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The chaos in world financial markets over the stability of the euro calmed somewhat late last week. But the conditions causing the European Union crisis–the solvency and even creditworthiness of many governments using the euro–are far from resolved, and the next stages may be even more perilous.
Realize first that, from the outset, the “common currency” project was as political as economic. Europeans who wanted an “ever closer union” hoped that creating a currency without a government was an important backdoor way to build the pan-European state they ardently desired.
They believed that the need to coordinate national fiscal policies to keep the euro as strong as the German deutschmark it was replacing would, over time, lead to a consistent EU-wide fiscal policy. As with so many assumptions of the EU integrationists, this proved wildly off the mark.
Instead, member governments hewed to their own fiscal policies–too often spending profligately and increasing their national debts, while avoiding the financial consequences they would’ve encountered had they retained their national currencies. While the spotlight is now on Greece’s parlous fiscal condition, many other EU countries–including some of the largest–have enormous national debts that have been sheltered for years under the euro’s camouflage. This is why the crisis is likely only in its early stages.
With the failures of the euro’s foundational assumptions now exposed to public scrutiny, EU advocates of “ever closer union” are reacting predictably. As in every past EU crisis (political or economic), failure of one integrationist idea inevitably leads them to conclude that the solution is still more integration.
They now seek to correct unilateral national fiscal policies by further concentrating fiscal decision-making at the EU headquarters in Brussels–thus transferring substantial national sovereignty and power under the guise of accountancy. Even non-euro countries like the United Kingdom would be subject to greater budget scrutiny, further proving that the ultimate objective of this proposed “solution” to the euro crisis is more political than economic.
There are, of course, alternatives. Such poor performers as Greece could be evicted from the euro until it has learned its lesson, or it could be allowed to default on its debts and face the consequences. Although these options appear draconian, it is hard to see how they are materially more draconian than the “rescue package” now being imposed on Greece. Watching one of their peers default might actually serve as an example to the next EU dominoes that they need to shape up–and quickly.
Or Germany might conclude it made a bad deal in giving up the deutschmark and withdraw from the euro–perhaps forming a currency union with more “responsible” countries, leaving the spendthrifts to fend for themselves. Given the reaction of German voters in local elections after the Greek bailout, Chancellor Angela Merkel may well decide that she has no further latitude for more bailouts financed by understandably unhappy German taxpayers. German withdrawal would not then be fanciful.
These issues unquestionably affect the United States. The euro’s major proponents saw a common currency as indispensable to making “Europe” an alternative “pole” to America in what they envisaged as a multipolar world after the Soviet empire’s collapse. The hidden agenda of “ever closer union,” was not (as Washington was always soothingly assured) to make the EU a better partner of the United States, but to make it a competitor.
While Europe’s aspirations for itself are largely Europe’s to decide, America has an undoubted right to stand up for its own interests when they’re threatened. Ironically, many Europeans (especially the ignored general publics) who have never been as enthusiastic about the EU project as their leaders who dreamed of their greater roles on the world stage, would quietly welcome a more assertive voice from Washington.
Given the euro’s centrality in this project, the United States is not indifferent to the common currency’s fate. The posture we should assume is to let the euro succeed or fail on its own, and not support it directly or indirectly though the IMF.
If Europeans want to mortgage their futures to save the common currency, that’s their decision. America has no vital national interest in propping up a rival economic or political power–especially when many Europeans would just as soon have a closer relationship with the United States than with their geographic neighbors.
As the financial crisis unfolds, these critical political elements need to be better understood and evaluated on both sides of our common ocean. More Atlanticism and less EU solidarity would actually benefit all concerned.
John R. Bolton is a senior fellow at AEI.
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