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Monday, April 11, 2005


undermining the eu

marshall auerback at prudent bear bemoans not the death of the stability and growth pact, but the refusal to replace it with any limitation at all.

However laudable the goal of fiscal flexibility may be, replacing it with the economic equivalent of pabulum is surely not a serious alternative. Given the existence of a single currency, it means that virtuous countries, which have hitherto run balanced budgets and kept their spending patterns in check, are inexorably lumped together with the profligates, so that any sanction imposed by the capital markets, (such as the demand for higher equilibrating rates to compensate for the deterioration in certain countries’ public finances), punishes all alike. In effect, no incentive exists to pursue responsible fiscal policy because saint and sinner both end up in the equivalent of economic purgatory. This is hardly likely to engender future confidence in the euro project.
auerback goes on to discuss also the liberalizing services directive which spurred the french people's and therefore chirac's ire and the constitution (with its increasingly likely refusal in the 29 may french referendum) as symptomatic of a larger european problem.

[All three are] ...symptomatic of the misconceived manner in which the whole European project has been carried out over the past decade. If the EU and, by extension, the euro, are to survive in anything like the current incarnation, the multi-speed, much-derided British vision of a “Europe a la carte” (a structure whose flexibility embodies the existing divergences within the union, both economically and culturally), must be embraced as the ultimate policy solution, not the “one size fits all” principle now underlying the Union as a whole.
auerback sees growing popular anti-eu sentiment, which has driven the growth of rightwing extremism across the continent, as consequent of this aggressive centralization to an universal and distant authority -- and, also, the deflationary effect in wealthy nations (like france and germany) of a european central bank as wages and monetary policy normalize across europe without a currency exchange-rate system as buffer.

Far from the EU being the project to ensure that fascist or communist dictatorships never occur again in Europe, structures such as an institutionally independent central bank not subject to the same kinds of public scrutiny as America’s Federal Reserve or the Bank of England, or the recently junked Stability and Growth Pact – which had hitherto effectively curbed all national fiscal independence by setting arbitrary limits on the power to borrow – have generally imparted a deflationary bias to EU economic policy, which in turn has fanned the flames of popular protest, now manifesting itself in the French constitutional referendum.
the result has been a shift for chirac and schroeder to sabotage the services pact and stability pact that they helped author in order to quell the masses and preserve high wages through labor inflexibility/immigration restriction (ie, the high-cost european social model) -- regardless of the potential losses in market share. the economist:

Yet something structural is going on as well: the rise of a new Euroscepticism. In France, a founder member of the European club, this sentiment has in the past belonged largely to the political fringes: the hard left, or Jean-Marie Le Pen's far-right National Front. From a tender age, French voters are taught the virtues of Europe. For political leaders, on left and right alike, Europe has been the means of preserving and projecting French power in a world that was otherwise eroding it. In short, Europe offered comfort: protection from decline; reaffirmation of their social model; the foundation of peace.

This sense of comfort is now falling away. In its place, Europe is increasingly seen as a menace: a destroyer of privileges and a source of new threats.
the weakness of plebiscitarian accountability in the postmodern west is taking its highest profile on this issue -- the wealthy european peoples want a return to comfort that is essentially unhealthy, if not impossible, in the aftermath of the fall of the russian empire. new europe (so-called) is a potentially massive engine of low-cost growth with significant infrastructure, educated citizenry, mobile labor and capital access if only it maintains political stability. germany and france cannot escape the effect of eastern europe's maturation; their leaders must know this, even as their peoples may not.

the entire concept, it seems to me, of a united europe was, from the west's perspective, to harness the power of a developing east and benefit from it. this cannot be accomplished painlessly; the question was whether the western europeans would endure the pains to manifest the goal. increasingly, the answer looks to be 'no'. and european leaders like chirac, their power dependent on the people, are responding by undermining the european union.

the importance of this political climate shift in western europe should not be ignored. decades of postwar leftism may be ending in response to the european political class overreaching its mandate for unification. it may ultimately mean the end of the euro and a united europe -- the historical dream of a reinvented pax romana foiled yet again.

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