Yanis Varoufakis: The Two Faces of the Euro – Jacques Delors and Wolfgang Schäuble

Yves here. Varoufakis covers critical history in the foundation and development of the Euro and Eurozone, and how French and German jockeying, playing out in particular through Jacques Delors and Schäuble, with some influence by Margaret Thatcher, set it on what proved to be one of the worse of potential paths.

What is intriguing (aside from the way France and Germany were engaged in dominance games) is that uber austerian Schäuble thought writedowns by overindebted Eurozone states were necessary, but the offending country would have to leave the monetary union.

As we discussed at length in 2015 during the Greek bailout negotiations, the Eurozone is a roach motel. It take a year just to design, print, rekit ATMs and distribute new physical currency. The required coding for a new post Euro currency takes much longer (remember you need cooperation of many other processing networks and banks; this goes way way beyond a domestic bank problem). But once anyone gets wind their country will exit the Euro (which among other things would mean forced redenomination of their deposits into new and assuredly soon lower value national currency), everyone will put their money into foreign banks. That translates into the mother of all bank runs, destroying the economy even before you got going.

By Yanis Varoufakis. Originally published at Project Syndicate; cross posted from his website

Of all European politicians who never led their countries, Jacques Delors and Wolfgang Schäuble had the greatest impact on Europe. Between them, the two men, who passed away within a day of each other in December, shaped today’s European Union, warts and all.

Of all European politicians who never led their countries, Jacques Delors and Wolfgang Schäuble had the greatest impact on Europe. Between them, Delors and Schäuble, who died within a day of each other in December, shaped today’s European Union, warts and all. Their tenures did not really overlap, but their bitter clashes over the future of Europe made history. And while the significance of both men is widely recognized, the strong causal link between their conflicting visions and the EU’s current slump is not well understood.

Judging by the various obituaries, the two men are remembered for their ostensible differences: Delors, the flamboyant French, Roman Catholic, social democrat whose dream of a Keynesian Europe was British Prime Minister Margaret Thatcher’s nightmare; and Schäuble, the austere German lawyer whose fiscal Calvinism terrified deficit-spending southern European, as well as French, finance ministers. While both have been acknowledged as noteworthy Europeans, and thus foes of Euroskeptics, Delors is portrayed as the more impatient centralizer, in sharp contrast to Schäuble, who was reluctant to cede the German parliament’s powers to Brussels.

None of this is false. But the portrayal of the two men’s motivations and deeds it leaves us with is incomplete – and possibly misleading.


By the time then-West German Chancellor Helmut Kohl gave Schäuble his first cabinet position, a junior ministry, in 1984, Delors had just ended a hellish tenure as French President François Mitterrand’s first finance minister. Mitterrand’s government, comprising the Socialists and Communists, had been elected in 1981 on an anti-austerity platform promising egalitarian growth. Almost immediately after that election, French capital fled en masse to Germany. To stop it, Delors had either to devalue the franc substantially or increase interest rates to economy-busting levels.

Under the European Monetary System (EMS), which Germany and France had forged with great fanfare in 1978, the exchange rate was fixed, and any devaluation of the franc required Germany’s consent. To grant it, Germany demanded a hefty price: a real wage reduction (a wage freeze amid high inflation), which the Mitterrand government had been elected to avert.

Delors was left with two options: tear up the EMS treaty (and devalue the franc unilaterally) or raise interest rates to a whopping 25%. He chose the latter, but capital continued to flee, while French income per capita fell by more than 10% in three years. By 1983, Delors had adopted full austerity (including the wage freeze demanded by Germany), leftist ministers had resigned, and France was on the road to embracing Germany’s strategy of competitive disinflation (reflected in the strong franc policies that became standard throughout the 1990s).

Was that the end of Mitterrand’s socialist agenda? No, said Delors: to fight austerity at a European level, France first had to embrace it. Pro-labor policies within France, Delors argued, would always be defeated by the Anglosphere’s financial markets betting against the franc, driving up the French state’s borrowing costs, causing capital to flee to Germany, and forcing the devaluation of both the French currency and the French state.

The only way to implement their 1981 agenda, Delors told Mitterrand, was to convince financial markets that betting against the franc was futile because it was indivisibly linked to the mighty Deutsche Mark. Their agenda could still triumph, but only at a pan-European level – a massive project which required “capturing” the Bundesbank (essentially adopting the Deutsche Mark through a monetary union) and, somehow, pushing German elites to adopt the French socialists’ agenda at the European level.

