Former Buba Head: EU officials knew eurozone was not economically necessary, done for “psychological reasons”

"It just... felt right."

“It just… felt right.”

In the media bidness, what happened yesterday is “old news,” but for historians the scribblings of journalists are merely a “first draft.”

With that in mind, here is a 2003 speech by former Bundesbank president Hans Tietmeyer, who was in charge in the 1990s in the run-up to the creation of the euro. I was struck by this passage on the Werner and Delors reports which prescribed the creation of the common currency:

In both reports, the transition to a single currency, with uniform banknotes and coins, is not considered to be imperative in purely technical terms. Even so, both reports argue unanimously (primarily for psychological and political reasons) in favour of the introduction of a single currency.

I’ve read more than I care to admit about Economic and Monetary Union (EMU) and I have yet to come across either a protagonist or an observer who can give any really compelling explanation of why it was done. François Mitterrand for example was downright stratospheric in his account of how a dysfunctional currency union would guarantee peace in Europe. It’s presented as a basically random and arbitrary event. (Why not integrate armies or welfare or education “for psychological and political reasons”?) Tietmeyer tells us that even its advocates agreed with Bernard Connolly that it was economically unnecessary.

With EMU, diverse Nation-States decided to fuse their currencies under the German-prescribed conditions that their be no transfers, no inflation and that a supra-parliamentary central bank be in charge. None of this made much sense from an economic or democratic point of view, as numerous U.S. economists pointed out. Yet, it was done.

The reasoning seems to have gone like this:

  • Germans: Destroy Deutschmark in act of penitent ethno-masochism, yet guarantee German interests/values through conditions sure to make eurozone dysfunctional, therefore peace in Europe forever.
  • French: Take over Bundesbank by drowning it in euro-bank with Franco-Latin majority, thus Deutschmark destroyed and dollar overthrown by écu (pronounced [eky]), therefore Franco-European superpower.
  • Benelux, Italians, Spanish, etc: Do whatever Franco-Germans do, because. (When have Franco-Germans done anything wrong, anyway?) Therefore have Franco-German standards of living and good government (…).

The official pan-European line was that EMU would “for psychological and political reasons” be a first step enabling conditions for agreement of “political union.” What exactly “political union” meant has always, always, always been kept hatefully vague and thus it isn’t even clear it would have fixed EMU. (EU-level labor policies? Welfare? Budget rules? Federal budget?…)

Actually this strategy wasn’t entirely a failure because when the eurozone was created in 1999, sure French and Italian competitiveness were wiped out, but the financial speculation it enabled meant apparently free money and rising standards of living everywhere. This, after the crises and perma-austerity of the 1990s, created welcome breathing space and self-confidence for political elites to enlarge the EU to Central Europe and establish the Constitutional Treaty in 2004. The latter in some respects is arguably a weak form of political union – with some federal-style majoritarian lawmaking for single market regulation, consumer policy, health and safety and the environment – but funnily enough this much-debated treaty had virtually nothing addressing EMU’s crippling flaws.

Of course the Constitutional Treaty was rejected by the French and Dutch by referendum in May-June 2005 but that is beside the point. The Lisbon Treaty is a carbon copy of it, with a few commas and semicolons adjusted.

Today it is very easy to argue that economic crisis and “post-democracy” (which I think is a euphemism Europeanist Marxoids like to use for “tyranny”) have been worsened by EMU (see László Andor, Jürgen Habermas). So clearly now EMU is creating “psychological and political” effects that actually discourage integration, while forcing the Continent into an economic perma-crisis which requires further centralization of power for the currency area is to survive.

I tend to think the moderate, circumscribed quasi-federalism of the Lisbon Treaty, basically saying the Common Market should be democratically regulated by supermajority, did not require EMU to achieve but could have grown organically. But we’ll never know.

And EMU, if it survives, will create a weird Superstate. In abolishing the regalian sovereignty of States, EMU may then achieve things which a mere Common Market would not have, although whether these achievements are desirable is up for debate.

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