Is the Push for Greater European Integration a Mistake?

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Yves here. The designers of the European Union recognized that the structure that they had created was incomplete and critical issues remained to be resolved, but they were convinced that the high cost of two world wars meant that when crises inevitably occurred, they would be an impetus for greater integration. But as we have seen in the post-financial meltdown period, fissures in the European Union, and particularly in the Eurozone have widened.

As a result, Ashoka Mody questions the conventional wisdom that more integration, such as more fiscal transfers, will resolve these disputes. While he does not tease out his reasoning fully in this short piece, he seems to be acknowledging that greater economic integration will increase stresses on other fronts. Recall Dani Rodrik’s policy trilemma, which he set forth in 2007, and I’ve invoked in the past when discussing the difficulties facing Greece and the EU:

I have an “impossibility theorem” for the global economy that is like that. It says that democracy, national sovereignty and global economic integration are mutually incompatible: we can combine any two of the three, but never have all three simultaneously and in full.

To see why this makes sense, note that deep economic integration requires that we eliminate all transaction costs traders and financiers face in their cross-border dealings. Nation-states are a fundamental source of such transaction costs. They generate sovereign risk, create regulatory discontinuities at the border, prevent global regulation and supervision of financial intermediaries, and render a global lender of last resort a hopeless dream. The malfunctioning of the global financial system is intimately linked with these specific transaction costs.

So what do we do?

One option is to go for global federalism, where we align the scope of (democratic) politics with the scope of global markets. Realistically, though, this is something that cannot be done at a global scale. It is pretty difficult to achieve even among a relatively like-minded and similar countries, as the experience of the EU demonstrates.

Another option is maintain the nation state, but to make it responsive only to the needs of the international economy. This would be a state that would pursue global economic integration at the expense of other domestic objectives. The nineteenth century gold standard provides a historical example of this kind of a state. The collapse of the Argentine convertibility experiment of the 1990s provides a contemporary illustration of its inherent incompatibility with democracy.

Finally, we can downgrade our ambitions with respect to how much international economic integration we can (or should) achieve. So we go for a limited version of globalization, which is what the post-war Bretton Woods regime was about (with its capital controls and limited trade liberalization). It has unfortunately become a victim of its own success. We have forgotten the compromise embedded in that system, and which was the source of its success.

So I maintain that any reform of the international economic system must face up to this trilemma. If we want more globalization, we must either give up some democracy or some national sovereignty. Pretending that we can have all three simultaneously leaves us in an unstable no-man’s land.

The issue facing Europe is that many states, most critically Germany, do not want to cede national sovereignity to more powerful federal structures. In many ways, smaller states like Ireland, Greece, and Cyprus, show Germany what its future would be like if it effectively had circumscribed rights as they do. The Eurozone’s current protracted negotiations with Greece in no small measure result from the reluctance of unelected officials, particularly those at the ECB, from appearing to trump democratic processes, even though the consistent message from the creditors has been that Greece must figure out how to honor pretty much all of its existing structural reform commitments, popular will be damned.

Thus while Germany, plus the need to preserve appearances that democratic process still mean something are big constraints on further economic integration, it’s not clear how the Europeans find a more stable compromise.

By Ashoka Mody, Charles and Marie Robertson Visiting Professor in International Economic Policy at the Woodrow Wilson School, Princeton University. Originally published at Bruegel and Handelsblatt.

Sixty-five years ago on May 9, French Foreign Minister Robert Schuman read a Declaration, triggering the birth of the European Union. Still in the shadow of World War II, Europeans began to create, historian Tony Judt writes, “a new and stable system of inter-state relations.” Put simply, Europeans learned
once again to work with and talk to each other. It was a magnificent achievement.

May 10 is the fifth anniversary of the bailout of Greece. Set almost exactly 60 years apart from the Schuman Declaration, the events triggered by the Greek bailout have unleashed a daunting challenge to European cooperation and harmony. Above all, Europeans have lost the ability to talk to each other.
For some, this is not a European problem—it is a Greek problem. Greece, so this view goes, is sui generis, and once it is brought back into the fold, the systems of cooperation will return to normal functioning.

