Looking at who predicted the victory of the populists before 2016 helps us sift through the deluge of ex post facto rationalisations.
Bernard Connolly wrote The Rotten Heart of Europe in 1995. Connolly previously worked at the European Commission. He rose to head of the unit responsible for the European Monetary System and monetary policies. The book delivered a harsh attack on the European project for monetary union, and warned of disaster ahead.
Connolly saw the monetary policy as a political fudge that was created for one reason – to advance the geo-strategic goals of France and Germany. It was neither a rational economic scheme, nor as often claimed, a symbol of good will between nations. Both France and Germany planned to use monetary union to gain more control over international affairs.
With very different geo-strategic interests Britain had little to gain and much to lose from participating in monetary union. The design of monetary union made it brittle and prone to catastrophic failure:
- There was absolutely no economic rationale for monetary union. No other trading area has adopted a single currency.
- There was no support for the policy from the European populous. It could only ever be implemented as a top-down initiative.
- The basic requirement for monetary union was missing. The people in every country must be prepared to let governments and central banks care more about economic conditions in the Community as a whole than their own country. That has never been the case, and the dynamics of the Euro ensure that community feeling is being progressively eroded.
- Germany only agreed to monetary union if there was a ‘no bail out’ condition for the ECB. Germany is also unwilling to support a transfer union. A crisis of the kind that brought down the ERM was inevitable, but within the constraints of the Euro no resolution was possible.
- The EC absorbed the French conception of politics. Its proposes “political leadership” over markets and the electorate. In a democracy this requires a uniform record of economic success if it is ever to be stable. Given the flawed construction of the Euro this was very unlikely to occur. If the political elite continued its allegiance to monetary union actors outside the mainstream would be inevitably created to take up the anti-Euro flag. This guaranteed political instability.
In 1995 Connolly was widely regarded as an eccentric with a grudge against the EC. Unfortunately many of his predictions have come to pass.
The ills of contemporary Europe can be traced back to the fudges and compromises necessary to drag actors with very different interests and cultural outlooks into a single monetary system spanning 19 nations. The skulduggery, duplicity and conflicts necessary to achieve this objective have fatally weakened it. The ‘Europe’ it has created is a dangerous fantasy. Monetary union is inefficient and undemocratic, a danger to both our wealth and our freedoms, and ultimately to peace in Europe.
France and Germany are the EC
The central fact of the EC is that the Franco-German axis is the Community. The role of the other members is to give a ceremonial benediction to what the French and German leaders want to do. French and German geopolitical interests are complementary. But this does not extend to other members of the community. Britain favours a global, cooperative approach to monetary matters. France and Germany prefer to use money as a power-play against the US. For deep geo-strategic and cultural reasons, and contrary to all the claims of the Blair government, Britain was never and could never have been ‘at the heart of Europe’.
What was in monetary union for the French?
France wanted to give economic muscle to its diplomatic ambitions. In De Gaulle’s words said “The EEC is a horse and carriage : Germany is the horse and France is the coachman”. For the French elite, money is not the lubricant of a market economy but the most important lever of power. The capture of the Bundesbank was thus, for them the ultimate political prize. To secure it, they have been willing to tempt Germany with the lure of political union, while never actually intending to deliver it.
Its widely thought that the globalisation of economic activity has undermined the nation-state as a meaningful entity in economic terms. The French elite have very distinctive views on this matter. They certainly don’t believe the French nation is dead. Their fear is that their nation isn’t strong enough to provide a basis for power of a regulatory, interventionist, technocratic state.
Technocrats are appalled to see the market undermine the state. Only an expansion of its borders from France to ‘Europe’ can retain its domestic power and stand up to the USA. France’s solution was an institutional arrangement that ‘tied down’ Germany, allowing the French technocracy to assert control over Germany’s economic power.
The character of the Jacques Delors matched that of the European project. He had a double driving force. He had a deep antipathy to America and Japan. He constructed a kind of ‘Euronationalism’ based upon his hostility to the ‘other’. He was also open about his desire to construct an economic, political and military union in ‘Europe’.
Delors wanted to create a new state, ‘Europe’, and to create with it a nation based upon some supposed uniform cultural identity. But Delors remained a French nationalist as well as a Euronationalist. The contradiction was resolved in his view that the creation of Europe was the best way to extend French influence over the rest of the world.
The French have a very different conception of the role of politics and the state from the British. Most people in Britain see politics as a mechanism for balancing the interests of the different groups, or different regions, with legitimacy and harmony. Three hundred years of constitutional government without civil wars, revolutions, coups d’etat or foreign occupation are testimony to the strength of that framework.
But this idea is foreign to French technocrats. They place their faith in Rousseau’s General Will. What they are interested in is power – first imposing their interpretation of the General Will on France and then imposing it one everyone else. While the British approach to politics tends to absorb and co-opt contrary forces into the mainstream. The French elite seeks to manage democracy by marginalising and excluding any forces that challenge elite projects. The EC’s absorption of this mentality are demonstrated by its repeated efforts to ignore the results of national referenda. See for instance the reformulation of the European Constitution into the Lisbon Treaty after failed referenda in France and the Netherlands.
The French technocracy has been attempting to opt out of world capitalism – to create a protected space. But this must lead to the economic decay of all of Europe.
What was in monetary union for the Germans?
German governments have pursued their national ambitions under a European cloak. Germany needed European cooperation and, ultimately union, to help bring its huge economic weight to bear diplomatically. In return it has been prepared to accept an apparent cessation of national monetary authority, but only if the new system behaves exactly as the Bundesbank did.
