narrow nationalism and to pursue their enlightened self-interest by creating new and lasting structures for economic action in common rather than separately.  This is the direction in which today’s euro and the Schuman Declaration of sixty years ago ineluctably point.

Brendan Donnelly is director of the Federal Trust.  The opinions expressed here are those of the author and not necessarily those of Federal Union or the Federal Trust.

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