Persuaded by this analysis, in 1985 Mitterrand used his influence to lobby successfully for Delors’ appointment to the presidency of the European Commission. From Brussels, Delors pushed for the introduction of the euro, using as his vehicle the famous Delors Committee.

Unlike true federalists who sought a fully-fledged democratic political union, Mitterrand and Delors never planned to end Europe’s intergovernmental decision-making framework, which they believed was better suited to their aim of projecting French government priorities and methods onto Europe. What they craved was a monetary union that would spawn, surreptitiously, a fiscal (but not a political) union, which France would dominate.


Unsurprisingly, the Bundesbank saw these moves coming. From 1983 onward, the Bundesbank made aggressive monetary moves intended to give the Delors stratagem a series of bloody noses. Among German politicians, it was Schäuble who embraced fully the Bundesbank’s project of fending off Delors’ bearhug.

Schäuble had recognized in Delors a master tactician envisioning a Europe in the image of a Greater France that deployed the Deutsche Mark to fund social democratic policies. To counter Delors, the Bundesbank-Schäuble strategy was to push for a much smaller monetary union that would include only states with a current-account surplus and ultra-low government deficits. Schäuble understood the political and geostrategic importance of including France, but the French would have to accept the loss of sovereignty over their national budget – a prerequisite for any deficit country to remain sustainably within a currency union that lacks a fiscal union.

In September 1988, Delors gave a speech to Britain’s Trades Union Congress that coincided with TUC members’ darkest hour – the aftermath of Thatcher’s third general election victory. Delors outlined his vision of a “Social Europe,” in contrast to the “capitalists’ club,” as he described the European Common Market. Judging by the standing ovation he received, Delors had won over the British workers’ representatives.

On that day, Britain’s Labour Party began its shift from Euroskepticism to Europhilia. On the same day, and for the same reason, alarm bells went off in Thatcher’s head. Weeks later, she delivered her famous Bruges speech – arguably the moment Brexit was conceived – in which she warned of the approaching European “superstate.”

Thatcher made the same mistake as Mitterrand: she had underestimated Schäuble’s capacity to crush Delors’ project. It was an easy mistake to make. The fall of the Berlin Wall was about to give Delors’ ambitions a major boost. In view of Thatcher’s opposition to German reunification, Mitterrand suddenly had the leverage he needed to force Kohl to acquiesce to a larger eurozone, including not only France but other deficit countries like Spain, Portugal, and eventually Greece, too.


Accepting the establishment of a large and heterogenous eurozone in exchange for France’s endorsement of German reunification was a battle that Schäuble and the Bundesbank agreed to lose. But Schäuble had not given up the fight.

Mitterrand and Delors, but also Schäuble and the Bundesbank, always knew that the heterogenous monetary union’s lack of a fiscal union made it brittle – and its lack of a banking union even more so. They all foresaw how a serious financial crisis would force Europe’s political class either to create a federal treasury, break up the existing eurozone, or accept Europe’s permanent decline.

But they were at an impasse because of the clash between Delors (with Mitterrand’s backing), who craved what Thatcher perceived as a dystopic superstate, and Schäuble’s vision (backed by the Bundesbank) of a smaller eurozone within a larger, multi-speed EU. So, they all waited for the next great battle, which the first serious financial crisis would trigger.

By the time it happened, two decades later, Delors had retired and Schäuble was Germany’s finance minister, whence he dominated the Eurogroup – the informal council of eurozone finance ministers. As soon as Lehman Brothers’ collapse in 2008 sparked the sequential bankruptcy of German and French banks and the insolvency of the Greek state two years later, Schäuble knew it was “game on.”

Schäuble foresaw that the French, carrying Delors’ baton in this three-decade-long relay, would use the crisis to press for their long-standing goal of fiscal union – starting with debt mutualization. His defense strategy was to propose that insolvent countries be encouraged and helped to leave the euro. Suddenly, Grexit was an alternative to harsh austerity and inordinate internal devaluation.

As a practicing Protestant ordoliberal with a chosen disdain for macroeconomics, Schäuble believed in austerity. During Germany’s reunification, he had played a leading role in impoverishing and actively de-industrializing East Germany for precisely the same reason that, after 2010, he became the champion of austerity across Europe: to maintain the postwar, mercantilist, West German business model.

But even Schäuble understood that the level of austerity imposed on Greece between 2010 and 2015 was excessively destructive. How do I know? Because when I was Greece’s finance minister, we spent hours discussing these matters, and he told me as much on several occasions.

