The past and future of the EU: an interview with EurActiv
I talked to EurActiv Slovakia’s Chief Editor, Zuzana Gabrizova, on Monday 7 April – below is the interview that you can also find on EurActiv.com, and in Slovak on EurActiv.sk.
You look into the history of specific aspects of European integration. In what way is this insight, so terribly lacking among many of today’s decision makers, useful?
It is the same as why you study history – because you want to understand where the present is coming from. It helps uncover the structural forces behind current developments; it explains why things became what they are today. Because of the frenetic rhythm imposed by daily news, we tend to forget what happened in the past. But it actually can be very useful to understand the present day, and how things may evolve in the future.
Is there something in the history of European economic and monetary integration that is particularly relevant today?
What is especially relevant is the fact that many of the debates that happen today have been going on for many years. Of course, the situation today is different: the levels of debts and deficits are not the same as they were 30 years ago, for instance. But a number of discussions about creating a federal budget, some transfer of resources from richer to less developed countries, have been debated since the 1950s.
Interestingly, the countries in favour and the countries against remain the same over time. Very often, the contributors were against, and those who were more likely to be the receivers were in favour. In the end, it helps to shed light on the current dynamics. Admittedly, the point is very frustrating, in the sense that it may not be very promising for the future. It is likely that a number of countries will keep the same attitude.
But it helps to place the Eurozone crisis in its long-term context, in the sense that many things that we consider as a crisis peculiar to the present day have always been there in one form or another. It is not just a problem of the euro; it is rather a story of problems that have not been solved prior to the introduction of the euro.
When politicians claim the crisis is being used as a pretext to create “United States of Europe,” is it a false claim?
It is both true and false. It is false, in that it has always been a constant argument. But it is true, in that it is an accurate one, in the sense that arguably the only way for the euro to function properly is to go into – not necessarily a federal state – but to give more powers to the supranational level. For instance, if you think about the federal budget for EMU, then comes the question of a political union, because you need to have the authorities which deal with the budget to be legitimate. In a way, you move towards something that looks more federal. If you look at the reports that were calling for monetary union 40 years ago, there was very often the argument that a monetary union couldn’t go without a political and economic union; and that only the whole package makes sense, otherwise it will not work.
In a recently published Slovak study on the Eurozone, the summary reads: “Either we save the Eurozone at any price and then we need to seriously think about fiscal transfers – or we decide that is more important not to have these transfers, and then we need to start thinking how to dissolve the monetary union in a guided manner.” Do you agree?
I would disagree with the second part. I think it is very difficult to dissolve the Eurozone, to undo all the technical details that have been organized at the level of the ECB, all the financial mechanisms, all the reprinting of the currencies of specific countries. It would be even more difficult, as once you dissolve the Eurozone, then we find ourselves in a situation where all the currencies are freely floating in a world of free capital movements. That would quickly prove unsustainable. The second option is thus not really viable, and most likely the first one would be the real option.
Many years after the outbreak of the crisis, public discourse is still arguing about the causes in Europe. Some say that problems have not been analysed, but moralized, in the narrative of lazy Greeks, living beyond their means….
I agree. Of course the crisis started off with the issue of fake deficit levels that the Greeks had produced in the past. But we should not forget also that there were people and institutions who were meant to supervise this, who were apparently not doing it properly, as they did not manage to see that those were fake figures. We should investigate what happened at the level of the European Commission and Eurostat, for instance. That is the other side of the coin.
So yes, problems have been very much moralized rather than analysed, which is to an extent understandable. But it is never a good way of dealing with such a crisis, and the issue of debt. This moralization was really coming from domestic motivations rather than anything else. And this moralization is helping very little in solving the crisis.
In your blog, you have highlighted that during EMS negotiations, Germany has said it is up to each country to reform itself and make convergence happen. We are seeing this discussion reopened in the the proposal for a separate Eurozone budget. Do you see any shift in the German stance since?
Not really. It is always the same stance. There is not much shift in other stances either. The French remain more or less on the same lines, the Italians as well. It is not Germany as such, if you go back to the life before the euro. It is more countries that used to have a strong currency that remained in that position. It is not changing. That is why I was saying at the beginning that, in a way, this is not terribly promising for the future. It is a question of economic culture. But what is striking is that the intensity of the disagreements tended to be a little less important in the period from the early 1990s to the early 2000s, when Germany did not have such a strong economy as it had before and would have later. Relationships were less tense at that time, partly because for about ten years, Germany didn’t run account surpluses as it does today.
