The Eurozone Crisis and the Delicate Plant Syndrome in European Studies

Christoph Meyer |

I cannot help feeling that it is not only Angela Merkel, the Greek state, and Eurostat who have plenty of egg on their faces after the events of the last year. But also European Studies as a discipline with public responsibility has some hard questions to answer about why it has on the whole failed to criticise publicly the many mistakes that led to the current impasse. To recall: the Eurozone is still faced with an existential crisis, only temporarily eased by the belated financial rescue package to prevent the bankruptcy of Greece and further contagion. Yet another round of Treaty change appears necessary to ensure the survival of the Eurozone, just at a time when it is politically least feasible.

The crisis is essentially about the credibility of the common currency in the absence of political union. It has become abundantly clear that the current situation in which Southern European countries are facing sovereign debt problems, a loss of competitiveness and no opportunity to devalue is unsustainable without fiscal transfers in some form or another from Northern surplus countries to the rest. The alternative is a deflationary spiral in Southern countries with falling wages and brutal austerity measures that can hardly be politically sustained. On the other hand, Northern European and in particular German politicians have found it impossible to tell their compatriots that fiscal transfers to the “Euromed” countries are a price worth paying for the political unity of Europe, the openness of export markets and a common currently that does not cause constant problems for exporters (ask the Suisse how happy they are about the strong Franken).

How did we get there? While the financial crisis and its specific dynamics were quite unpredictable, economists have long argued that monetary union without at least fiscal union is unsustainable, that the Stability and Growth Pact designed to fill the gap was deeply flawed, and that the countries forming monetary Union were not sufficient similar economically to absorb an asymmetric shock. I remember writing a postgraduate essay on it in Cambridge in 1997, which basically arrived at the conclusion that fiscal transfers will be necessary and likely. Kohl would not allow Monetary Union to fail. Merkel said the same recently, but the markets still doubt this commitment given the short-term costs and long-term risks to the German taxpayer.

How come, therefore, that there we so few people that pointed out the fallacy of letting high debt countries join that historically relied on currency devaluations for their competitiveness such as Italy and Greece and which were facing major problems of economic governance? How was it that hardly anyone of note in the discipline raised publicly hard questions about Greece joining at the time and the lack of scrutiny it faced by DG Ecfin, Eurostat, and the ECB?

Why has the critique of the neofunctionalist logic underlying the move to Monetary Union, which is visible now (integrate deeper or fail), not been expressed more vociferously, but outsourced to ideologically Eurosceptic economists? This is not just a question of speaking-up in public, but also about some of the scholarship and its foresightedness.

For instance, just a year ago, the introductory article in a special issue of the Journal of European Public Policy (16:4) on 10 years of EMU by two leading scholars of EMU, Amy Verdun and Hendrik Enderlein, painted a overwhelmingly positive picture of how monetary union had performed in the absence of political union, including its performance during the financial crisis. They acknowledged the potential negative as well as positive effects of the “financial crisis”, but with the benefit of hindsight we must conclude that this was too much praise, too early. In retrospect, also my own writing on this topic (in: Economic Government of the EU, Palgrave, 2007) could have highlighted more the risks and tensions in the current edifice.

My diagnosis is the following: Most people doing European Studies, including myself, are Europhiles. They have an emotional attachments to the European “project”, the joys of cultural diversity, the idea of overcoming centuries of violent rivalry and parochial nationalism, for the benefit of its own citizens and possibly even as a force of good in the world. It is true that many people have seen the many flaws of design and practice and even formulated critique of integration and governance in general and EMU in particular in academic papers (Hodson, Begg, de Grauwe, etc). Overall, however, I feel there is still too much of what I call “the delicate plant syndrome” in European Studies: It is common norm that pro-Europeans most somehow spare “the project” harsh and public critique for fear of strengthening Euroscepticm, especially those working in a UK context. This is of course a flawed proposition as critique could help to improve the project, rather than dismantle it.

Despite all the writing about the EU legitimacy deficit, the flaws of the Lisbon Strategy and the mislabelled Constitutional Treaty, or the calls for more visible conflict and politics in EU governance, we have not cultivated the kind of hard but fair criticism of EU institutions and national governments needed to prevent some of the major mistakes that are haunting European elites now. Such public critique by leading figures of the discipline could have also sparked the kind of debates that might have countered citizens’ impression of the European integration as a plot of like-minded elites that do not wish to hurt each other. It is high time for introspection, but also to be more open about the failures of European integration and how they may be remedied.