That is a mistaken view. The Greek problem will not go away. But the bigger problem is that the euro placed European integration into an unmanageable overdrive.

The policy package proposed by Greece’s creditors, requires further austerity and reduction of wages and social benefits. Those measures will help down the road, but the deflationary contraction will work faster. Debt will become harder to repay. A debt-deflation spiral could overwhelm Greece quickly.
German Chancellor Angela Merkel has blamed her predecessor Gerhard Schroeder for allowing Greece to enter the Eurozone. Indeed, Greece should never have been in the Eurozone. But the real problem lay in the construction of the Eurozone itself.

Schuman had said: “Europe will not be made all at once, or according to a single plan. It will be built through concrete achievements which first create a de facto solidarity.” That philosophy was admirably embodied in the Treaty of Rome in 1957, when European nations opened their borders to each other. Numerous commercial relationships sprouted among the European businesses and citizens. Empathy for the trading partners generated a sense of European identity. Citizens’ trust in European institutions followed the share of intra-European trade. The Treaty of Rome succeeded because it aligned national interests—nations and their citizens all gained through enhanced commerce.

With the euro, national interests collided. A common monetary policy is more favorable for some than for others. And crucially, the euro created the ever- present risk that one nation would have to pay the bills for another. The Treaty of Rome created a “level playing field,” in which nations participated as
equals. In the euro area, some nations are inevitably “more equal than others.” Greece must play by the rules of its creditors—even when these are evidently dysfunctional. Proponents insist that this will discourage others from deviating, and fidelity to the rules will ensure a stable Eurozone. But that
equilibrium will, at best, be fragile. The problems will worsen in Greece and, will inevitably, arise elsewhere.

The economic and political costs of breaking the Eurozone are so horrendous that the imperfect monetary union will be held together. Instead, the cost of the ill-judged rush to the euro and mismanagement of Greece will eventually be a substantial forgiveness of Greek debt.

But this is a good moment to step back and loosen European ties. As Schuman said, “Europe will not be built according to one plan.” The task is to create a de facto solidarity—not to force a fragile embrace. A new architecture should scale back the corrosive power relationships of centralized economic
surveillance. Let nations manage their affairs according to their priorities. And put on notice private creditors that they will bear losses for reckless lending. The European fabric—held together by commercial ties—is fraying as European businesses seek faster growing markets elsewhere. That fabric
could tear if political discord and economic woes persist. History and Schuman will be watching.

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  1. Foppe

    It seems our overlords have come up with a brilliant new plan (h/t ewald engelen), namely the creation of a Capital Markets Union, which is supposed to allow for the creation and sale of securitized SME and infrastructure investment debt. (See here for details, p.12 esp.) (This will of course work because the problems are all on the supply and funding side, while securitization has unfairly gotten a bad rep b/c of things that have been written — not least by these meanies — about some unfortunate things that have happened in the past, but that we want to put behind us.)

  2. Swedish Lex

    The EU leadership (EU bureaucrats but mainly national leaders like Merkel and Sarkozy) have since 2009 done more to kill European integration than at any periode since the thing started 60 years ago.

    Personally I am all for European federalism which would require greater democratic power and control at the federal level and less so at the national level. However, given the EU leaders’ utter mismanagement of what they inherited from their predecessors (basically the first ever period of peaceful co-existence between the various European tribes/nations), I cannot blame people for simply saing “no”.

    Saying no, however, means that something else would have to come in place. Britain will vote on something that may, or may not, be an exit. In case of an exit, Britain would have to renegociate every aspect of its relationship with the EU (all aspects of trade, movement of people, capital, judicial matters, foreign Policy). Everything. Henceforth, Britain would have zero influence of future EU Policy in any area. To some degree, this would create a possible competitive advantage for Britain. But, on the whole, the country would become cut off from its main market and from having any impact on future Policy.

    The inventors of the euro intentionally put the cart before the horse, assuming that future EU leaders later would do the obvious, meaning creating the federal Europe that is required with a common currency. The gutless and vision free Merkels, Sarkozys and Hollandes of this world hare however instead in the process of killing European integration by sticking to the principles laid down in at the peace in Westphalia in 1648. This is not going to work, however, if things continue like this. In the absence of an agreed democratic Framework, we have geo-political bullying by large Member States against the small ones, in the name of democracy and of the EU.

