Monday, January 03, 2011


The euro and the European Project

As readers may have guessed, I’ve been working on a euro-related project; more about that one of these days. But for now, I thought it might be worth explaining a bit more about how I see the political economy.

Some readers have chimed in that the euro is essentially a political rather than economic project. Well, it’s both; that has been the European strategy ever since the Schuman declaration. The point is to deliver a series of economic integration plans that do double duty: they’re economically productive, but they also create “de facto solidarity”, moving Europe closer to political union.

For 60 years, this strategy has been highly successful. Europe is one of the great, inspiring stories of the modern world, maybe of all time: peace, prosperity, and democracy flourishing where once there were minefields and barbed wire.

But: the strategy depends on each move toward economic integration being both a political symbol and a good economic idea. That was clearly true of coal and steel, the common market, the eurosausage, and so on. It is, however, by no means clear that the euro passes that test. Europe’s limited labor mobility (although there’s more than there used to be) and, crucially, lack of fiscal integration makes a common currency a dubious proposition at best.

And that’s a problem for the broader European project. You build solidarity with economic measures that work, not with measures that don’t. I don’t believe that a euro crackup would bring us back to the days of the Siegfried Line; but it would put a damper on those feelings of solidarity that are supposed to take the continent, step by step, toward true federation.

If I were a European leader, I’d be very, very worried about this — and willing to take some serious risks, like the creation of E-bonds, in an attempt to turn this thing around.

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