4 Colum. J. Eur. L. 479 (1998)
John V.C. Nye. Washington University in St. Louis.
What is there left to be said about the problem of European Monetary Union in particular, and the general problem of promoting European union in general? It is hard not to agree with Giorgio Basevi that “most of what could be said about it from the point of view of positive economics has already been said, while normative economic arguments run the risk of getting obsolete by the time the paper is printed.”‘ I will therefore take this opportunity to comment on some of the problems of European union from the stance of a skeptical and disinterested economist who finds some interesting contrasts as well as parallels between the struggle for formal union at the end of the twentieth century, and the less conscious but fairly successful increase in economic, monetary and commercial union achieved by much of Europe in the late-nineteenth century.
ECONOMIC UNION IS A POLITICAL PHENOMENON
For starters, it seems clear to me that whatever the positive merits of monetary union, the proposed integration is valuable primarily as a political and social end in itself, rather than for any efficiency or growth-promoting aspects of attaining a single currency. There is no theory which argues that a single currency is a necessary condition for growth and development, nor is there any real empirical evidence that lack of currency coordination has been a substantial handicap in matters relating to long-run economic growth.
There is some feeling that transactions costs may be lowered by moving from a multiple currency regime to that of a single currency, but such a claim presupposes, first, that the transactions costs that currently exist are significant- which is doubtful-and second, that the attainment of such a union will not come at costs of adjustment or ex post implementation difficulties that will counterbalance the gains. Finally, no strong, empirical analysis exists as to the precise positive benefits of monetary union in isolation. Most studies haveinvolved various macroeconomic simulations under different assumed convergence criteria, with only a limited hint of what the net effect of any of the changes are.
Hence, whatever the economics of the matter, a realistic assessment of the problems of monetary unification usually becomes enmeshed in a discussion of the political economy of monetary union.
This approach tends to lead to two strands of literature. On the one hand are the technocratic views of those who see the near-automatic membership rules of the monetary union as a means of facilitating economic reforms that, although in theory could be accomplished in isolation by individual countries, in practice would never prevail with home-country constituencies. On the other hand are those who value monetary union less for any economic benefits, than for the pure policy goal of promoting European unification in all or most forms, with monetary union being the first tentative step towards a European federation. For many of those Europeanists, the monetary union would be desirable even at substantial economic cost. In many instances, the Europeanists would not be averse to the development of continent-wide regulations that promote order and coordination in order to more fully regulate European economies.
Indeed, the attitudes toward Germany and the deutschemark are emblematic of the multiple conflicts imbedded in the desire for monetary union. On the one hand, proponents of enhancing efficiency and monetary stability for purposes of economic development are adamant about an independent monetary authority that would preserve the low inflation targets that have characterized German monetary policy. Yet while insisting on the union’s fitness for accomplishing these goals, they acknowledge in principle that a European currency might do substantially worse than the historical performance of the German mark. In private, they argue that a small deviation from German stringency would be acceptable if doing so promoted stability and improved overall European monetary discipline. In contrast, the more politically inclined unionists are less interested in market-enhancing reforms than they are in limiting the discretion of nations to act differently, and in particular, to pursue incompatible monetary policies in the face of a severe recession. For many unionists, the relevant issue is not the value of coordinated macroeconomic policy per se, but in coordinated policy period. They would favor coordination for its political benefits, even when macro coordination might actually lead to a less efficient market environment.
Finally, the problem of European monetary union becomes entangled in attitudes toward the increasing globalization of the world economy. For some, monetary union is an attempt to deal with increasing economic integration by making a virtue out of a necessity. In this scenario, monetary union provides governments with an orderly program for opening up to the global market while tightening fiscal budgets so as to prevent the visible macro shocks that would emerge from an integrated monetary system. Some bureaucrats and technocrats welcome union because they see it as a bulwark against uncoordinated and unplanned acquiescence to the dictates of changing world technology. Indeed, for some, the move to a coordinated European union would serve as a pretext to move regulation from the level of individual countries-where it is are increasingly hard to enforce-to continental regulation that could better hope to restrain the forces of global competition. For hard-line mercantilists in particular, who see international economics in terms of zero-sum games and identify state- level success with economic victory or defeat, the European Union is a precursor to Fortress Europe: A system whereby the internal market is moderately open and the rules are stable, while American and Asian competition is held off in the interests of European society.
There is implicit in all the discussion the view that the removal of barriers to trade or unified currency requires further policy integration beyond that of the relevant economic sector. Here is where rhetoric overflows theory. While it is certainly the case that any move toward more integrated markets will have political repercussions that may best be handled through preemptive measures, policy coordination is not necessary for monetary integration. During the 1970s, the French seemed to favor fixing exchange rates and coordinating currencies prior to realigning economic policy to take into account serious divergences. But it was the German concern with inflation and the prospect of aligning with more inflationary economies which could not be controlled that has led to a push for integrated policy, before eventually arriving at monetary union. Ironically, of course, the resulting policy coordination process imposes fiscal qualifications to which even Germany is increasingly unable to conform.