Academic journal article Independent Review

The Crisis of Europe's Centralized Federalism

Academic journal article Independent Review

The Crisis of Europe's Centralized Federalism

Article excerpt

Ambiguities of a Harmonized Currency Union

Despite their high hopes for spontaneous, widespread popular support for economic integration, the champions of the European Economic and Monetary Union (EMU) are still trying hard to persuade the public of the benefits of the new common currency.(1) Notwithstanding these efforts, many Europeans do not know much about the EMU and remain cautious in their assessment of the new currency. Others are more skeptical (Meerhaeghe 1995). In this article I attempt to expand our understanding of the lack of popular enthusiasm and to shed some new light on the future of the euro. Three issues will be considered.

First, I discuss the implications of the questionable legitimacy of the European Union as a cultural or political entity. In particular, it remains unclear to most why the creation of a new, common currency should be instrumental for harmonizing national cultural traditions and institutions. Nor is it evident why such national traditions and institutions should be harmonized in the first place. Hence, the clamor to strengthen the European ideal from a political, social, and economic viewpoint often leads to apprehension rather than to deep emotional commitment. Many groups are cautious in forming conclusions about the common currency. For the euro has become the symbol of future policies that policy makers have decided should be "common" even before their precise content has been agreed upon, let alone explained to the public. The skeptics include not only those who are suspicious of enhanced (centralized) policy making but also some proponents of extensive policy making.

The second issue pertains to the partial failure to perceive what happened on the way from Rome (1957) to Maastricht (1992) and Amsterdam (1997). By and large, people understood and appreciated the benefits generated by the drive to achieve free trade and free movement of production factors (including capital). It was fairly clear that these efforts would lead to a more efficient use of resources and an increase in consumers' purchasing power. In other words, the notion of a common market was the essence of the Treaty of Rome, which established the European Economic Community (EEC), and enjoyed widespread support because it identified both the instruments and the goals in a transparent way. But the same cannot be said for the European Union, which focuses on broad, hardly objectionable goals, such as reducing unemployment or enhancing competition, but is much less convincing about the instruments. For instance, EU supporters argue that the common currency will eliminate exchange-rate risk, reduce interest rates, stimulate investment, and increase the demand for labor. P. De Grauwe (1997), however, has presented extensive evidence on the lack of causality between investment and exchange-rate volatility. And it is widely accepted that the introduction of a common currency into a less than optimum currency area leads to more, not less, unemployment.(2)

The project for a monetary union is also veiled by ambiguities. The emphasis on the instrument (the euro) is clear, but the objectives are vague. The person in the street cannot help feeling bewildered when told that the EMU is the natural development of the original idea of a common market conceived more than forty years earlier. And rightly so, because a monetary union has little to do with the achievement of free trade and of free markets in general.

The last group of questions I consider here pertains to the uncertainties associated with the perceived meaning of the EMU, and the way that perception has changed during the 1990s. Ten years ago, the EMU was understood to identify the leading countries of Western Europe that aspired to take responsibility for policy making in that part of the world. But as time went by, the elitist features of the union gradually disappeared. The original D-mark core plus France has become a much larger region including eleven countries, and possibly more in a few years. …

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