    1. guest

      Britain would have to renegociate every aspect of its relationship with the EU (all aspects of trade, movement of people, capital, judicial matters, foreign Policy). Everything.

      Not necessarily. The UK can join the EEA — which already has basically everything that is needed in place to regulate relations between the EU and a third-party European country in the areas of trade, financial matters and movements of persons.

      Somehow, you also fell prey to the TINA concept — outside the EU framework there is nothing.

      1. Swedish Lex

        The EEA Agreement is a no-go for the UK since it contains an obligation for the EEA States, like the UK in that case, to adopt all Internal Market legislation that the EU adopts as national “UK” legislation. Without any material right to amend the rules. The EEA countries also have zero influence on the content of the rules while they are being drawn up in Brussels. Basically like outsorcing a big chunk of democracy to the EU. Thusly the opposite of what leaving the EU supposedly is intended to achieve.

        1. Jesper

          Federalists are being used by big finance, only a federation could afford to bail out the too big banks. No federation and then the too big banks can’t be bailed out.
          Not quite sure why there is an expectation of an automatic improvement in governance just because the power is put further away from the citizens by doing what you say – transferring power to the federal level. Didn’t work for the US, I see no reason whatsoever why a European federal government would be more in touch with citizens and govern for the benefit of citizens than what the current US federal government does.

          The legislation that UK would no longer be able to influence is quite limited, the estimation is that about 5% of the EU-level legislation would continue to affect the UK. The ‘outsourced democracy’ would mostly be about legislating product and service standardisation – which is mostly done by technocrats and big business anyway. Even on that the EEA would gain negotiating strength by a UK entry while the EU would lose the same amount on the UK exit.

          1. Swedish Lex

            The 5% is totally wrong. All Internal Market matters, including banking, insurance and other Financial services would be decided by the EU with the UK not even having the right to submit observations. Over the City’s dead body.

            Not easy to sell a Federation since it would mean a step into the unknown. To me the Federation is a necessary step to prevent further European carnage, which inevitably will happen if the EU dissolves.

            Switzerland could be a model (from Wiki): The war convinced most Swiss of the need for unity and strength towards its European neighbours. Swiss people from all strata of society, whether Catholic or Protestant, from the liberal or conservative current, realised that the cantons would profit more if their economic and religious interests were merged.

            Thus, while the rest of Europe saw revolutionary uprisings, the Swiss drew up a constitution which provided for a federal layout, much of it inspired by the American example. This constitution provided for a central authority while leaving the cantons the right to self-government on local issues. Giving credit to those who favoured the power of the cantons (the Sonderbund Kantone), the national assembly was divided between an upper house (the Council of States, two representatives per canton) and a lower house (the National Council, with representatives elected from across the country). Referenda were made mandatory for any amendment of this constitution.[27]

            A system of single weights and measures was introduced and in 1850 the Swiss franc became the Swiss single currency. Article 11 of the constitution forbade sending troops to serve abroad, though the Swiss were still obliged to serve Francis II of the Two Sicilies with Swiss Guards present at the Siege of Gaeta in 1860, marking the end of foreign service.

            1. Jesper

              You’ve made two points:
              1. That Switzerland is a functioning federation, i don’t disagree but it I really don’t see the relevance. Switzerland is smaller, fewer citizens and their federal authorities are close to their citizens. As for arguing that carnage would happen if the EU was dissolved…. Fear Uncertainty Doubt argument and in this case very weak argument.

              2. Seem you believe that UK would have to adopt the same market regulations as the EU. That is not the case. UK firms would have to follow UK rules while doing business in the UK and when doing business abroad (like the EU would be) then they’d have to follow the local rules. Following the local regulations is the price of doing business.
              Might add that it might be better for everyone if the financial industry had less impact on regulations. So if the City of London got to have less regulatory impact on the EU that would be a very very good thing. But the City of London could and probably would lobby the not incorruptible authorities in the EU even if the UK were to leave the EU.