Germany suffers from a mythology that it is at constant risk of ‘reverting to type’ and bringing war back to Europe. It is a huge leap to use the events of the 20th century to argue that Germany must “tie itself down” in Europe to maintain its equanimity. The truth is Germany operated unobjectionably from 1949 to 1989. It strove to pursue its interests within a multilateral framework without imposing its will on its neighbours.
Even one accepted the dangers of German nationalism the building of a single European nation actually makes the development of German nationalism more likely. While there are other European nations it needs partners to advance its interests. But if a single European state ever came to pass, Germans would have a clear interest in making it German. As the central institutions of the new Europe are built we see growing prescriptivism from Germany. Its increasingly insists that what Germans do is right for Germans and must therefore be right for everyone else.
Top-down politics does not a nation build
The image of ‘Europe’ promoted by the EC was from the beginning a top-down one. It was to be imposed upon the people to further the geopolitical interests of the state. It was not to be built from below by people voting with their feet.
Trying to lock countries together via their currencies does not forge one nation; instead it turns domestic monetary questions into international political conflicts. It damages the economic and political wellbeing of every country involved.
The history of European monetary union is one of the repeated rejection of the basic requirement of monetary union – that the people in every country should be prepared to let governments and central banks care more about economic conditions in the Community as a whole than their own country. In short, the history of monetary union proves that ‘Europe’ is not a nation.
The history of monetary union
Monetary union is based on two myths. First that it is economically rational and beneficial. Second that it is a symbol of friendship and cooperation. In fact monetary union arose out of a frantic battle on three fronts.
- The war between economics and politics. An attempt to stem the market forces that threatened corporatist European states in the 80s and 90s. A struggle to maintain an outmoded conception in which monetary economics is the instrument of political hegemony – that currencies are an expression of state power.
- The war between the Bundesbank and its enemies in the France, the German government and financial markets
- The war for the control of an emerging European superstate between French technocrats and German federalists
French attitudes were partly created by the humiliation of the 1983 devaluation agains the Mark. France was forced into devaluation two years into Mitterand’s disastrous experiment with socialism and the nationalisation of French banks. This experience forced the French Left to give up on Socialism in One Country and instead opt for Corporatism On One Continent.
The French Left’s anger at the markets ability to subvert their political projects generated a new project to gain political mastery of the markets. A policy of the strong franc was adopted as a route to gulling Germany into sharing monetary sovereignty. French diplomatic activity became focussed upon maintaining the link between Franc and Mark. This made the ERM into a DM-zone. Other countries pegged their currencies to the DM with the Bundesbank setting the monetary policy for all of them.
In the UK political direction of movement was in entirely the contrary direction. When Thatcher took power she immediately abolished exchange controls. She declared that the markets not governments must determine the value of a currency.
Despite this her chancellor became progressively more enamoured of the ERM system. But Lawson had failed to understand that ERM wasn’t a rational economic mechanism. It was an instrument for advancing the political objectives of a generation of French and German politicians – objectives based upon geo-strategic interests that Britain could not share.
The notion that economic development and integration required fixed exchange rates was anyway bizarre. The whole point of capital liberalisation, by allowing capital to flow where the return is highest, required flexibility in nominal exchange rates. The North American Free Trade Area recognises this for instance. No one ever proposed that it required fixed exchange rates. What was so different about the EEC ?
Mrs Thatcher’s project for the Single Market was precisely the reverse of that of Delors and Kohl. She saw it as freeing up trade and creating a dynamic, rapidly changing environment. They wanted it to protect France and Germany from new competitors. While she was aggressively forward-looking they were static and backward-looking.
The battle for monetary sovereignty fought between France and the Bundesbank was eventually resolved when the Bundesbank decided not to block monetary union but instead set conditions for the creation of the ECB. There were to be no ‘bail outs’ of countries in difficulties. There would be tight limits on budget deficits. It is these conditions have shaped the reaction, or rather the lack of reaction, to the European debt crisis.
The Euro shares the instabilities of the ERM
ERM was afflicted by a self-destabilising dynamic called the “ERM Paradox”. Countries kept finding themselves in the wrong place in the exchange rate bands. The currencies of high-inflation countries headed to the top of the table. The Spanish economy, for instance, was overheating when it entered ERM. The logical response would have been to raise interest rates but it wasn’t possible to do this. That would have further stoked the demand for pesetas causing it to pass the limits set for it.
This was paradoxical because a high inflation economy with high interest rates, a large current account deficit and no ‘credibility’ sat at the top of the ERM. The top dogs sat at the bottom. Within the ERM Spain was forced towards precisely the wrong response to a booming economy – the lowering of interest rates.
This echoes the subsequent history of the Euro. The peripheries and centre were meant to converge economically. Instead Germany has benefitted from interest rates that are far too low. Greece and Portugal have suffered from an interest rate that is too high. The single shared interest rate has, in practice, been a motor for divergence, not convergence. The limitations on monetary union still imposed by the ghostly presence of the Bundesbank have prevented any effective resolution of the Eurozone crisis.
Political effects of monetary union
By hamstringing the ability of European states to operate in the interests of their own people monetary union it has destroyed political legitimacy. It has contributed to a contempt for democratic politics amongst rulers and ruled that puts their political systems at risk. In practice monetary union is a major reason for economic failure, for impaired political legitimacy and for growing tensions between members.