In one of those exchanges, he went so far as to confirm that, in his view, the eurozone was “constructed wrongly” and needed a political union, which the French resisted. “I know,” I said, to encourage him to continue. “They wanted to use your Deutsche Mark but without sharing sovereignty!” He nodded in agreement: “Yes, this is so. And I won’t accept it,” he continued. “So, you see, the only way I can keep this thing together, the only way I can hold this thing together, is by greater discipline. Anyone who wants the euro must accept discipline. And it will be a much stronger eurozone if it is disciplined by Grexit.”

Schäuble was under no illusions. Pushing Greece out of the eurozone had little to do with Greece and everything to do with France and Delors’ vision. He wanted France to grasp that, if they wanted the euro (which in our conversations he twice referred to as the Deutsche Mark), they had to welcome the troika in Paris and drop Delors’ dream of a Greater France in an EU frock. His insistence on Grexit was a not-so-subtle message to the French political caste: Like Greece, you can have a respite from austerity only outside the euro.


The logic behind Schäuble’s position was simple: Given the eurozone’s bad architecture, post-2008 Europe faced three options, which he ranked in the following order:

Best Option: A smaller homogenous eurozone requiring only moderate austerity and allowing debt write-offs for the heavily indebted countries, in exchange for exiting the euro.

Bad Option: Maintain the original heterogenous eurozone at the price of massive austerity and no therapeutic debt write-offs.

Unacceptable Option: Delors’ vision of a fiscal union without a democratic political union – what Thatcher had labeled a European “superstate.”

Schäuble’s preferred option was a Greek exit from the euro. This would lead Italy and other deficit countries to follow Greece out within a matter of days, finally realizing the Bundesbank’s original plan for a small, mercantilist eurozone within a larger single market.

French elites, along with their counterparts in Italy, Spain, and Greece, opposed this option fiercely, because they wanted their domestic assets to remain denominated in the euro. To hide their less-than-virtuous motive, they made noises that the time had come to implement Delors’ original plan for fiscal union. But their hypocrisy was evident in the fact that even France’s Socialists were unwilling to supplement fiscal union with political union, lest French national sovereignty be imperiled.

Schäuble felt obliged to lay down the law: The Delors plan was unacceptable, not least because it would be politically impossible to enact in various national parliaments. If heavily indebted countries wanted to keep the euro, it was they (not Germany) that had to impose massive, suboptimal austerity on their people (the Bad Option). To his chagrin, they agreed to do that. Crucially, his chancellor, Angela Merkel, under the influence of Mario Draghi, the President of the European Central Bank at the time, sided with them and treated her finance minister with considerable contempt.

A broken Schäuble acquiesced to Merkel’s choice, knowing full well that relying on so much austerity and money printing was suboptimal and detrimental not only to the deficit countries but also to the EU as a whole. Almost immediately, he signaled his readiness to leave the finance ministry and retreat into semi-retirement. Merkel denied him, and not for the first time, the honor of the Presidency of the Federal Republic and offered him the wooden spoon of the Bundestag Presidency.

Today, both Delors’ and Schäuble’s visions lay in ruins, as if in a Greek tragedy. The way the euro crisis was managed put paid to Delors’ vision of a Europe in the image of a social-democratic Greater France, and it ruined Schäuble’s attempt to safeguard the postwar model at the heart of a fiscally sovereign Germany that continues to lose itself in a mercantilist Europe.

Back when the euro was still on the drawing board, neither Delors nor Schäuble could have imagined, or would condone, Europe’s inane response to the euro’s inevitable crisis. The combination of massive austerity and monetary largesse that preserved the eurozone in its original format, which both Delors and Schäuble correctly deemed unviable, is the reason why Europe is now politically fragmented and in secular decline. History, once more, proved a cruel master of noteworthy Europeans who refused to see that Europe’s interests are in direct opposition to the interests of its ruling classes.

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  1. Divadab

    Is there any ruling class in the west that does not, as varoufakis notes, see its interests as opposed to the interests of their countries? It’s endemic – they hate their fellow citizens. Macron, scholtz, Biden , Trudeau- all serve something other than the citizenry. Perhaps Orban an exception. Excessive immigration, authoritarian police actions, unaccountable policies, censorship, imposition of lockdowns in the name of science that does not exist, huge spending on undeclared wars, it’s massive and not getting better. It’s hard to see a solution other than one arising on the other side of chaos, a solution that is immiserating and undemocratic. And violent.

