Straightening Europe’s crooked timber into a democratic eurozone

Immanuel Kant. Wikicommons/ Public domain. Some rights reserved.The Eurozone’s nemesis – the ongoing Greek
debt crisis – has once again returned to centre stage. With Greece’s existing
bailout package expiring in just nine days time, today
in Brussels the Greek government and its creditors – the ECB, the IMF, the
European Commission and the Eurogroup – are meeting in a last-minute attempt to
find a deal that can avoid default.

Much is at stake. Without an agreement,
Greece risks defaulting, potentially triggering an exit from the Eurozone that
could cause economic turbulence across the world economy.  For the Greek people, meanwhile, the conditions
of the bailout continue to extract a heavy social cost: unemployment has spiralled to 26
per cent, and food consumption has fallen by 28.5 per cent since austerity measures have been
introduced.  Both sides desperately
require breathing space.

Yet whatever the outcome, the latest day of
drama is unlikely to be the last. For the intransigence of the crisis is
underpinned by a central contradiction: what is necessary is near-impossible
politically.  Critically,
while monetary union necessarily involves losing – or pooling – some form of
sovereignty, the creation of the Eurozone and its various coercive economic
instruments has not been matched by political or fiscal union, with little
democratic accountability or control over the decision-making institutions of
the Eurozone.  Central to any efforts at
reforming the EU must therefore be grasping the nettle implied by the creation
of the Euro: the economic logic of monetary union must be matched politically.
Monetary union requires deeper fiscal and banking union which in turn requires
greater political union. 

This necessity – of deeper integration to overcome the debt crisis
matched by more effective democratic decision-making within the Eurozone’s
structure – is near-impossible, however, in a Europe deeply divided between the
interests of creditor and debtor states and their different political economies,
between the
‘core’ dominated by Germany and the ‘periphery’ of southern Europe.

Nonetheless,
a way forward must be found, both to resuscitate the effective power of the democracies
of the debtor states of the Eurozone and to strengthen the economies of Europe
more generally. For in an effort to sustain the single currency, the governance
regime of the Eurozone has transformed in recent years, progressively
neutralising democracies across the debtor states of southern Europe and undermining
their right to oppose decisions imposed upon them by a technocratic-led
centre.  For example, the European Semester System (2010), the Euro Plus
Pact (2011) and the Fiscal Compact (2012) have steadily eroded the ability of
debtor states within the Eurozone to control their tax and spend decisions, the
very stuff of democratic government.

To enforce
this, moreover, comprehensive powers of economic surveillance and disciplining
mechanisms have been granted to the Commission, particularly the Six Pack (2011)
and the Two Pack (2013). These startling discretionary powers underline how the
Eurozone’s institutions and its policies have become increasingly insulated
from democratic pressure.  As
such, opposition to the direction of the Eurozone can be expressed through
national democracies, for example through the election of Syriza, but this is
an inadequate form of political representation given the political
configuration and decision-making structures regulating the Eurozone.

Economically, meanwhile, as the German political economist Fritz Scharpf
has expertly articulated, the political economy these mechanisms have
erected is counterproductive, requiring a policy of constant downward pressures
on wages and public spending in the debtor states, both to support export-led
growth in economic downswings, and conversely to limit the growth of external
deficits during upswings. As is evident across southern Europe, such a regime
has institutionalised a destructive cycle of internal devaluation, which in
turn has been the trigger for further efforts at wage and fiscal restraint. As
Claus Offe argues, then, ‘the euro has rendered European
democratic capitalism more capitalist and less democratic.’

So, if today is about attempting to secure a temporary
lifeline for Greece, what more substantively can be done to resolve this
broader European crisis in the long run? Most importantly, the logic of
monetary union must lead to stronger political and fiscal union if democracy is
to be revitalised in the Eurozone, the ongoing social catastrophe in southern
Europe eased and the economies of Europe put on a more stable footing.  Fortunately, substantive proposals are now
being developed that can move toward this goal.

Earlier this
month, Emmanuel Macron and Sigmar Gabriel, the finance ministers of France and
Germany respectively, set out a series of steps to overcome the flaws in the Eurozone’s
architecture. In particular, they called for a new process of staged
convergence, based not just on structural and institutional reform, but also
for social and tax integration, for example harmonising corporation tax and
introducing a common financial transaction tax. 

The latter in
particular would support a new Eurozone budget, designed to ‘improve the ability to
provide automatic stabilisation and allow the European level to expand or
tighten fiscal policy in line with the economic cycle.’  Finally, they too recognise the need for
strengthened mechanisms for accountability, for example through the creation of
a Eurozone grouping within the European Parliament.

Such an agenda would go some
way to resolving the flaws of the single currency’s architecture and open up
space for more effective forms of positive integration in the single currency
region.  Perhaps most importantly, it
suggests that there is increasing political will in France and Germany to
resolve the crisis through more accountable forms of integration. Political
leadership of this nature will be vital if progress is to be made.

