The German Foreign Minister, Guido Westerwelle, has written a fascinating piece in today’s Financial Times explaining why “the Eurozone needs deeper integration through tighter economic governance and tougher rules for the stability pact.”
Underlying Westerwell’s argument is the assumption that the crisis in the Eurozone is not a crisis of the Eurozone, but rather the result of errant behavior by profligate Euro-Med states.
This then is a story of sin and virtue.
According to this dominant discourse all that is required are measures to ensure that the rules are more vigorously applied to stop countries from sinning.
The absence of growth, however, suggests that too much virtue risks becoming a collective vice. As the Bishop of Bath and Wells pointed in last week’s House of Lords debate the Eurozone will not emerge from the debt crisis without economic growth and growth looks ever distant with the severity of the austerity measures currently being introduced across Europe.
The idea that the Euro-crisis might in part be due to institutional weaknesses is dismissed by Westerwelle as errant nonsense. Westerwelle talks about governance – he purposefully avoids talking about institutions.
The limitation of this dominant position is explored by the London based think-tank Centre for European Reform:
The reason the Eurozone is governed by rules is that few of its member-states – least of all its wealthier North European ones – have any appetite for fiscal union. Crudely, rules (gouvernance) exist because common fiscal institutions (gouvernement) do not. But rules are no substitute for common institutions. And tighter rules do not amount to greater fiscal integration. The hallmark of fiscal integration is mutualisation – a greater pooling of budgetary resources, joint debt issuance, a common backstop to the banking system, and so on. Tighter rules are not so much a path to mutualisation, as an attempt to prevent it from happening.
Proponents of European integration have always held that when faced with a crisis Europe’s Member States inevitably take the political decision to move towards an ever closer Union. Many have therefore assumed that the resulting Euro-crisis will in time compel Europe’s politicians to take steps towards greater fiscal union.
So far the Monnet thesis seems wanting. To stabilize the Eurozone, Germany and other virtuous North European states would need to turn the currency into the very thing they said it would never be.
Even if they recognise that such a quantum leap forward is necessary they have no democratic mandate to do so and in the case of Germany the virtuous electorate of Baden Wurttemberg seem unlikely to consent to such a move. The unpalatable alternative is to persist with self-defeating policies that look likley to hasten defaults, contagion and eventual break-up.
Westerwelle’s article, interestingly titled Germany is not for turning on how to save the Euro suggests that Germany seems reluctant to take the Monnet test. This might explain why this has become as such an existential crisis for Germany. If the Euro-zone is to survive, Germany might just have to break a few rules and in so doing learn that sinning can sometimes be virtuous.