    1. spud

      giving up your sovereignty is like a suicide pact. in actuality, they set up a continent wide oligarchy, where governments are merely servants of the rich, and cannot govern for the people.

      europeon countries are going to have to bite the bullet, dismantle, and every country big or small must invest in themselves, because their former colonies no longer want to free trade, europes gravy train is over with. same with the u.s.a., or any other country that tries to unload their poverty, unemployment and deflation onto to others through free trade.

      1. JonnyJames

        Sovereignty? The NATO and EU nations are vassals of the US. The “foreign policy establishment” refer to them as such.

        Euro politicians routinely act against their own national self-interests and go along with the diktats from Langley/Warshiton.
        Nordstream, Ukraine, and Gaza are the latest examples.

        1. spud

          that is correct. and trumps attacks on nato may well be a disguise to get that bunch of morons to become sovereign again. not holding my breath though.

  2. Colonel Smithers

    Thank you, Yves.

    This is a helpful and timely* history of what led to monetary union and drove the reaction to 2008 and beyond, a history and analysis that has rarely been aired since the 1990s and is largely unknown to most talking heads, big business etc. and possibly UK civil servants as most are relatively young.

    It’s interesting that Schaeuble, who later joined Goldman Sachs, but rarely, if at all, disclosed that lucrative propagandist role, when thundering like a Calvinist** in the likes of the FT, Lagarde and Powell are lawyers and often labour under the impression that economics is like nature. The technical abilities of Lagarde and Powell are also overrated.

    At a reception last December, I heard EU Commission officials blame the plight of the EU, largely, but not exclusively, on the ECB and its “thought leader”, the Bundesbank. There appears to be a division between the two institutions, although that is not to say the Commission is blameless and does not have its fair share of different shades of neo-liberals, authoritarians and elitist yahoos.

    The other thing about these institutions is the increase, small, but nonetheless noticeable, in political science, lawyers, lobbyists and similar being parachuted into policy positions where they often struggle with technical details.

    *Timely as the usual remainer suspects are getting excitable about the civil service getting into a gear about rejoining. They are confusing the preparation for the forthcoming review of the Brexit agreement with renegotiation to return and, apparently, unaware that Starmer is not interested. Some of the remainer vuvuzela operators, such as the Our Future, Our Choice mob that disrupted Corbyn’s Labour turned out to be Tory infiltrators, vide Lara Spirit and Will Dry, and used Brexit as a wedge.

    **Disclosure: I’m a Papist.

    One hopes retired UK officials Anonymous 2 and Aurelien / David pipe up.

    1. Anonymous 2

      I am flattered, Colonel, that you think my thoughts will be of any value. I am an old man now who has been away from the corridors of power for decades now so feel very out of touch.

      For what it is worth, I get a little tired of comments which focus so much of the time on castigating contemporary ‘villains’ of one sort or another. The original inspiration, to the extent I have been able to trace it, of monetary union, goes back a long way, at least to 1924, when Edouard Herriot, a French Radical politician, called for the creation of a United States of Europe. Obviously you could not have a USE without a shared currency. I have not researched this event but assume it was at least in part a response to the carnage of the First World War. Much of the original inspiration behind the European project flowed of course from the reaction of the generations which had gone through the catastrophes of 1914 to 1945 and wanted no repeat. These were noble motives and I sometimes wonder if those who complain about current conditions have any conception about the horrors which more recent generations have been spared, in part because of the wisdom of our predecessors. You don’t have to be a fan of current EU monetary arrangements (I am not) to recognise that sufferings caused by ‘austerity’ pale into insignificance by comparison to what previous generations endured.

      I think people often fail to notice that the euro is popular with the public in EU member states. Until that changes (which it could) then little is likely to change.

      Please forgive the musings of a grumpy old man! I am sure David would have more valuable insights.

  3. Froghole

    This is a fascinating perspective, because it upends the stereotypical interpretation of events: that Germany was the villain, seeking to use southern European debtor countries as dumping grounds for its manufactures and as sources of easy profit for its banks. Instead, France was the villain because it wanted to conserve the euro valuations of its assets. It also upends many of the more established interpretations of monetary integration by Dyson, Marsh, Mourlon-Druol, Zimmermann, etc. However, I think this needs further explanation: was it really just that French elites wished to maintain souped-up valuations of their assets or that they wished to cleave to the Gaullist notion of France as the rider and Germany as the horse? Were there not other causes?