Others are rightly bolder
still. Building on the 2013 proposals of the German-based Glienicker Group, the recent Piketty-lead ‘Manifesto for Europe’ has a simple but powerful
aim: the rebuilding and democratising of Europe’s dysfunctional institutions so
that it can better  ‘regain control of
and effectively regulate twenty first century globalised financial capitalism.’
To do this, the group argue the Eurozone must develop shared economic, fiscal
and budgetary instruments, particularly given that pooled monetary sovereignty
means unilateral devaluation has been ceded as a national economic tool.  In doing so, they argue that Europe must
become less intrusive in regulating issues of secondary importance that are
best decided nationally, and more effective in tackling issues of substantive
transnational concern, whether that is for example action on tax havens or
stronger financial regulation. 

The manifesto is built on
three central recommendations, which share but go further than the proposal of
Macron and Gabriel.  First, they
reiterate the call for a common Eurozone tax base, beginning with a shared
corporate income tax combined with the automatic sharing of financial and
banking information across the currency union. Such a move would both limit the
capacity of corporations to play European nations off against each through a
race to the bottom in the tax code, and also provide capacity for an effective
budget to drive investment in the Eurozone.

Second, they argue for the
pooling of the debts of the Eurozone countries as the only way to definitively
move past the current debt crisis and ensure effective monetary policy for the
single currency in future. Concretely, the Manifesto recommends restarting the
proposal for a ‘European
debt redemption fund’, where all debts exceeding 60% of a country’s GDP are pooled.  

While this appears a bold
step, the Manifesto rightly agues that with the establishment of the European Stability Mechanism, the nascent banking union,
and the ECB’s development of the Outright
Monetary Transactions programme, a de
facto
process of pooling debt has already begun. Yet, while Eurozone taxpayers
are increasingly enmeshed with each other, they lack democratically legitimate
mechanisms to oversee and shape the process, something that is pivotal if
deeper fiscal and financial integration among Eurozone member states is not to
accelerate the drift into post-democratic governance.

This brings us to the third and most
important recommendation, where the break with the Franco-German plan is most acute. 
For to decide on how the pooled debt should be brought down over time, ‘and
more generally to discuss and adopt the fiscal, financial and political
decisions on what is to be shared in the future in a democratic and sovereign
fashion,’ the Manifesto urges the establishment of substantive democratic
infrastructure for the Eurozone.  In
particular, they argue for a parliamentary chamber for the single currency to
go alongside the European Parliament, with members drawn from national
parliaments weighted to the political balance of those bodies, with the number
of national representatives in the Eurozone parliament proportionately based on
the population of each country.

The virtue of this proposal is that
collective Eurozone decision-making will be rooted in national parliamentary
sovereignty through their elected representatives, allowing democracy into the
decision-making processes of the currency zone. In deciding upon issues
relating to the currency, pooled debt and a potential budget, countries in the
Eurozone would no longer be represented by their heads of state alone through
the Council of Europe, but would have directly elected national
parliamentarians reflecting the political pluralism of the currency bloc. 

Transparent, majority rule decision-making
would then shape the future of the Eurozone, rather than the present, where the
EU’s excessive constitutionalism combined with the depoliticised technocratic
governance structures of the Eurozone has accelerated a drift towards a
post-democratic condition.

This will
still take political leadership and compromise but it is the most effective route
out of the seemingly never-ending crisis of the Eurozone. Importantly though, the
crisis has nonetheless exposed the sharply political forces at work within the
Eurozone – and the EU by extension – that undergird its various democratic
deficits. European integration does not proceed by remorseless logic, emptied
out of political contest; the architecture of the union provides institutional
spaces in which democratic politics can re-embed themselves, with the peoples
of Europe better able to shape the continent’s future.   Progress can therefore be made in building a
more accountable, democratic and effective governance for the Eurozone. 

The UK’s referendum campaign – an opportunity
for change

For the UK,
the arguments emerging on the continent reinforce the parochial quality of the
debate over EU reform thus far witnessed. It is vital then that even as the UK remains
outside of the Eurozone, it advances arguments for substantial economic and
democratic reforms to the EU as a whole, including the Eurozone, rather than
simply focus on marginal adjustments in its balance of power and competences.
The referendum campaign – and the potential leverage this has created in terms
of securing institutional change at the EU level – is the opportunity to
marshal these arguments and put forward a constructive case for change.

It is critical it succeeds for if we are to confront the economic,
social and ecological challenges facing us, we need a revived, democratised
Europe: the present institutional settlement no longer works; a radical
democratic and financial overhaul is needed that recognises and responds to the
increasingly multi-speed nature of the EU. 
The challenge is in deciding what reform agenda could deliver such an
outcome given the present constellation of forces both within Europe and in the
UK.

In the next post, we will further explore what could constitute such
an agenda.  Given today’s events, its
necessity is clear. For just as one of the early imaginers of a liberal
European internationalism, Immanuel Kant, once argued that out of the crooked
timber of humanity no straight thing could ever be made, so today with the
Eurozone: if Europe cannot find a way to reimagine and democratise its dysfunctioning institutions, nothing truly
straight will ever grow out of it. Today’s drama is merely pruning the tree. To
overcome the Eurozone’s underlying crisis, more substantive surgery will be
required. 

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