Economists agree that countries should only have a monetary union if there is also a fiscal, economic, and political union. If you have a single currency, governments cannot print money to cover their debts, nor can they devalue their currency to regain competitiveness. Arguably, the EMU and European Union are unions with economic, political, and even fiscal elements. They, however, miserably fail to offer the necessary mechanisms to compensate for not having monetary sovereignty.
In 1971 Nicholas Kandor warned us already about the consequences:
Some day the nations of Europe may be ready to merge their national identities and create a new European Union – the United States of Europe. If and when they do, a European Government will take over all the functions which the Federal government now provides in the U.S., or in Canada or Australia. This will involve the creation of a “full economic and monetary union”. But it is a dangerous error to believe that monetary and economic union can precede a political union or that it will act (in the words of the Werner report) “as a leaven for the evolvement of a political union which in the long run it will in any case be unable to do without”.
Economists thus tell us that Eurozone countries need to unite politically or abandon the Euro. It is quite as simple as that. Politicians have tried for years and years to find ways around this simple rule, but in vain. The question of whether we should have a common currency, the Euro, should include the question whether people find themselves to be foremost European on the one hand, or German, Italian, Dutch, Finnish, or Spanish on the other.
I am afraid that this really is a dichotomy. You can, of course, find yourself to be European and German or Spanish. But in transnational political and fiscal debates, you need to make a choice. What has precedence, the European case, or the national one? Do we want our chosen democratic leaders to be national or European, should they be in Berlin, Rome, and Paris, or in Brussels and Frankfurt?
This is a fundamental question that many politicians and scientists have never really asked the European peoples. They used historic and economic arguments to further the case of European integration. It is, however, only when the peoples of Europe support the idea of a political union, that the Euro can finally turn into the secure and stable currency we all want it to be.
Lessons from Africa
Policy-makers have answered the question whether we feel European or not for us as they drew the borders of the Eurozone. The Greeks, Germans, French, Irish, Estonians, and so many more have been pushed and tricked into an economic and monetary scheme that needs a political union to work properly.
Conceptually, it is not that different from what happened in colonial Africa. European leaders have considered pieces of land and decided that certain peoples, with an extremely different historical and cultural background, should live together within the same borders, without asking the question whether the people actually want this. We all know how that worked out. People will not throw aside their identities and grudges – they will rebel, if they feel they have no other choice.
The lesson should not be to abandon the European project. I have seen such messages on my Facebook timeline: Don’t let Greece exit the Euro, because it would destroy the European project. There is so much more in Europe than only the Euro. The Euro is just one issue in a wide range of European policies that are here to stay – it just happens to be one that has a big impact, in particular if you don’t understand how currencies work.
The lesson should be to listen to the European peoples. Even if they answer that they are not foremost European, this does not mean that European integration should be halted or undone, at all. Working together in military, economic, social, or monetary matters can perfectly be in the self-interest of the individual countries. We should, however, not push for a European political union when the peoples of Europe are not ready for it.
Because if we do, it could only take one strong, regional populist leader to blow up the entire project. Nicholas Kaldor therefore said already back in 1971 that pushing for an economic and monetary union might paradoxically destroy the European project:
For if the creation of a monetary union and Community control over national budgets generates pressures which lead to a breakdown of the whole system it will prevent the development of a political union, not promote it.
Update 28 July 2015: This blogpost has been published by The Post Online