    As I see it, monetary integration (starting with the Werner report) originated out of the operation of the CAP. The CAP worked if exchange rates were stable, as they were – more or less – under Bretton Woods. However, by the late 1960s Bretton Woods was under tremendous pressure, and it was effectively dead in the water by 1967-68. Fluctuating exchange rates completely deranged CAP allocations, so if the EC’s flagship policy were to work, then there had to be exchange rate stability between the member states: hence the snake, and hence the EMS of 1978-79. Monetary integration was therefore necessary to conserve the CAP, which meant preserving flows of funds to the French farm sector as a quid pro quo for giving Germany paramountcy in manufacturing: essentially the settlement brokered by de Gaulle and Adenauer in 1963.

    But was France really the villain? For Julian Germann perhaps not: https://www.sup.org/books/title/?id=31036. Germann argues that, in order to preserve its social democratic postwar settlement at home, Germany (i.e., Schmidt, Lamsdorff, Klasen, Emminger and Pöhl) effectively exported neoliberalism abroad. That not only meant the UK from 1976 (the IMF crisis), but the US from 1979-80 (the dollar crisis and the appointment by Carter of Volcker) but also France (the U-turn of 1983).

    This is a useful new article on 1983 which provides another fresh perspective on the Delors U-turn: https://www.cambridge.org/core/journals/contemporary-european-history/article/neoliberal-turn-that-never-was-breaking-with-the-standard-narrative-of-mitterrands-tournant-de-la-rigueur/3778A0634A1F77EBC344DDB6D08227CC

    1. PlutoniumKun

      Indeed, a fascinating insight. It was always obvious that there was so much more than met the eye about what was going on in Europe during the financial crisis and the Greek crisis. Its also a reminder that it wasn’t so long ago that there were genuine big intellects at a high level within Europe – the decline to the current crop is deeply troubling.

      The troubling thing is that I think there is only a very weak awareness within Europe that it is the Euro itself that is at the heart of decline in the continent – the currency itself is still very popular with the population and with national politicians. Much of this comes down to the abject failure of economics/finance professionals from addressing the core issues.

      1. Colonel Smithers

        Thank you and well said, PK.

        Oddly enough, I was thinking about the decline in political intellectual weight over the week-end, probably after seeing Alastair Campbell somewhere. The rot was accelerated by the likes of him, who emphasised control of the news agenda, and his master, Blair, who ushered in “sofa government”, thus avoiding deep discussions.

        You are not wrong to single out economists and finance professionals. This said, skeptics who make the case are rarely on the airwaves or in mass print or allowed to be.

        I reckon that, and this is only due to his age and the portfolios that he has held, Michel Barnier is perhaps the last politician who has a grasp of these issues.

        A friend / former colleague, a City lawyer of French origin, hoards Euros with German insignia, thinking that they could easily be renamed as DM should the currency zone break up.

      2. Froghole

        Many thanks indeed. I think that Europe was always going to decline because (per Adam Smith on the fate of the UK) it would at some point have to reconcile itself to the ‘mediocrity of its circumstances’. Specifically, it would have to reconcile itself to the ‘rise of the rest’ (i.e., developing nations), and also (and most especially) to its lack of natural resource endowments.

        By dumping surplus agricultural production on Africa, and by keeping Africa in debt peonage, Europe (and the West more generally) prevented African industrialisation and kept it as a quiescent supplier of the discounted commodities which were of key importance to European prosperity. It also kept Africa within Europe’s political orbit. This helped to maintain Europe’s geopolitical status long after the completion of formal decolonisation.

        The West’s sudden and dramatic loss of Africa over the last 5 years has been one of the most important geopolitical developments of this century. It means Europe no longer has a de facto monopsony relationship with Africa, and that Africa finally has the ability to charge Europe higher prices because Europe now has significant competition from China and Russia within Africa. This was a key factor in the recent extirpation of French influence in Niger, for example. Foccart and de Gaulle will be turning in their graves over what has happened, and so very quickly.

        Europe is in secular decline because it is losing high end markets to Chinese competition, and because its resource inputs are becoming more expensive. Even if it throws off the US and engineers some sort of dramatic (and expensive) settlement with Africa (which would need to be much more ambitious than that offered by Meloni), it will be unable restore the position it held prior to 2022. It now faces the invidious choice of being an appendage of the US or an appendage of Eurasia.

