Consulting » POLITICS – Emu and international conflict.

POLITICS - Emu and international conflict.

US economist Martin Feldstein draws on the experience of the American Civil War to argue that the single currency seems destined to lead to a single European state, increasing the likelihood of conflict.

The immediate effects of Emu would be to replace the individual national currencies of the participating countries in 2002 with a single currency, the euro, and to shift responsibility for monetary policy from the national central banks to a new European Central Bank (ECB). But the more fundamental long-term effect of adopting a single currency would be the creation of a political union, a European federal state with responsibility for Europe-wide foreign and security policy as well as for what are now domestic economic and social policies. While the individual governments and key political figures differ in their reasons for wanting a political union, there is no doubt that the real rationale for Emu is political and not economic. Indeed, the adverse economic effects of a single currency on unemployment and inflation would outweigh any gains from facilitating trade and capital flows among the Emu members. The 1992 Maastricht Treaty that created the Emu calls explicitly for the evolution of a future political union. But even without that specific treaty language the shift to a single currency would be a dramatic and irreversible step toward that goal. There is no sizeable country anywhere in the world that does not have its own currency. A national currency is both a symbol of sovereignty and the key to the pursuit of an independent monetary and budget policy. The tentative decision of the 15 EU member states (with the exception of Denmark and the UK), embodied in the Maastricht Treaty, to abandon their national currencies for the euro is therefore a decision of fundamental political significance. For many Europeans, reaching back to Jean Monnet and his contemporaries immediately after World War II, a political union of European nations is conceived of as a way of reducing the risk of another intra-European war among the individual nation states. But the attempt to manage a monetary union and the subsequent development of a political union are more likely to have the opposite effect. Instead of increasing intra-European harmony and global peace, the shift to Emu and the political integration that would follow it would be more likely to lead to increased conflicts within Europe and between Europe and the US. What are the reasons for such conflicts? In the beginning there would be important disagreements among the Emu member countries about the goals and methods of monetary policy. These would be exacerbated whenever the business cycle raised unemployment in a particular country or group of countries. These economic disagreements could contribute to a more general distrust among the European nations. As the political union developed, new conflicts would reflect incompatible expectations about the sharing of power and substantive disagreements over domestic and international policies. Since not all European nations would be part of the monetary and political union, there would be conflicts between the members and non-members within Europe, including the states of eastern Europe and the former Soviet Union. Conflicts would also develop between the European political union and non-European nations, including the US, over issues of foreign policy and international trade. While disagreements among the European countries might weaken any European consensus on foreign affairs, the dominant countries of the EU would be able to determine the foreign and military policies for the European community as a whole. A political union of the scale and affluence of Europe and its ability to project military power would be a formidable force in global politics. Although 50 years of European peace since the end of World War II may augur well for the future, it must be remembered that there were also more than 50 years of peace between the Congress of Vienna and the Franco-Prussian War. Moreover, contrary to the hopes and assumptions of Monnet and other advocates of European integration, the devastating American Civil War shows that a formal political union is no guarantee against an intra-European war. Although it is impossible to know for certain whether these conflicts would lead to war, it is too real a possibility to ignore in weighing the potential effects of Emu and the European political integration that would follow. The Maastricht Treaty established the ECB and transfers all responsibility for monetary policy after the start of Emu from individual national central banks to the ECB. The ECB alone would control the supply of euros and set the short-term euro interest rate. Maastricht makes price stability the primary objective of European monetary policy, paralleling the charter of Germany’s Bundesbank. The treaty also provides that the ECB would be independent of all political control by the member states and by European-level political institutions. (Although the treaty states that the ECB will report to the European Parliament, this was intended to follow the Bundesbank tradition of an information report rather than any political oversight.) These conditions are very much what Germany wants for the ECB and for monetary policy. Because of its historical experience, the German public is hypersensitive on inflation and fears any monetary arrangement that does not give primacy to price stability and insulate monetary policy from political influence. But German opinion differs sharply from the opinions about monetary policy in France and other European countries. The notion of a politically independent central bank is contrary to European traditions. Until recently, when Maastricht required all prospective Emu countries to give their central banks independence, most of the central banks of Europe reported to their ministries of finance and the finance ministers were at least partially responsible for setting interest rates. The French have been particularly vocal in calling for political control over monetary policy. In a televised speech just before the 1992 French referendum on the Maastricht Treaty, then-President Francois Mitterrand assured the French public