You have also recently pointed out that the European banking union, currently being finalized at the EU level, echoes the attempts to harmonize (to a certain extent) the banking system in the European Community in the 1960s. With what result at that time?
With no result, or at least very limited ones compared to the initial ambitions. The context again was very different. There were no similar levels of debt and deficit. The objectives of what we could call at that time a banking union was not to de-link the banks and the sovereigns as it is today. The rationale was very similar in the sense that the idea was to harmonize the banking legislation of the different countries. The difference was that the Commission was aware that the logical step was to have some supranational mechanism, but never proposed it at the time, because it felt it was not politically doable.
The consequence for today is perhaps the relative weakness of the Commission. Back then, the EC was a very ardent supporter of the scheme, and it did not go through. Another link to the present are the problems related to London. London was one of the leading international financial centres at that time. When the so-called banking union discussions started back in the 1960s, London was not in the European Economic Community (the EU’s predecessor). When Britain joined, it managed to stop the ambitious discussions. We still see some elements inherited from that dynamic today.
It also seems to be taken for granted that not all banks are under the supervision of the ECB, particularly the smaller saving banks in Germany. That is coming from the 1960s, when the Commission started the discussions. The Commission was saying that one of the first points was to define what a bank is, and what banks would be concerned by the directive. Many countries asked for exceptions. Ever since that episode, it seems to have become accepted that there could be exceptions, namely, that not all banks had to be supervised. That never really changed during the past 50 years, despite the fact that it is very debatable, because the exceptions can be systematically important.
How would you asses the effectiveness of the new instruments of economic and monetary coordination?
It is difficult to see, because a number of elements, like the European Commission controlling the national budgets, is still an ongoing process, and a lot will be defined in the next few days if the French government actually ask for a bit of a delay in reducing its deficit. If this is so, we will see how the European Commission will react. There is also another issue, namely, whether EC will effectively use sanctions against those member states that do not respect the rules. But overall, it is difficult to see whether it is the new mechanisms, or the crisis itself, that forces national governments to be really strict with their budgets.
Do you believe that France will be the first big test?
It may well be, because the EC would have to say whether or not it accepts the delay. If it agrees, then it may be seen as too lenient. If it disagrees, then the next question will be how the sanctions actually work out.
You have also looked into the rise of European summits as an institution. There has been a lot of criticism towards the way the summits were run during the crisis. Especially if the architecture of the European response has been agreed to between France and Germany, and then put forward to other leaders to make a political commitment.
Taking a long term view, it striking to see that back at the beginning, when the European Council and the G7 emerged, summitry was viewed, to an extent, as a democratic improvement, while today it is sometimes portrayed as a democratic regression. Back in the 1970s, many negotiations were just happening between experts at the international level, so you do find reactions from heads of government at that time, when they decided to create the European Council saying, “We had experts in the place for months now but we, legitimate, democratically elected people, need to be involved.” Sometimes it seems that we forget that the heads of government meeting in the European Council do have democratic legitimacy. The question is the overall democratic balance within the EU, but that will probably change with the next EP elections with the political parties choosing the EC President. The problem of democratic legitimacy is rather that it is not clear how some decisions can be contested. Back in the 1970s, creating the European Council was partly seen as improving the overall balance. Now, the overall balance itself has considerably changed.
Is it a problem, when the Prime Minister says he does not understand the wording of the conclusions, and that he can hardly do anything about it at the Council?
The feeling of powerlessness is clearly one of the striking features that come up in European Councils. The European Council is a diplomatic tool, where often the big countries are at ease, but for the small countries, it is much harder to let their voice be heard. It reminds me of the 1970s – for which you can now see the records of what the heads of governments were actually saying to each other. And it was clear for the discussions on the European Monetary System in the late 1970s, that the only people who understood the mechanics of the system where German Chancellor Helmut Schmidt and French President Valéry Giscard d’Estaing. That was creating problems in the discussions, because Helmut Schmidt was aware of this situation, and was talking at length about these details at the meetings. As a consequence, all others were out of their depth, because they did not really understand what was going on. This clearly has an important influence on the overall negotiations, and their outcome – in the 1970s as much as today.
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