            2. Christer Kamb

              Other serious differences; Federal referendums since 1891.

              Would this be possible in the EU? Doubt it. The number of member-states are so many it could be difficult to mobilize a common view and thereby reach the minimum votes to have a constitutional referendum.

    2. Christer Kamb

      People in Europe do not speak(or feel)of themselves as europeans. Not at all as a matter of fact. Such things takes generations to achieve(USA i.e). Identity is very deep rooted. Nevertheless carreer-politicians and bureaucrats had to hurry and they even neglected outcomes in Treaty-referendums. If a certain country said no the commission later forced forward another referendum until they could achieve a ratification(i.e Lisbon). And of cource they did put pressures on sovereign governments to lobby&promote a positive outcome. From insiders we(I) know how the power-elites want to built their own monuments and legacies during their relatively short careers. This behavior is influencing the “integration”-process more negative than people understand. There is plenty of corruption.

      The euro was introduced although top independent economists objected. No single currency when member- states still had their own federal budget/taxation. Logically the euro was launched with 12 independent government bonds, instead of one, all benefitting from one interest-rate based on the financial state of the export-machine Germany. And an omnipotent(not a LLR) centralbank according to what they said at the time. What a mishap for what is now driving Europe against disintegration. Romano Prodi(Commission-president 1999-2004). expressed that a forthcoming crises would present an opportunity to go forward towards a fully completed Federation. This is a typical statement from politicians not respecting democratic rules. It is kind of blackmailing when you from experiance know how crises could be used to “reform” telling the masses that there is no choice if to fully recover economically. So far they managed to pay the bankers some(ECB bondbuying) but still they don´t really know how to fix the balance-sheets of the biggest banks in Germany and France(i.e) and of cource sovereign debts that are unpayable. An undemocratic Bank-union(1st step towards a bank-fix and a Federation) have been created were countries who not participates in the euro-system have to pay as well. But how can broken economies make the pay? Great Britain was not happy to say the least. They were furious and some critics say the Brussel-demands started the BIG debate about the participation in the EU.

      A political union is still not acceptable by people. Certainly the odds are diminishing when you become poorer. If bigger sovereign defaults is waiting around the corner, due to investors abandoning low-yielding government bonds meaning perhaps a interest-rate-shock, the whole EU-project could be falling apart. Not only the euro.

      1. Swedish Lex

        Not wrong but I belong to them who, on balance, would support a benevolent creation of the United States of Europe although it would be the consequence of an expression of the will of the people. In practice, many of not most European States would organise referendums so people would get to vote.

        1. Jim

          The idea of a United States of Europe is complete, total and utter nonsense. For that matter the US itself is on a path to disintegration.

          European countries like the UK, Belgium and Spain will likely breakup. Possibly Italy as well, Silesia will probably seek independence from Poland. The borders in Eastern Europe are quite unstable as we are seeing in the Ukraine.

        2. Christer Kamb

          Well the idea of United States of Europe is perhaps not wrong when looking for a power-balance with i.e North-America and Asia. There is though several important policy-decisions that are made to far from the general public. I.e WTO and now TTIP. These kind of agreements are nowadays very complicated and when negotiated behind closed doors there could be to little time for the public&media to get inside the details on how future risks can be assessed. The devil´s lie in the details and promoters are often frontrunning the arguments in a debate. Like the euro!

          Now one of the biggest arguments for creating the union, peace, is doing the opposite.

          Still I am pro EU but not yet a Federation. The Euro should be abolished because it does not work. They are still kicking the can and the costs are rapidly rising towards the logic end-game. Even without overindebtness several member-states will fail within the euro. Productivity-differences and relatively weak industrial-bases will haunt these states during normal business-cycle downturns, continuously putting pressure on the union. Yes there are great risks involving abandoning the euro but hopefully EU itself is strong enough to cope. But unfortunateIy it is now mostly about the money, except for Britain, in the foreseeable future. More crises will follow and the elite do not want referendums unless the general public really demands it through uprising protests etc . That latter can prove very dangerous when done in a precarious situation like during a new hard recession which I think is closer than most people are aware of.

