Comment: Rosy Expectations, Cloudy Horizons

4 Colum. J. Eur. L. 453 (1998)

Andrew C. Sobel. This Comment is based on a paper presented at the October 1997 symposium titled “The Euro: A New Single Currency for Europe?” sponsored by The Washington University School of Law and the European Studies Program at Washington University in St. Louis. The collected papers from the symposium are published in this special symposium issue of The Columbia Journal of European Law.

Can we (West Europeans) take it for granted that we will remain sufficient leaders in a sufficient number of sectors to survive–in the face of countries with populations infinitely larger than ours and with levels of social protection infinitely smaller? I say we should leave this to the market, but only up to a certain point. What is the market? It is the law of the jungle, the law of nature. And what is civilization? It is the struggle against nature.
– Edouard Balladur

We have not successfully rolled back the frontiers of the state in Britain only to see them reimposed at a European level with a European superstate exercising a new dominance from Brussels.
– Margaret Thatcher

The conference organizers assigned me the task of commenting on the papers that examined the political implications of the European Monetary Union (EMU) and the euro as a new single currency for Europe. I exercise some license and address my comments more broadly. I find the task of limiting my comments to political implications independent of the other panels a sterile and less productive enterprise. As I examined the papers for this conference, several things struck me as unusual from my perspective as a political scientist. First, with a few notable exceptions, these papers presented generally sunny scenarios of the EMU and the euro as a single currency for Europe. Economists and intemational legal specialists prepared the overwhelming majority of the papers for this conference. From their perspective, EMU would lead to lower transaction costs, increased exchange, greater efficiencies, price stability, welfare gains, development of deeper and more liquid European capital markets, greater cooperation among European Community Member States, policy convergence across Member States in economic and foreign policy arenas, and more. Hardly any of the papers raised serious doubts about the EMU and the upcoming changeover to the euro in 1999. I am not used to attending academic conferences with such sunny expectations since political scientists rarely paint such rosy outlooks for the EMU. Instead, we tend to focus upon the potential problems with EMU and pay less attention to the gains. Political scientists, lawyers, and economists looking at the same social phenomena, seem to see different aspects of that phenomena.

Second, I noted an unusual alliance and level of agreement over the EMU among economists and lawyers at the conference. Lawyers and economists more often tend to drift to opposing sides of debates over arrangements of the regulatory state that oversees market activity. The epigraphs by Thatcher and Balladur capture this distinction. Thatcher reflects the perspective of liberal economics and calls for less government intervention in the marketplace. This approach leaves individuals more exposed to the risk and discipline of the market with all its accompanying benefits and costs. Balladur prefers to impose discipline upon the market and err on the side of safety, not risk. Legal frameworks can impose such discipline and create safety nets to constrain the risks and dislocations that markets produce. This debate between risk versus safety affects the distribution of costs for dislocations resulting from markets.

For example, American policy debates over the reform of the regulatory state that oversees financial services invariably divide between economists who argue for increased reliance upon market mechanisms to produce discipline in financial markets and lawyers who fear that market discipline can prove too harsh and dislocating for some participants in the market place. In the United Kingdom, debates over the content of the 1986 Financial Services Act aligned economists who proposed less regulation and greater exposure to market forces against legal specialists who sought greater regulation to protect the “Aunt Agathas” from dislocating market risks.5 Consequently, I find the general agreement among economists and legal scholars reflected in the papers at this conference unusual. Perhaps one group or both mistake the meaning and implications of EMU?

Differences in interpretations and expectations across economists, legal specialists, and political scientists rest in their underlying models of the world, their focus of analyses, and what they perceive as central mechanisms underpinning social interactions. Each discipline brings a bias, or perspective, to the examination of EMU and the euro. Economists focus upon efficiency and risk, lawyers spotlight contracts and safety, political scientists target political institutions and policies and their distributional consequences. These disciplinary biases obscure key qualities that others with different backgrounds and training might highlight. In my comments, I try to make more explicit those differences and mechanisms. Then, I offer an examination of EMU and the euro from the perspective of a political scientist. Like the other participants at the conference, I think EMU will happen, but I foresee a more clouded and less rosy future. As a political scientist I focus upon the distributional aspects of EMU. I adopt a more restrained view of what EMU means, its origins, and what it will become. EMU may well produce the aggregate gains foreseen by economists and legal scholars, yet these will invariably lead to debates and concerns over the distribution of those gains and at whose expense. I conclude by outlining areas of potential distributional conflict and policy competition at three levels-the international, regional, and domestic.