“Ten years into its existence, the Euro is a resounding success. The single currency has become a symbol of Europe, considered by Euro-area citizens to be among the most positive results of European integration….” Barely five years after the European Commission issued this 2008 celebration of its new currency, the statement seems highly ironic. Europe is locked in a struggle for the survival of the euro—and indeed, for the prosperity of the continent and its people. German chancellor Angela Merkel does not exaggerate when she says that “the euro crisis is the greatest test Europe has faced since the signing of the Treaty of Rome in 1957”—the foundation of the European Economic Community (EEC).
Across southern Europe, millions of families are living in misery, as rates of unemployment exceed 25 percent in Greece and Spain and approach 15 percent in Portugal (and, on the western periphery, in Ireland), while the salaries of teachers, nurses, and other public employees are slashed, and firms go bankrupt in unprecedented numbers. The suicide rate in Greece has doubled during the past three years. This economic stagnation is now depressing performance even in Germany, normally the engine of the European economy; gross domestic product (GDP) in the 17 Eurozone countries is forecast to contract this year.
How did the Europeans get into this mess—and how are they going to get out of it? There are no obvious answers—indeed, the regional variation in the answers usually given across Europe is telling. But deeper analysis can be illuminating, not only about the euro crisis itself, but about that unique political construction that is the European Union (EU).
“Rules Rule”: Putting a Theory into Practice
Reading about the euro in the financial press is like watching Rashomon, that marvelous Japanese film about memory and forgetting. Many who once applauded the monetary union now condemn it. Today, everyone agrees that the institutional structure of economic and monetary union (EMU) is inadequate. Why then did the Europeans agree to it in the Maastricht Treaty of 1992?
Monetary union was adopted as much for political reasons as for economic ones. The EU members were dissatisfied with the previous system that fixed their exchange rates within narrow bands—a system that provided monetary stability but required painful negotiations when current-account imbalances arose between the member states; moreover, some governments resented the dominant role played by the German Bundesbank in this process. Ironically (in retrospect), the move to EMU was in some respects an effort to escape this need for transnational negotiations about economic policy.
Reading about the euro in the financial press is like watching Rashomon, that marvelous Japanese film about memory and forgetting. Many who once applauded the monetary union now condemn it. Today, everyone agrees that the institutional structure of economic and monetary union (EMU) is inadequate. Why then did the Europeans agree to it in the Maastricht Treaty of 1992?
Monetary union was adopted as much for political reasons as for economic ones. The EU members were dissatisfied with the previous system that fixed their exchange rates within narrow bands—a system that provided monetary stability but required painful negotiations when current-account imbalances arose between the member states; moreover, some governments resented the dominant role played by the German Bundesbank in this process. Ironically (in retrospect), the move to EMU was in some respects an effort to escape this need for transnational negotiations about economic policy.
by Peter A. Hall, Harvard Magazine | Read more:
Photograph by Panayiotis Tzamaros/Demotix/Corbis