          MyseIf, I would like to see a slower integration-process and less bureaucracy, more transparency and smaller career-platforms. I want to see ordinary people working cross “borders” who in the longer run achieve more of european togetherness and understandings. This is slowly in progress, yes, but we still need many more years. Say anothertwo or three generations before a Federation is matured?

          One of the most important reforms on my agenda is the financial industry(been there&seen it all). Banks should be banks, not mega-traders&selling institutions, frontrunning their clients and the general public(a new Glass Steagall). Also I don not like the corporatist bias in politics of today. I am old enough to see how the integrity of todays career-politicians have eroded over the years. When thrust finally disappears it is to late.

          1. Swedish Lex

            I agree that the status quo cannot continue. Better to kill the euro unless there is real federalism.

            1. Christer Kamb

              Right. Trying to save the euro is one thing but there is a quiet maneuvering towards federation. And the issue is not on the table, deliberately of cource. Media is silent and the public in general is unaware about what is going on behind the curtains. As you said they are bound to each other and bringing up the federation-issue on the agenda right now would probably undermine the process of securing the euro-system. Their strategy is undemocratic. What is most surprising though is how national parlaments totally avoids these questions(except UK)! Ignorance or repressed and gagged?

        3. Christer Kamb

          Swedish Lex said; “….. expression of the will of the people.”

          It will also depend on how details in Treaties are written. Before the Euro was launched there were national referendums saying Yes or No. Years later most people were informed that governments had their own right to choose Yes or No if the Euro wasn´t voted for by the people. Meaning direct democracy is seldom a preferable instrument for politicians.

  3. Marko

    ” So we go for a limited version of globalization, which is what the post-war Bretton Woods regime was about (with its capital controls and limited trade liberalization) ”


    We have a winner!

    If the old Coke was simply better than the new Coke , in every way , you’d be smart to swallow your pride and go back to the old Coke. God , how I wish we were smart.

    1. NotTimothyGeithner

      Those pepsi taste tests were real. Coca-Cola was in a rapid decline, so they created a soda which was preferred over pepsi blind taste tests. Of course, taste and nostalgia go hand in hand. People like the idea of drinking coke and want coke to taste like winning World War II. Coke’s advertising since the new coke fiasco has focused on nostalgia, simpler times, family and Christmas to appeal to mothers who are the primary soda purchasers. Pepsi tries to appeal to kids rebelling.

      Coca-Cola had a reasonable explanation for their behavior. The Euro elites are just sticking their heads in the ground.

  4. H. Alexander Ivey

    “The policy package proposed by Greece’s creditors, requires further austerity and reduction of wages and social benefits. Those measures will help down the road, but the deflationary contraction will work faster. Debt will become harder to repay. A debt-deflation spiral could overwhelm Greece quickly.”

    …will help down the road but …contraction will work faster… Don’t these people understand the concept of time? If the negative occurs before the positive, the negative will win, so there is no positive here. I fail to see how austerity, by this argument, could be positive – his “could overwhelm” should be “will overwhelm”. Review post-Depression Fisher please for the details of debt-deflation.

    To quote Madam Thatcher, TINA – except here, the present course is all negative.

  5. financial matters

    We seem to be on the path of letting democracy go while keeping national sovereignty and global economic integration. This seems to be what things like the TPP give us. The global economic integration is at the corporate level and uses the national sovereignty for enforcement without having to worry about democracy interfering.

    This has been previously considered by Benito Mussolini, November, 1933 in Capitalism and the Corporate State:

    “Corporationism is above socialism and above liberalism. A new synthesis is created. It is a symptomatic fact that the decadence of capitalism coincides with the decadence of socialism. All the Socialist parties of Europe are in fragments.”

