Sunday, 31 July 2011

The Post-Eurocrisis Two-Speed Europe - Core and Periphery

" 60 years of European integration without war is an historical anomaly of which the old continent can be proud of", enthused Hans Magnus Enzensberger once.  Today by contrast, the desperate and so far unsuccessful search for a solution to the Eurozone crisis would suggest that Europe has lost vision. Only 42% of the EU population trusts the European institutions and only 49% think that EU membership brings advantages to their country. As Mancur Olson has stated in his seminal The Logic of Collective Action (1965), bureaucratic inefficiency (in public choice terminology: agency slippage) is likely to rise with the number of member states; the principals (the member countries) have less incentives to closely monitor the agent (here, the EU bureaucracy) as the return from control for each member shrinks with the rise of the number of members. This insight applies, to be sure, not to the EU alone; think OECD...

Michael Hüther, director of the business-funded German economic policy instute - Institut der deutschen Wirtschaft - has an excellent essay in the widely noted Forum page of the leading left-liberal German daily Süddeutsche Zeitung. (An English version is not yet available, it seems.)  Europe's problem to come to grips with the sovereign Euro debt crisis, which risks an implosion of the Eurozone, is not only rooted in wrong institutional settings (such as the failed Maastricht treaty) and government responses, according to Hüther. Today, Europe lacks direction, a narrative where to go. So it can't, for example, opt for Eurobonds, or support an ECB that acts as an unlimited bond buyer of last resort.

In the past, European unification had been initiated by a postwar-generation elite that was driven by Christian neo-humanistic ideals anchored in the early medieval Western Europe of Charlemagne. As emphasised by the historian Hans-Ulrich Wehler, Romantic and Gothic, Renaissance and Humanism, Baroque and Enlightenment are European phenomena. Secterian wars (Konfessionskriege) triggered state building and a common civilisation in Europe, in particular after the Westphalian Peace of 1648, by following two maxims: peace through order of law, and peace through the secularisation of the polity.

The megalomania of politicians which led to boulimic EU enlargement has overstretched the common cultural background and sense of belonging on which further important, but critically difficult policies towards a strengtheneing of the Eurozone can be based. Theories (Mundell, 1961; McKinnon, 1963; Kenen, 1969) of the Optimal Currency Area stressed - apart from fiscal federalism and labour mobility - a common attitude toward macroeconomic trade-offs such as fiscal discipline, price stability and employment.

A strengthening of core Europe is needed, according to Hüther, if the EU wants avoid marginalisation by the G2, the US and China. That strengthening of core Europe should not just be based on similar attitudes toward macroeconomic stability and honest statistics (witness how Italy and Greece 'beat' the Maastricht criteria), but reach into common cultural history(for more, read the political theorist Herfried Münkler). Core Europe does not exclude intense collaboration with Europe's periphery, to the contrary. Only a two-speed Europe will be politically able to go for Eurobonds that will finance, for example, pan-European infrastructure. Only a solid core Europe will avoid rating and speculative 'attacks' from Anglosaxon finance. And that core Europe, the net contributor to the European project, will call the shots.

Addition (3rd August 2011); If the market is to be trusted, that core Europe will exclude Italy and Spain and hold a very limited number of countries...Would Brussels still be the capital, given Belguim's spreads?

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