        Germany is at the epicentre of this decline. The revival of its far Right is the natural consequence of its industrial malaise. German subsidies (which are, to some extent, capital recycled from debtor countries within the EZ) have also been keeping the European project on the road: what sort of acute distributional conflicts might arise within the EU if German manufacturing continues to crater? It doesn’t seem that Brussels or Berlin have even started to come to terms with this, never mind plan for it. The single currency will be a convenient excuse for the decline, as in Italy, and its functioning is something which the EU can do something about (although the probability of that actually happening any time soon is slight), but what the EU (and UK) can do little or nothing about is the loss of markets and the absence of key minerals within Europe itself. The single currency is perhaps a cosmetic problem; the ‘shifting balance of world forces’ which is presently occurring, is a much more intractable problem for which I fear no solution satisfactory to Europe is, or will be, available.

      3. Ignacio

        Most want to double down on the Euro and ask for fiscal integration. Whether this is in the cards or mostly ruled out I cannot say. At least anyone can realise now what that means with the example of Ukraine.

      4. vao

        The troubling thing is that I think there is only a very weak awareness within Europe that it is the Euro itself that is at the heart of decline in the continent

        More troubling: in the 1990s there were enough warnings, grounded in economic analyses, that the Euro as planned would only cause endless trouble: for instance, Wynne Godley on the left, Milton Friedman on the right, Gerard Lyons for the historical perspective, Peter Garber for technicalities of the Eurozone.

        Even more troubling: the EU violated its self-imposed rules as to which country could adopt the Euro. About 3 years before the Euro was introduced, the Commission released an interim progress report — whose main results were presented in tabular form in the newspaper I read at that time: one line for each country of the European Community, and one column for each of the 5 Maastricht criteria. I seem to remember that only one country fulfilled all criteria: Luxemburg, and that another one fulfilled none: Greece.

        When the time came, the EU ditched two criteria, and let countries cheat on the others: Germany shuffled debt and budgets around to avoid being excluded by the lingering costs of unification, France decided not to look at the decimals after the 3% of public deficit, Italy was allowed in despite a public debt above 60% and its efforts at reduction, though real, would take decades to bring it down to the approved level. As for Greece, it has been known for a decade of so that its official figures had been heavily massaged, improved through creative accounting, and propped up through innovative financial tricks. The worst thing: when these shenanigans became public knowledge (after the financial crisis), I remember seeing an important French politician (Elisabeth Guigou, IIRC) stating during a debate on TV that “everybody in the Commission knew at the time that the Greek figures were fishy”. So why did Germany and France let Greece acceed to the Euro?

        I wonder whether the decision to keep the Eurozone intact no matter what was taken because this was the major remaining element of the European project that could be preserved:

        1) The justification that EU means peace had been undermined by the end of the cold war; by the war in Bosnia, which it was incapable of preventing, nor of ending, and saw Germany, France, and the UK at loggerheads regarding what to do and whom to support; and by the war in Kosovo, which the EU was incapable of preventing and whose resolution was decided by the USA.

        2) The unified market had been somewhat disappointing. The EU Commission forecasted that it would bring 1.5 to 5 percentage points additional growth in the 3 to 5 years after its introduction. Its retrospective analysis showed that additional growth amounted to just 0.5 to 1.5 percentage points.

        3) The EU as a project underwritten by the peoples of Europe was brought to a screeching halt in 2005 when the Dutch and the French rejected the proposed European Constitution (and then the Irish proved recalcitrant to its successor).

        4) By 2008, it was already obvious that the EU Lisbon strategy for growth and competitiveness was a complete failure.

        For the sizeable eurocracy (in Brussels, Strasbourg, Frankfurt) and europhile elites (throughout Europe) this meant maintaining the status quo regarding the Euro. The return to a kind of DM-area that Schäuble wanted was not acceptable, and neither were the French considerations regarding a political union, with all the democratic checks and balances that go with it.

        Or am I too speculative in thinking that what happened 15 years ago was not just the conflict between two national (French and German) views of the European project?

        1. Colonel Smithers

          Thank you, Vao.

          You are right to highlight these economists.

          When the Grauniad was a serious newspaper, the latter part of the 20th century, the likes Godley, Bob Rowthorn, Christopher Dow and Eric Roll were regular guests. They were also on the BBC and Channel 4 airwaves.

          I have worked with Lyons here and overseas. Rightly or wrongly, his association with the likes of Johnson has not helped his cause.

          It was not just the Greek figures. The emphasis was on “trending towards” the Maastricht criteria. I doubt any country’s figures were accurate. Even Argentina’s finance minister boasted to Newsweek in 1995 that his country met the criteria. At the time, I was writing my masters on central bank independence and enjoyed a good chuckle with my supervisor.

