The euro is the most recent and significant advance in European unification. It’s no wonder that in the face of crisis the question arises: will the euro collapse? The euro can and will avoid collapse. The Eurozone has the financial ability, flexibility, and interest to maintain the euro, so the question is of politics. Politically an integrated Europe is a well grounded aspiration because the EU, and the euro have been so many years in the making. Their maintenance is essential to the European project, so leaders in the EU will cooperate and find the necessary political support to survive this and future crises.
The people of the EU are certainly less convinced than some of its project-minded leaders that the EU should be as integrated as it is. Integration necessarily gives up sovereignty. It is a cost, so the benefits need to be reiterated clearly, be they economic or security. The fall of the Soviets relaxed one reason for integration (Rosato 2011). With Europe under significant economic stress, the peoples of the EU are understandably pessimistic and protective of their own. In order to keep the EMU together during this and future crises, individual nations will have to sacrifice for others whether bailing out, accepting potentially suffocating fiscal terms, or enduring unfavorable monetary policy. Whatever series of events occurs in support of the euro, it is a consequence of a loss of sovereignty and, “…sovereignty is inextricably linked to nationalism, an especially powerful political ideology…” (Rosato 2011).
Portugal has just started negotiating what is the Eurozone’s third bail-out. Germans are noisily against additional lending, as are the Finnish, and the caution is manifesting in local elections. The Greeks are discontent protesting and preparing for massive strikes in May. PIG debt may need widespread restructuring. The situation resembles other debt crises. The social mood in Europe has deteriorated under the continued pressure of an ominous and burdensome future of bailouts and recessions, representing the tension of a divergent economic future within supposedly one union. Europe is still not used to this level of solidarity. Even Europe’s strongest leaders may not be able to convince their people to bail-out Spain, an expensive task financially and politically. However, the debate is being framed as costly on both sides: pay up and shape up, or the EU fails (The Economist 2011).
This framing is politically useful in supporting the project to the public, and begins to spell out the clear benefits necessary for euro survival. Importantly, however, I think the situation is the other way around. If the EU fails, the euro will fail. The question is of politics, not of economics. Europe is either intent to converge on cooperative economics to achieve the single market or it is not. The stresses have been weighed, the strength has been measured and the euro can survive if Europe is united. There is considerable evidence that it is sufficiently united.
In a flattened world with so much to gain, there is so much to lose if countries do not work together, and it is clear that the countries of the Eurozone are aware of this. This test of unification has been met with distiniguished levels of international cooperation and assistance. Although domestic support is far from 100% behind them, both French and German leaders have repeatedly said they will not let the euro fail. European countries have not just talked the talk, but they have been walking the walk, each being thorough negotiators for its populous, but also taking on domestic political risk. Risky bailouts have been met with a firm commitment to the euro and this is reflected in the ForEx markets where the euro is solid (if not too strong for exporters). This commitment has not only been shown by sacrifice, but by intense cooperation to explore many ways of improving the EMU system (Rücker 2011). A strong defense of the euro is rational action in the interest of self preservation for these supporting countries. The banks of these supporting countries have large existing exposures to the banks and governments of those in need, and so it is a worthwhile bet to prop up struggling neighbors (The Economist 2011).
If these euro zone nations are united enough to compromise on fair adjustments, they can avoid collapse, and they are. An example of the willingness to adjust was seen in Greece’s very integration into the EU. Many macro problems of Greece were identified prior to acceptance into the EMU. Tough reforms were made and the group still united and took on the risk, and it was a popular move (BBC 2001). The politics that will govern how much nations negotiate still have strong lingering beliefs that EU integration leads to economic prosperity, among other powerful interests. The single market hinges on the euro’s existence. There is an overwhelmingly larger political force in play (Rücker 2011). In such a closely related democratic system, the balances of political power are always shifting, but toward overall stabilization.
First, ability and motivation are enough for the euro survive the current crisis, and the early problems of monetary union. The political situation in Europe is far different now than it has ever been in modern times. There is a new history, with a goal and steady achievements towards that goal stretching across generations. A united Europe, one that has moved beyond cooperation to significant integration, is still a prototype, an artificial, but real experiment reflecting the interests and values of most Europeans. The EU, at 27 member states and 17 in the Eurozone, is growing. Growth reflects the popularity and optimism of better times and envisioned times when losses of sovereignty matter less. The system may not be perfect, but the will exists to fix these problems and crises in the interest of a more prosperous and peaceful Europe. Integration is intended to bring a prosperous equilibrium to a group diverse in economic history, fiscal policy, and strength (Jacques 2001). Unification is important in its own symbiotic right, but also breaks down the dooming North/South political roots of major debt crises of the past which the Eurozone resembles. The integration of European countries will force a common ground and care that has not been found in other crises and negotiations like the IMF and Argentina (Oatley 343-344). The future is distinguishable from past failures in the political regard. Populist anger will die down as prospering economies continue to grow and suffering economies receive negotiated stabilization packages.
