War Without the Euro? Not likely.

The European Union and the Eurozone project represent world geopolitical paradigms that are the legacies of World War II and the Cold War era. Beginning as the European Coal and Steel Community, the European Union had its stated aims in the supranationalist spirit of the ECSC’s founding organizers as well as in the principle of making war between France and Germany “not only unthinkable but materially impossible” to quote French foreign minister Robert Schuman. The European Coal and Steel Community was established by the 1951 Treaty of Paris, whose cosignatories included the nations of France, West Germany, Italy, Belgium, Luxembourg, and the Netherlands. The primary goal of the Treaty of Paris was to create a common market between the 6 nations in coal and steel. The later institution with which the European Coal and Steel Community merged, the European Economic Community, was founded by the Treaty of Rome on the 25th of March 1957. The European Union was established by the Maastricht Treaty signed on the 7th of February 1992. The Maastricht Treaty established the Euro as a currency for the supranational union but the currency did not begin to be issued until the 1st of January 1999.

There were a range of qualifications for member-states to be allowed the use of the Euro currency, including: budget deficits of less than 3% of GDP, a debt ratio of less than 60% of GDP, low inflation and interest rates close to the EU average. Many of these criteria were disregarded in the admission of member-states, such as Greece, that now are bringing the Eurozone to its knees. The Washington Post speculates as to whether Europe would have gone to war again if the Euro had not been created. The better question would be would Europe have gone to war if the European Coal and Steel Community not been founded by the Treaty of Paris in 1951? Most likely it would not have gone to war since the age of Europe had long passed by the inception of the Cold War between the United States and the Soviet Union. Future conflicts between European states would be rendered increasingly undesirable in the face of shrinking world influence and the rapid loss of colonies and any sort of international prestige attached to them. The constraints the Euro may or may have not placed on German aggression are not really as pertinent to the question at hand than the radically changed geopolitical situation in which Europe found itself in the early 1950’s. That the Euro and the European Union project are as intrinsically tied to the German concept of identity cannot be denied because it would be misleading to argue that the Euro is a purely financial vehicle; rather, the Euro, in many ways, represents European reconciliation and a willingness to move forward together in spite of a difficult past.

Brendan Greely’s article for Business Week, “Europe’s Debt Crisis Has Become a German Identity Crisis,” explores this need on the part of the Germans to atone for their past. Additionally, the article details the integration of a European identity into the German national spirit. Greely quotes Frank Schäffler, a member of the Bundestag from the Free Democrat party, as saying that Germans are “drunk” with the idea of Europe and that to be a “good” German one had to also be a “good” European. It is exactly this sentiment that Harvard economist Martin Feldstein takes issue with in his 1997 article “EMU and International Conflict.” Namely, Feldstein argues that the Euro would increase nationalist sentiment, rather than decrease it, citing the differing views of the role of the European Central Bank in the future of the Eurozone, the unresponsiveness of a supranational entity to local economic conditions, and the potential rise of protectionism that would accompany the removal of barriers to trade. Rather than solidifying a supranational identity, Feldstein argues that European monetary union (EMU) has the potential to highlight discord and national differences. Given the current Euro crisis, many different scenarios have been bandied about but none have taken seriously the prospect of Germany leaving the Euro. Indeed, there are stories about Germany’s unfunded pension liabilities and the potential for $5 trillion more in debt than is currently reported on the books. The Wall Street Journal speculates, “What Comes After Europe?,” in a pessimistic article by Bret Stephens that discusses the return of national currencies as well as border checkpoints.

Stephens postulates a dissolution of the European Union more than just that of the Euro itself, which might be somewhat hyperbolic given the current crisis is focused on the Eurozone and not the political union. Its the Union’s very powerlessness in the face of escalating crisis that is its greatest hindrance to being taken seriously as a political entity. The Union itself seems to be doing nothing other than struggling to keep its head above water while member-states disintegrate fiscally. Like Martin Feldstein, the WSJ’s Bret Stephens declares Jean Monnet’s dream of a European common market an idealistic organization not meant for the realities of Europe. In a realist critique of the European project, Bret Stephens dissects the illusion of the European Union, arguing that because it does not possess hard power in the form of a unified military projective force, the EU could never be a superpower and, further, that the E.U.’s claims of soft power in the form of economic influence is disingenuous because the E.U. is not itself a unified national economy like that of China or the U.S. In essence, the E.U. cannot be a superpower because it is not a state. Stephens then calls the E.U. a fraud and criticizes its flouting of the Maastricht criteria, its admission of Greece into the Euro, and the rejection by voters of the so-called European Constitution. Stephens asserts that Greece, Italy, Spain and so on will be bailed out, likely by the Germans, but he questions how long the Germans will be willing to engage in such a project. Currencies have changed forms in the past, but usually not without major repercussions for the local or international economy, and there is little doubt that anything impacting the Euro will also impact other states around the world. Whatever the fate of the Euro, its future trajectory can have major consequences for the development of the world economy and its failure would stand as a testament against those who argue for a more cosmopolitan and integrated international system.

[Washington Post]

4 thoughts on “War Without the Euro? Not likely.

  1. I have a hard time wrapping my head around how exactly some of these countries got into the mess they are in. I have read in detail about the influence of “bad banking” issues that contributed…interest rate swaps, credit default swaps, bond swaps, securitization of risky home loans, corrupted ratings agencies, securities fraud, insider trading, bid rigging, regulatory capture, etc. Clearly citizens took on certain excessive debts, but the governments should protect the people and what I still struggle with is understanding how much of this is not just due to capitalism gone wild with taxpayers dollars….?

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