          When Portugal said it met the criteria for EMU, Spain thought we can’t be shown up, so it said it did, too. Italy panicked and thought if Spain can get in, we can’t be left behind. It was political, not economic.

          I’m very happy that Yves has published this post. This is to NC’s credit.

          1. vao

            It was political, not economic.

            If, as Bismarck stated, “politics is the art of the possible, the attainable, the art of the next best” then those decisions were not political.

            The people in charge knew, from a variety of economists (some of them I mentioned above) that the Euro, as planned, was unworkable. They knew that their own eligibility criteria excluded almost all countries from the Euro. They knew that many countries had doctored the economic figures determining their accessibility to the Eurozone.

            Hence, the decision to let everybody in was not political, but ideological: “Euro is Europe”.

        2. Froghole

          That is very interesting, and thank you for mentioning Godley. That was not the only LRB article he wrote, in Kaldorian vein, on the UK’s membership. During the late 1970s and early 1980s (until it was defunded) his applied economics unit at Cambridge (which included Francis Cripps, Bob Rowthorn and other luminaries) was a critical influence on Labour’s AES. Indeed, this is perhaps why it was defunded. The whole point of British accession, as promised by the 1969 and 1970 white papers, was ‘dynamic effects’ to British manufacturing. The Six/Nine would function as a large de facto ‘home market’, and this would be manifestly superior to a Commonwealth which was then moving rapidly towards import substitution policies. Yet, as Godley noted in the LRB on 25 October 1979, there were large dynamic effects to British industry resulting from accession, only they were negative. https://link.springer.com/book/10.1007/978-3-030-12289-8

          One of the reasons for the failure of the UK’s EU membership was that the much-vaunted dynamic effects proved to be as fictitious as the numbers on the side of the proverbial bus. The failure was camouflaged by the high inflation and industrial unrest of the 1970s (itself in part a function of accession as the UK abandoned a cheap food policy for a dear food policy, and as the purchase tax was replaced by VAT), but in time the camouflage proved decreasingly effective. In the recently published Cambridge History of the European Union Piers Ludlow runs through the apparent ‘benefits’ which the UK derived from its membership. This included Cockfield’s single market (which necessitated Delors’ turn to a ‘social Europe’, resulting in the strange bouleversement of the Tories becoming Eurosceptic and Labour becoming Europhile), enlargement (a mixed blessing), the TREVI process and then, in desperation, he includes better (if more expensive) food and better football (https://www.cambridge.org/core/series/cambridge-history-of-the-european-union/B67680E8DD3BF5CE125F0414CB66EFF5, v. 2, at 193-98). As Ludlow has invested his entire academic career in the history of European integration, he doubtless nurses scars from 2016. However, the real measure of British influence was perhaps the diplomatic reception of the UK’s single market proposals, which were taken by Kohl and Mitterrand, copied and pasted into a document which they badged as a Franco-German proposal, and marketed to the member states accordingly, to deep British chagrin (recorded here: https://www.routledge.com/The-Official-History-of-Britain-and-the-European-Community-Volume-III/Wall/p/book/9780367583576)

          Personally, I think Brexit was largely a waste of time, as it has simply embedded by means of the demission treaty a disequilibrium in trade which occurred during the UK’s membership, and which subverted that membership politically. However, more generally, you are surely right to point out the increasing gap between public expectations of rising living standards and the actual ability of European policymakers to deliver on them. Those expectations were set during the 1960s, when the Six were still in the process of shifting large numbers of people from agriculture to manufacturing (a process expedited by the CAP), which was a strong stimulus to growth. By 1970 that transfer was largely complete, and subject to rapidly diminishing returns (hence the industrial unrest of 1968). European integration was therefore associated psychologically with rapid growth, but what to do when the growth ran out? The answer was ever more frenetic attempts at integration, and when these made scant difference to growth or made it even more anaemic, the response was to double down on the strategy. Over the last 15 years the chief selling point has been that the alternatives will be far worse. Yet what is to happen if the reality proves to be one of continuing stagnation/decline? It’s possible that European integration will continue, but in a semi-paralysed fashion. After all, it took 1,006 years for an early form of integration – the Holy Roman empire – to die.

        3. eg

          An excellent overview of how grand promises foundered upon the rocks of a grubby European reality. William Mitchell’s Eurozone Dystopia details how the entire project is a neoliberal Frankenstein monster that serves the needs and preferences of a small minority at the expense of the vast majority of their fellow citizens.


    2. Colonel Smithers

      Thank you.

