The end of Monnet

The Economist

The debt crisis is exposing problems in the basic design of the European Union

Sep 3rd 2011 | from the print edition

ALL it the curse of the euro. When politicians discuss the single currency’s crisis in Brussels, their actions are invariably seen by markets to be too little, too late. When they return home, they are accused of surrendering too much, too fast. So bond markets swoon and leaders become enfeebled. Such has been the fate of last July’s summit deal to save Greece for the second time and boost the embryonic European monetary fund. Government debt is dangerously wobbly in Italy and Spain, yet political approval of the deal has hit trouble in Germany and Finland.

“The European Union”, bemoans one veteran Eurocrat, “was not designed to deal with a crisis.” Blame Jean Monnet, the EU’s godfather. The French functionary believed in gradually unifying post-war Europe through discrete projects run by a caste of technocrats, with the end-point left deliberately ambiguous. Europe, he said, “will not be built all at once, or as a single whole: it will be built by concrete achievements which first create de facto solidarity.” His method has gone far. European states have voluntarily pooled a remarkable degree of sovereignty.

But the méthode Monnet has brought two problems. One is that it alienates voters. Elected governments must increasingly answer for policies they do not fully control, while voters have no power to “throw the bums out” in Brussels. The European Parliament, self-aggrandising and mediocre, cannot fill the democratic deficit. The method’s other drawback is its sheer clumsiness. Authority in the EU is dispersed, and many decisions still require consensus among 27 governments (or 17, for the euro zone). The euro was created without the supporting structure of a treasury, tax-raising powers and coherent decision-making.

In normal times such compromises, checks and balances help with the democratic deficit by ensuring that states do not feel too trampled-upon. In troubled times, though, they mean that the EU struggles to act. Every response to the debt crisis has been subject to vetoes by governments and parliaments. Bond traders can move in seconds and hours; states in days and weeks; the EU typically takes months, years, even decades. The most responsive actor across the euro zone in the crisis has been the European Central Bank, unelected and independent of any government.

So even as EU leaders struggle to implement the half-steps they have agreed upon so far, there is a chorus demanding more integration. Few go as far as Joschka Fischer, elder statesman of Germany’s Greens, who wants a United States of Europe. But even those outside the euro zone are keen for the 17 to pull more closely together. Jacek Rostowski, the finance minister of Poland (which holds the EU’s rotating presidency), put it thus: “The choice is: much deeper macroeconomic integration in the euro zone or its collapse. There is no third way.”

Yet advocates of integration disagree over what it would mean in practice. Two visions are taking shape. One is the notion of “economic government”, championed by France’s president, Nicolas Sarkozy. It is not clear what exactly that would entail. But there would probably be twice-yearly summits of the 17 members of the euro zone, distinct from the traditional get-togethers of 27 and also distinct from the new “euro-plus pact”, a hybrid of the 17 plus six others willing to take part in closer economic co-ordination. Formally or informally, Herman Van Rompuy, the president of the European Council (who chairs summits), would become “Mr euro” at the expense of the erratic Jean-Claude Juncker, who chairs meetings of the euro zone’s finance ministers.

For Mr Sarkozy economic government would be a means of extending French influence and maintaining parity with Germany. For the German chancellor, Angela Merkel, creating a club-within-a-club is the only means of imposing discipline on wayward members. But EU countries which do not use the euro would worry about being relegated to second class. Smaller countries which do would worry about being bullied. And more institutional wrangling would hardly restore market confidence.

An alternative model envisages the issuing of joint Eurobonds. At an aggregate level, say supporters of the idea, the debt and deficit figures of the euro zone compare favourably with those of America and Britain, whose bonds are treated as safe. But Mrs Merkel will not hear of Eurobonds. And reducing the borrowing costs of the profligate could increase them for the virtuous and reduce the incentive for reform. So Eurobonds inexorably lead back to the question of fiscal, and hence political, union.

what of the democratic deficit?

Markets are—at the moment—acting as handmaidens of euro-zone integration. Whatever form it takes, such integration is bound to clash with national democracies: it means other countries and Brussels will have more powers to dictate each government’s economic policies. The currency may be European, but wallets are national and parliaments will not easily share their purses. One way to square the circle would be to convince parliaments to adopt EU-inspired balanced-budget rules. Italy, Spain and France are among those talking of passing such constitutional amendments. The trouble is that golden rules cannot substitute for economic policy. And the less states can make free choices over wages and welfare, the less they are sovereign.

So the limits of Monnet’s method are being reached. Governments are running out of modest steps that can be passed off as technocratic fixes. Short of an unexpected change in the markets, or a sudden return to growth, they must confront a fundamental political decision: if the euro area wishes to avoid the nuclear option of complete disintegration, it will have to make the leap towards fiscal union. Once this decision is taken, other arguments over, say, Eurobonds might be settled. Either way, it is time to set Monnet aside. Tell voters what the real choices are.