that, contrary to the explicit language of the treaty, European monetary policy would not be under the direction of European central bankers but would be subject to political oversight that, by implication, would be less concerned with inflation and more concerned with unemployment. Mitterrand’s statement was a political forecast; France recognises that the institutions of the Emu would evolve, and continually presses for some form of political body to exert control over the ECB. It has already made considerable progress toward that end. As the monetary union evolves into a more general political union, conflicts would arise from incompatible expectations about the sharing of power. France sees Emu and the resulting political union as a way of becoming a co-manager of Europe and an equal of Germany, which has nearly 50% more people. In the economic sphere, the current domination of European monetary policy by the Bundesbank would be replaced by that of the ECB, in which France and Germany would sit and vote as equals. As the French contemplate the eventual membership of the economic and political union, they may also hope that their natural Mediterranean allies – Italy and Spain – will give them a decisive influence on European policies. And the skillful international French civil servants might come to dominate the administration of the European government. Germany’s expectations and aspirations are more difficult to interpret. Some German leaders no doubt believe, as Chancellor Helmut Kohl frequently says, that joining a political union improves the prospects for peace by “containing a potentially dangerous Germany within Europe”. Other Germans are no doubt less self-sacrificing and simply disagree with the French assessment of the consequences of greater economic and political integration. They see Germany as the natural leader within the EU because of its economic weight, military capability and central location in an EU that will soon include Poland, the Czech Republic and Hungary. As Kohl has said, not without ambiguity: “Germany is our fatherland, but Europe is our future.” What is clear is that a French aspiration for equality and a German expectation of hegemony are not consistent. Both visions drive their countrymen to support the pursuit of Emu, and both would lead to disagreements and conflicts when they could not be fulfilled. The creation of a political union based on the Emu, with explicit authority to develop a common foreign and defence policy, would accelerate the development of an independent European military structure capable of projecting force outside western Europe. Steps in that direction are already occurring in anticipation of the stronger political union that will follow the start of Emu. In March 1997, on the 40th anniversary of the Treaty of Rome, France and Germany announced their desire to see a merger of the EU with the existing European military alliance, the Western European Union, so as to strengthen the military coordination of European nations outside the Nato framework. An explicit agreement was reached with the US that will allow the European members of Nato to use European Nato forces and equipment under European control without US participation. The attempt to forge a common military and foreign policy for Europe would be an additional source of conflict among the member nations (as well as with those outside the group). European countries differ in their national ambitions and in their attitudes about projecting force and influencing foreign affairs. An attempt to require countries such as Portugal and Ireland to participate in an unwanted war in the Middle East or eastern Europe could create powerful conflicts among the European nations. There is no doubt that a Europe of nearly 300 million people with an economy approximately equal in size to that of the US could create a formidable military force. Whether that would be good or bad in the long run for world peace cannot be foretold with any certainty. A politically unified Europe with an independent military and foreign policy would accelerate the reduction of the US military presence in Europe, weaken the role of Nato and, to that extent, make Europe more vulnerable to attack. The weakening of America’s current global hegemony would undoubtedly complicate international military relationships more generally. Although Russia is now focusing on industrial restructuring, it remains a major nuclear power. Relations between Russia and western Europe are important but unpredictable. Might a stronger Russia at some time in the future try to regain control over the currently independent Ukraine? Would a stronger, unified EU seek to discourage such action by force? Could that lead to war between Russia and the EU? How would a strong and unified Europe relate to other nations in the vicinity, including those of North Africa and the Middle East, and the Muslim states of the former Soviet Union, which are important or potential sources of energy for western Europe? War within Europe itself would be abhorrent but not impossible. The conflicts over economic policies and interference with national sovereignty could reinforce long-standing animosities based on history, nationality and religion. Germany’s assertion that it needs to be contained in a larger European political entity is itself a warning. Would such a structure contain Germany, or tempt it to exercise hegemonic leadership? A critical feature of the EU in general and Emu in particular is that there is no legitimate way for a member to withdraw. This is a marriage made in heaven that must last forever. But if countries discover that the shift to a single currency is hurting their economies, and that the new political arrangements also are not to their liking, some of them will want to leave. The majority may not look kindly on secession, either out of economic self-interest or a more general concern about the stability of the entire union. The American experience with the secession of the South may contain some lessons about the danger of a treaty or constitution that has no exits. This is an edited extract from an article which first appeared in the Nov-Dec 1997 issue of Foreign Affairs. (C) Foreign Affairs/NYT Syndicate 1997.

Was this article helpful?

Leave a Reply

Subscribe to get your daily business insights