      All of that and more, such as the ability to compare labour costs across the currency zone and pressurise unions into accepting lower pay settlements.

      An often used phase in the 1990s was “France’s monetary pretensions”, so France as the rider.

      You are also right about elites, not just French, wishing to protect asset values. In addition to lower taxes, many of the French elite, including the two former presidents still alive, hide assets in Luxembourg. Belgium has also become a favourite. A tv series about politicians in the 1990s featured a corrupt Tory MP insisting on payment in DM, not Sterling.

    3. Kouros

      Given that it took Haiti over 150 years to pay compensations to France for loss of properties through the Haitian Revolution (as a pay for recognition) and all the harshness of the Versailles on Germany after WWI, plus many other tropes I have heard about the French character, yeah, I can see the villainity in the French. Just remember how hard they gave up on Indochina and Algeria…

    4. Mikel

      I see the link that you included covers a lot of ground, but this stood out:

      “…Several scholars have challenged such a radical epistemological conclusion, however. Instead of calling for the downfall of neoliberalism as an analytical category, they emphasise its utility, provided that it is defined precisely – which was rarely the case before the 2010s.Footnote 14 Recent literature on the subject focuses on the varieties of neoliberalism.Footnote 15 It insists particularly on its resilience as an intellectual and political project that enabled it to overcome significant crises, including the 2007–8 financial shock.Footnote 16…”

      I’m looking at the current commercial real estate crisis and seeing it as yet another shoe to fall from the 2007 – 2008 financial shock. So, what was “overcome”?

      The prices were already squeezing renters/lease holders long before Covid. And their predicament has a lot to do with the interest rate policy that also came before Covid.

    5. .Tom

      > This is a fascinating perspective, because it upends the stereotypical interpretation of events: that Germany was the villain, seeking to use southern European debtor countries as dumping grounds for its manufactures and as sources of easy profit for its banks.

      I may not recall right but I think it was from Varoufakis that I first heard that account, years ago.

      I suppose both could be true.

  4. .Tom

    When Varoufakis writes about capital fleeing France, does this describe that people withdrew their franc savings, exchanged, and deposited in mark accounts?

    1. Revenant

      At a guess, he is talking about the Banque de France exhausting its reserves defending the Franc/DM exchange rate required by policy in the currency market. Exchange of francs into DM’s is a necessary pre-condition for sudden capital flight and so the currency market is where the crisis would show up first (long-term capital flight, hiding money in Switzerland and so on, is a slower process and less noticeable – also, often illegal and achieved with moving gold and jewels and art and Swiss watches, which does not show up in the currency market but in the capital account, if it is ever disclosed / noticed).

      This is a very interesting perspective but two things can be true at the same time. Germany can have preferred a smaller Euro but acquiesced in a larger, unstable, weaker one because, like a good trader (like Magnetar in sub-prime!), she had picked up an option with a negative cost of carry. The weak Euro boosted her economy; its collapse (cough, like a magnetar) into a stronger Eurozone would hurt export demand for her goods because the rump Euro would strengthe but she would have got what she wanted politically and monetarily. She was the villain in the short term and the long.

      Was France a villain or a fool? The wider Euro preserved La Gloire in an unstable arrangement which would snap shut and France would either be inside peering out of an ordoliberal prison, in which she was the least competitive economy, or outside in the cold with the Latin economies, continuing to grow internally but falling behind relative to Germany. Unfortunately, the one-off cost of that explusion would be borne by France, not Germany, and without the willpower to bear it she would have to don the ordoliberal straitjacket….

      France’s foolishness starts earlier though, in 1973, when Giscard d’Estaing legislated to remove the power of the Banque de France to finance the French deficit and required France to raise capital through bond sales in the market. The neoliberal / finance capitalism camel got its nose under the tent at that point.

  5. John Jones

    Hence, the decision to let everybody in was not political, but ideological: “Euro is Europe”.

    Interesting takes on the failure of the Euro and the rationale for Brexit.

    Varoufakis makes a compelling case for the failure of the Euro albeit with hindsight.

    It’s my view that Brexit merely corrected an historic anomaly – partially as a result of the idiotic Maastricht Treaty and partially on the fact that given Maastricht it was inevitable that the Eurozone member states would caucus around the euro & all the political & trade ramifications that went with the European Monetary System.

    I guess the good news is that Brexit has partially corrected the anomaly and that the failure of the Euro and the unravelling of the so called democratic deficit is becoming more apparent, viz populism against technocrat control.

    Let’s see what the euro elections bring in June. It’s going to get interesting.


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