Europe has two big problems. Doubtless one of them is political, or to put it more precisely, it’s in the space of national politics.
The post-national European project has stalled. It has certainly taken us a long way, from warring nation-states to an open community where we feel free and entitled as citizens throughout the continent. We’ve largely lost our national identities, and it may come as a surprise to Americans that we don’t care about our flags. National cultures are cherished as heritage, but not something to be defensive or overly proud of – certainly not something to kill or die for. The nation state was born in Europe in the 1700s and it died in Europe in 1945. Generations of visionary leaders have taken the people of Europe from the aftermath of an existential war to a point where the state is little more than an old-fashioned cultural and administrative unit. It took a lot of paternalism and manipulation to get us here, but on the whole we are grateful. Even the insular British do not prefer to go back to a time of animosity where crossing the border to Germany or France had the significance that entering Israel or Iran has today.
The problem is that after the Maastricht treaty and the introduction of the Euro the post-nationalist transformation has stopped. The Euro obviously came too soon for Europe, but also obviously it was the first of a sequence of bold steps that the then heads of state could not take all at once. Having the Euro is like putting one foot on a moving streetcar, but not climbing on board, instead limping desperately after it with the other foot on the street. The onward steps were very much expected and obvious, but they didn’t come: an elected European presidency; real powers for the European Parliament or some reformed elected chamber; continent-wide taxation, social security, and pension systems; business reform to allow companies to operate across the zone without country subsidiaries; stronger education, development, and technology agencies. None of this happened. The Euro and the ECB were the last post-national institutions that Europe saw.
We haven’t stopped to ask why. Conventional wisdom is that Europeans were so jarred by the Euro that a series of public opinion setbacks killed each further attempt at integration. The public, supposedly backward or dumb, didn’t want to go any further. This is quite untrue – specific and genuine objections sank initiatives at the polls. The people of Europe do want to go forward, but with better proposals and not by being steamrollered. Another idea is that the dinosaur leaders of European states would not move to create the post-national sovereign institutions that would marginalize them. But this is easily refuted by ambition: create the top EU posts and the strongest political figures from around the continent will compete for them.
The national leaders talk of further European integration as if it was an identity issue. In a sense it is. We’ve successfully undone our national identities and partly our nation states and need to invent a new post-national identity and structure, the first in the world that isn’t an empire. This is difficult and uncertain, but importantly it is not urgent. Claiming that we have to have political union before we can build the institutions is circular logic. First, we need to build the institutions. We need to continue the process of building them that stalled in the 1990s. Once the post-national institutions exist, the post-national identity, polity, and finally state will follow.
So these are not the reasons the European post-national project has stalled. The true reason is that the Euro did not, if fact, work. It brought inflation instead of price stability, austerity instead of prosperity, and weakness instead of might. Europeans are not against the idea of the Euro but have been severely disappointed with its actual failings to date. That is why the public largely oppose further integration. As for the reason the Euro did not deliver, that brings us to Europe’s second problem.
Europe’s second problem, which is much more acute, is that the creation of the Euro and the ECB have not transferred authority from nation states to a post-national political entity in the making. Covertly and without the consent of European people, these were transfers of power from national governments to capital. The Euro is by definition a pro-capital device, and that much was conceded. It exists to favor business at a larger scale and bring a scaling up of European business that benefits the economy. The ECB, however, hasn’t been constructed as a super-national central bank. It’s not like the US Fed. The ECB is set up, and acts, not as a government institution but as a private inter-bank bank, sort of a BIS of European commercial banks. Here are the important differences:
- A central bank, even if nominally independent, is politically under control of its government. The boss of the ECB acts like the high representative of the EU banking industry, dictating its terms to governments. Thus the ECB pursues tight monetary policy, the choice of capital, as opposed to a loose expansionary policy that politicians and the public would prefer.
- A central bank guarantees to convert government debt into currency as a last resort, and thus makes state bankruptcy and default impossible in nominal terms. Ongoing state deficits are merely a tradeoff between highly liquid but inflationary cash and less liquid, less inflationary bonds. The ECB refuses to serve this function. This takes monetary powers away from governments and into the hands of capital: The ECB won’t create money to save states from bankruptcy, but forces them to run a real surplus like businesses. The ECB will create money for commercial banks, so that they are immune from bankruptcy and can expand their assets without the constraints of being solvent in real terms.
- Expanding the money supply grants a redistribution of real income to the currency issuer. Monetary expansion to match real growth allows an inflation-free transfer called seigniorage, and expansion beyond that is a hidden inflation tax. A central bank can let these benefits accrue directly to the state budget, or grant them to a favored sector of the economy as free capital. The ECB dictates that this free capital is only for the banks. Banks get free unlimited capital from the ECB and lend it on to states at “market” rates, causing a massive real transfer from taxpayers to capital.
These are grievous failings of the Euro and the ECB in actuality. They are not failings of the idea of a single currency, which is sound. They represent blatant capture of a key government function, probably the key function, by big financial capital. Thus we have the spectacle of the most powerful national leader of the EU, Merkel, preaching anachronistic policies and ideas about money: Treating the Euro as a hard currency outside government control, as if Europe was on the gold standard. Forgoing all monetary tools to effect real transfers, such as debt pooling and moderate inflation, and then complaining that nominal tax-and-grant transfers are too politically difficult. These policies sound dumb and anachronistic because they are the result of handing over modern monetary powers entirely to banks, leaving governments stuck in a financial 1930s. If this is allowed to continue, Europe will take the libertarian rather than the democratic path to the post-national era.
You could argue that this is a symptom of the democratic deficit in Europe, or the lack of competent post-national political authority. But this, I think, clouds the issue. What happened is not institutional weakness or political impasse but blatant, selling out, capture. This needs to be reversed, first, before any further european integration takes place. European heads of state may act like a travelling circus, going from one capital to another every six months for their meetings, but the circus is perfectly capable of governing and implementing policy. What is needed is to bring the ECB firmly and immediately back under the control of the Eurozone heads of state, so that its monetary powers can serve real growth and prosperity rather than divergence and capital concentration.
So these are Europe’s two problems. The second is more urgent. We don’t need a European superstate tomorrow, and neither do we need to abandon the post-national ideal. We need to stop talking about Germany vs. periphery and start talking about seizing the Euro out of the hands of capital and back onto democratic control. We need to do that first, then politically punish the leaders and parties who foisted the capture upon us, and finally move on with the formation of democratic post-national institutions and identity.