The monetary union is proving of significant advantage in the crisis even as it shows its weaknesses, and this shakes a calming uncertainty into a scattered, but loud populous revolt. The introduction of the euro, and several treaties in the monetary union, give implicit guarantees of bail-outs even in the face of the explicit Maastricht Treaty. The bailouts are happening, and regardless, risk is reduced because the implicit guarantee exists, making a solution more viable. The debt crisis is stabilizing, and although the economic structure of the Eurozone allowed the situation to get worse before it got better, economic scrutiny and politics caught the situation before it was beyond repair (Bagus 2011). The economic advantages of the most recent steps in economic integration like the existence of the European Central Bank and the creation and adoption of the euro, while being challenged by the crisis, have been realized. Right now, the Eurozone economy is growing at a promising pace, and Spain doesn’t seem to be following any trend of the moral hazard (Winning 2011). In addition no one is in serious danger of dropping the euro and causing panic. There are no other good options, there is no plan B other than the euro. Even if one came about, the logistical hurdles would be immense (Welfens 2011).
The euro is argued to have irreconcilable structural problems, a single central bank financing multiple independent states (part of a tragedy of the commons), and loopholes (Bagus 2011). It is easy to get caught up in a debate over whether these issues if left untouched mean eventual collapse. If any of these issues is identified as a true problem, the problems will be addressed and the Eurozone will change, or break rules from time to time, but not collapse. No doubt these structural properties of the EMU that supposedly contributed to the crisis, or have hindered recovery will go through a new round on intensive evaluation, and this will take time. But there will be time before a collapse (Bagus 2011). In fact the existence of a single currency, the central bank etc, is just the current result of many decades of steadily increasing integration (Rosata 2011). It is a step in evolution, just a degree of change, and arguments against the structures ought to be weighed against over half a century of successful, orderly adaptation.
I am not having my cake and eating it too. Advances in integration have been small enough to say the system is careful, flexible, stable overtime. And at the same time, they have been large enough to each state, and attracted enough support, to show the larger goal of integration is an overwhelming political force. Even if the claim that European nations have increasingly pursued self interested economic policies over those of the community recently were true, it does not mean that when the life of the euro and EU are said to be on the line, cooperation wouldn’t occur. It is notable that stable euro countries are accepting responsibility for pursuing loopholes in structural arrangements even unrelated to the crisis (Rücker 2011). In politics and economics, the idea that European integration and cooperation leads to prosperity and equilibrium has a stronger record and representation in policy than disintegration or collapse due to the long term similarities of European states (Jacquet 2001).
It is wrong or at least inadequate to measure Eurozone integration against traditional political economy theories or approaches for multiple states, or a single state. The envisioned form of this economic union is in constant development, yet undefined. One constant remains: integration. The system is unique for example, because states technically have no control over monetary or exchange rates from one perspective, but by being a part of the Eurozone, realistically have sway on both, and have free capital flow. It’s a unique take on the triad. The independence of the ECB creates political harmony and eliminates leverage, but spurs conflict and difference in a quest for influence. There are many similar paradoxes within the EU economic system representing incompletion and flexibility (Oatley 2009, 214-305). In such an undefined environment a strong political conviction, like that of the project, will prosper and dominate the details of solutions.
For millennia, the unification of Europe has been the project of emperors, madmen, idealists, and in the vein of the latter, most common folk. The first half of the twentieth century served as the tragic and climactic reminder that this project has never enjoyed lasting success. The current economic crisis is the first major test of decades of careful, democratically executed political and economic integration. Though populous politics are making for tense negotiations, the euro and European project have an overwhelming and reasonable political undercurrent. Political strength creates economic strength. Because the eurozone has the means, motivation and flexibility to deal with the crisis and structural problems, the EU and the Eurozone will emerge from this crisis stronger. My euro is on the euro.
References
Bagus, P. The Tragedy of the Euro. The Independent Review, Vol. 15, No. 4, Spring 2011. Business Source Premier. Dublin City University on 18/04/2011.
BBC News. Greece Joins Eurozone. January 1, 2001.
Jacquet, P. and Pisani-Ferr, J. Economic Policy Co-ordination in the Eurozone: what has been achieved? What should be done? Sussex European Institute Brighton, UK. January 2001.
Oately, T. International Political Economy. 4th ed. New York: Longman, 2009.
Rosato, S. Europe’s Troubles. International Security, Spring 2011, Vol. 35, No. 4. ProjectMuse. http://muse.jhu.edu. William Jewell College on 04/21/11.
Rücker, J. 2011. Shaping Europe’s Economic Future with Solidarity and Responsibility. 2/22/2011. Stockholm School of Economics.
Welfens, P. From the Transatlantic Banking Crisis to the Euro Crisis. 3/30/2011. Springer. Business Source Premier. Dublin City University on 18/04/2011.
Winning, N. Euro-Zone Economy Expands. Wall Street Journal. 4/20/2011. p. A11
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