    1. Santi

      Franco fascism theory was based on Mussolini’s theory. Translating this video excerpt: “A Totalitarian State will harmonize in Spain all the capacities of the country. Therein, in our National Unity, Work, our most inalienable duty, will be the utmost exponent of the popular will, and thanks to it, the true feelings of the Spanish people will be expressed through those natural organs like the family, the City Council, Associations and Corporations…”

      Not so different from Mussolini’s corporatist fascism, and not so different from the current neoliberal proposition: do what you want in your family, elect your Major for minor politics, but the rest will be handled by Corporations and Associations…

  6. TarheelDem

    The move for voluntary European integration was a responsible reaction to several violent centuries of forced integration. If that motive toward integration no longer exists, maybe it’s because some aspects of the economy, polity, and culture of postmodern global sciento-technological civilization have changed the pressures and conflicts.

    Global stability (it doesn’t seem that way but most instability is very focused) has the effect of making devolution of regional power less scary. The EU did create the space within which Scottish, Welsh, Catalonian, and Basque devolution, if not separatism, could be negotiated. And after the Balkans War, it created a means of peaceful integration of that region that is only now being threatened once again by US meddling.

    The question facing Europe is whether it can maintain regional stability without a Eurasian enemy requiring defense integration. When the collapse of the Soviet Union took away that enemy, the chaos of that collapse served that purpose for two decades; possibly why that chaos was not addressed with something like a Marshall Plan. Now that Russian stability and power has been restored sufficiently to be not a current threat and not yet enough to be a future threat, European is experiencing disintegrating nationalist forces.

    The other issue for Europe is the long-term corrupting effect of the US occupation and defense umbrella over 70 years. The UK and France are nuclear powers in an ambiguous position geopolitically. Like Israel and Egypt if Iran foregoes nuclear ambitions, the UK and France will experience pressures to divest themselves of nuclear weapons completely, making Western Europe a nuclear-free zone. Resurgent nationalism will move counter than and in the direction proliferation in other countries. The current elites have only second-hand knowledge or World War II. As that memory fades, people forget exactly why integrating institutions were created in the first place just like the current leadership has completely forgotten why the institutions of the US New Deal and post-WWII social democracy were created in response to the Great Depression.

  7. Jim

    The Holy Roman Empire probably made a lot more sense than the Eurozone. The latter project is based on ideology and reckless disregard of reality.

  8. Steven

    This is the essence of the drive towards ‘globalization’ or as some call it ‘one world government’:

    note that deep economic integration requires that we eliminate all transaction costs traders and financiers face in their cross-border dealings. note that deep economic integration requires that we eliminate all transaction costs traders and financiers face in their cross-border dealings. … The malfunctioning of the global financial system is intimately linked with these specific transaction costs.

    As Michael Hudson keeps repeating, “The product of Wall Street is debt.” Those ” regulatory discontinuities” where nation states attempt to curb the worst abuses of industrial capitalism introduce too much “sovereign risk”, risk that impedes the ability of traders, financiers and their bankers to sell their product at the highest possible price. The bit about “prevent global regulation and supervision of financial intermediaries” is just ‘public diplomacy’. It should probably read “the removal of all global regulation…” Mody can’t even wait a sentence or two before he gives the game away with his call for a “global lender of last resort” so finance capitalists world-wide can continue their game of private money creation untrammeled by the real world risks faced by ‘old fashioned’ industrial capitalists and the growing volume of “debts that can’t be repaid (and) won’t be”.

    1. Older & Wiser

      Re Michael Hudson, it’s arithmetically UN-payable Wall Street debt, mind you.

  9. financial matters

    I think it was Rodrik that made the comment about the global lender of last resort rather than Mody. I’m not sure if Rodrik is personally in favor of this but his theory is just saying that it is impossible to have all 3, global economic integration, national sovereignty and democracy, and that without global economic integration it would not be possible to have a global central bank.

    On a smaller scale we’re seeing that we can’t have a European Central Bank without european economic (fiscal) integration. For this to work the individual countries would not be able to have full sovereignty or full democracy. Not to say they couldn’t have a common interest and equal rights.

    1. Steven

      You are correct – Rodrik not Mody. A question… does the argument for a global / regional / national central bank hinge upon it’s ‘lender of last resort’ function? If so, I think I’m against them, at least on a global level. Apocryphal or not “Permit me to issue and control the money of a nation, and I care not who makes its laws!” certainly has the ring of truth to it. Before a global central bank individual countries may have common interests. But in a money driven industrial civilization it is hard to see how they could have any rights at all.

      1. financial matters

        I like Calgacus’s comment below. I think the best thing central banks could do would be to orient toward full, living wage employment. Their current orientation toward asset appreciation is very damaging.

        I think the lender of last resort should only be used to temporarily bail out illiquidity rather than support insolvency and fraud.

        The money market funds were also a focus of the last meltdown and I’d like to see central/postal/development/state/public type banks provide a safe low interest saving function distinct from tri-party repo.

  10. Calgacus

    I have an “impossibility theorem” In general, the word “theorem” in economics is a nearly infallible sign that someone is about to pull a fast one, to make an argument and then misapply it through word-play.

    the conventional wisdom that more integration, such as more fiscal transfers, will resolve these disputes

    “Fiscal transfer” is an untrue concept. What monetary societies always need is better called “fiscal equalisation” (Godley). As Wray says, they’re fiscal, but they aren’t “transfers”. When you buy a loaf of bread at the supermarket, are you a majestic lord (Germany) deigning to enact a fiscal transfer to the lowly rabble / merchant (Greece)? Or are you just buying something, getting a commodity for a credit?

    Nation-states are a fundamental source of such transaction costs. Without the nation-states, the money the transactions are denominated in, the transactions themselves and things which are being transacted after being produced in a monetary production economy, wouldn’t even exist. So this is like saying people should get tough about the cost of eating and drinking – stop paying for food and water, and even breathing – because they cost too much. Missing the forest for trees.

    note that deep economic integration requires that we eliminate all transaction costs traders and financiers face in their cross-border dealings.

    Nonsense. Welfare-for-the-infantile-rich, guaranteed income and profits for corporations / speculators who demand to be diapered and burped requires “eliminating” such costs. Since this is impossible, it can only come at everyone else’s – at all of humanity’s – at all of Earth’s – expense, which enormously exceeds the very short term “benefit” to the infantile wealthy & the corporations.

    Freely floating fiat currencies used to eliminate unemployment – not one unemployed person – and eliminate inflation too – yields “democracy, national sovereignty and global economic integration” – which Rodrik wrongly claims is impossible. And they require no international cooperation except the most important and invisible kind: freely selling stuff to “foreigners” who hold your nation’s money. It just doesn’t yield global economic nannies-for-corporations-and-currency-gamblers – which is what is being misnamed “global economic integration”.
    Lerner (& imho FDR & Keynes too) understood this very well, and Lerner explained it at length, anticipating all the specious objections, decades ago. The “Keynesian” policies of the postwar era made Bretton Woods / fixed rates / easy global integration possible for a time, not vice versa.
    even though the consistent message from the creditors has been that Greece must figure out how to honor pretty much all of its existing structural reform commitments, popular will be damned.

    A creditor who makes criminal and insane demands like these – which make the debt less payable, not more – is by that fact diminishing or abolishing his moral claim of being owed a debt. Calling a loan-sharking demand to break your own legs a “structural reform commitment” does not change the fact that it is a demand to break your own legs. So the Euro is not about “debt”, but degradation and humiliation. The sooner Greece leaves the Euro, the quicker the robust recovery, the most likely outcome of a Grexit, forced or not, will be. In general, Grexit pessimists are sloppy and miss things, make strong claims without foundation or argument, not the careful optimists.

    In general, there is a common – but recent – rewriting of history implicit throughout. The EU was not so important for peace in Europe as recent propaganda claims, and nobody used to say it was. What made for peace in Europe was the experience of the world wars, and the far more important international treaty and organization resulting from them – the UN Charter and the UN.

    1. Santi

      Calling a loan-sharking demand to break your own legs a “structural reform commitment” does not change the fact that it is a demand to break your own legs. So the Euro is not about “debt”, but degradation and humiliation. The sooner Greece leaves the Euro, the quicker the robust recovery, the most likely outcome of a Grexit, forced or not, will be.

      On the other hand, Greece seems to have chosen to resist the bullies instead of leaving. Today I was talking with a young Greek friend, and she, having never lived before the EU, didn’t understood the concept that you need a work permit or a visa to enter a country and stay there, even when you have your loved one there… If Greece lives the EU, the need of a visa might return. If the English perform their Brexit, they might as well need it to come to buy properties in Marbella…

      The point is that we Europeans typically want to preserve the free movement of people and the common currency, but don’t want, as you say. “degradation and humiliation”, but sensible economic policies instead. Framing all the Euro crises as “sovereign” is a misnomer, they are really governance crisis for the European institutions.

      So, when Varoufakis, asked what is he expecting the ECB to do, says that he expects them to “do their work, and ensure liquidity and a working European banking system”, he is playing an important service to what the Europeans want: working institutions. This surely needs things like a minimum unemployment subsidy, etc. This will turn into fiscal transfer quickly, and I can tell you that the austerians would think twice before imposing draconian contraction to the South if they had to pay the unemployment subsidy bills.

  11. susan the other

    We are a long way from cooperation. Private money against sovereign money. That’s a recipe for chaos forever. We could get religious about it and invoke the environment. When you attribute your existence to the planet there is no private v. sovereign “money”. There is only the well being of the planet. If we ever come together it will be over something like the environment. Not to pontificate here, but it’s no wonder nobody can agree. Time was when the human population still had room to grow, be proud to be a thriving nation, and could use money to make that happen. But even that option is gone now. If we wrote a constitution for the planet, it would give us the right foundation.

  12. Otter

    Certainly, the folks who had first hand experience of World War Two / The Great Patriotic War knew European Union was a Good Thing ™, maybe the only sane thing.

    In retrospect we must wonder if these people were those who nurtured the Dream. In anycase, since then the Dream has been hijacked, and bent to other purposes. We must also wonder who the hijackers were, and are. We do know that the servants of hijackers have been installed as bureaucrats, and that all pretense of democracy has been publicly strangled. Europe has been integrated to the extent that it suits the purposes of the bureaucrats and their masters.

    The cracks though. Do they show us where integration was sloppy? Or where other elites, outsiders, are trying to push their ways into the trough? Or do they show us where people, citizens, are trying to jam the gears with their bodies?

    The first two want more, improved integration. The citizens doubtless want some disintegration, especially of the chains which enslave them. If we are lucky, in a few decades, if they can keep the bureaucrats and hijackers at bay, and if they enjoy beneficial relations with their neighbours, they may want to cautiously explore integrating some parts of their lives.

    It is very important to remember that, although we say for example the Germans attacked the French (and although we know how to excite the peasants), it was never really the Germans or the French who attacked. They were always elites, usually foreigners, who planned the wars and rounded up and sent the peasants to die.

  13. Richard II

    Let’s not forget the security/peace argument. Closer integration on economic and rules and regulation etc front is absolutely right way forward for Europe. However, EURO as a construct is huge mistake – it is not me saying it – it is historical evidence that NO currency union survived more then 20-ish years. Again maybe Eurogroup ministers should read again “History of Money”.

  14. Demeter

    If I may quote President Lincoln: “You can fool all the people some of the time, and some of the people all the time, but you cannot fool all the people all the time.”

    And the technocrat Elite designed the Eurozone to do exactly that. Only I’d substitute the verb “to screw”.

  15. Marie Christine Duggan

    It is a dangerous error to view this as a battle between Germany and Greece; that feeds into the nationalistic rage that financial crisis tends to breed (and did breed in the 1930s). This is in reality a battle between the financial sector and the real sector. European integration is possible and beneficial, but not if the people behind it are speculators seeking short-term profits, which is, I think, how it is currently driven. “Financial market integration” pretty much is a code word for opportunities for investment banks to market short-term credit to governments and households, and for share-prices on stock-markets to drive corporate decisions. To take European integration back, then Europe’s citizens would need to put in place policies that restrict the profits of the financial sector, to channel credit from surplus to deficit nations, but in a long-term, sustainable way, not in a speculative manner. Many people in Germany are in favor of a sustainable economy, so this is not a battle between Greek people and German people. SYRiZA is in the front lines of this battle. It is not an easy place to be.

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