EMU: Path to European Political Integration

Reflections on a thorny façade
EMU: Path to European Political Integration - Gianni Bonvicini

Only a few years ago no one would have bet on a single European currency.1 Nevertheless the idea of a unified European money has a long history which can be traced back to the political philosophy that in only forty years has brought us from the European Coal and Steel Community (ECSC) and the European Economic Community (EEC) to the European Union (EU). The Euro can be considered the final point of the neo-functional project inspired by Jean Monnet. Through a progressive integration of national economic factors, from agriculture to steel, from trade to structural funds, it has finally arrived to the 'spill-over' point where integration in the economic field forces the Europeans to deal with the central question of how to govern the economy within the context of broader political cooperation. The currency, the Euro, is only a symbol, the 'veil' of classical economics texts, over a structural reality which requires real governing capacities.

Actually, the date 1 January 1999 does not represent anything more than the most recent attempt of European governments in this direction. As early as 1970 the Werner Plan (meant to 'defend' Europe from the dollar) tried to further develop along the neo­functionalist path of the old Community to the end of monetary union. Yet this very brief attempt and the 'snake' (the first experiment in cooperative monetary policy) were undermined by the dollar crisis. The exchange-rate volatility soon put an end to this experiment.

The later and less ambitious European Monetary System (EMS), which lacked both specific dates and objectives, was much criticized by the member states' central banks. Nevertheless, the EMS, once launched, made it possible to experiment with the monetary mechanisms necessary to understand the macroeconomic variables indispensable to initiate much broader projects in the field of economic integration.

The real premise for the Euro was the decision to complete the internal market through the first revision oft he Rome Treaty, the Single European Act (SEA) of 1986, and its objective of completing this by 1 January 1993.

This set the real basis for developing the plan for the Euro launched by the Delors Committee, made up of members of the member states' central banks, in 1988. The first phase started in 1990, on the eve of the Intergovernmental Conference (IGC), which lead to the Maastricht Treaty and to the inclusion within it of the subsequent steps. The last phase is now at hand. The Maastricht Treaty fixed the dates, the exact procedures, and the institutional mechanisms, but was more vague with regard to its aftermath. As a consequence, the 'Pact for Stability and Growth' had to be approved in Amsterdam in July 1997. Nevertheless, the institutional framework of the Euro can be considered to be very effective and sophisticated in as much as we are now on the eve of the final decision.

These brief considerations of history demonstrate the conceptual strength and the technical seriousness by which the whole single currency project has been carried out. Comparing, for example, the specific section of the Maastricht Treaty and the annexed Protocol related to the European Central Bank (ECB) with the section relative to the Common Foreign and Security Policy (CFSP) and the annexed Declaration on the Western European Union (WEU), one notes, however, the abyss which lies between the launch of the Euro and the CFSP, in terms of both the maturation of their ideas and their institutionalization.

Clearly, in the end, the decision taken between the end of March and the end of May is again an essentially political decision, as it has been in the past (as with the EMS in 1979). But this time there is less room for maneuvering because there are the 'objective' criteria on which the decision is being made, as well as the qualified majority voting that must be respected (i.e. one country voting in the negative cannot block the decision). Finally, because the project has gained inertia from the preceding two stages of Economic and Monetary Union (EMU) it is difficult to alter or rethink the mechanism. As a result, all countries have tacitly suggested that if the launching of the Euro were set back it would mean abandoning the project altogether.

Despite this there are still numerous forces working against the Euro. On few previous occasions have the decisions of the European governing 'elite' met with so little enthusiasm among the people. The lack of an ideal, long-term end-state in contrast to the concrete short-term advantages which have been focused upon by member governments has rendered the whole project barren: thus it has been suggested that the Euro is being born without a 'soul'. This is most unfortunate, however, because this project has such a great historical importance.

The macroeconomic convergence criteria of Maastricht have become, in the rhetorical arguments of many European leaders -especially the Germans, an 'ideological substitute' as against the deep values of European integration. As such, the Euro comes to be seen as a result of the plans of merchants and bankers, as a technocratic project: by definition a project distant from the interests of the normal citizen.

Added to this, the idea that Europe does not function well in other sectors of activity has been gaining ground, starting from the CFSP area which was once seen in the collective imagination as a tool for bringing peace to the crisis areas nearest to Europe. Instead, from Bosnia to Algeria, there remain signs of internal division and impotence. This is the horizontal link between the Euro and CFSP, which further weakens the perception of the former project.

How is it possible, then, to allay fears and sway ambivalent public opinion?

This is a matter which the governments have paid little attention to and repeatedly delayed addressing. They have been, instead, more engaged in the race to participate, at all costs, in the 'club', rather than finding the political and economic reasons by which they might justify the move to the Euro to their populations. This enthusiastic race to join the club is another paradoxical aspect of the Euro affair, especially when contrasted to the cool public reception. Even countries that have opted out of the first round, particularly Britain, have used all available pressure in order to take part in and define the participatory roles within the Euro council (or Euro-X) established through Article 109k.

This evident wish of not losing contact with or influence over the leading group is contradictory to the hostile attitude of those states towards the Euro. Nevertheless, this is an important sign of the deep political meaning of the introduction of the Euro. Based on this a complete re-evaluation of the economic and monetary integration should start. One not based on 'technical' criteria but which, on the contrary, examines the 'spill-over' into political integration.

In helping to confuse the question of 'technical' criteria, the great role attributed to the ECB in the Maastricht Treaty must be mentioned. To this there was added the German insistence on protecting the ECB's independence from political influence. There is no doubt that the argument is valuable, even if it must be said that the Bundesbank's independence emerged historically from the difficulties relevant to the creation of the German Federal Republic in the aftermath of the Second World War and from the weakness of the government at the time, busy as it was with the reconstruction of its political credibility. Trust in a strong central bank was the only way to create an equilibrium among state institutions while at the same time strengthening the federal government's role.

Today, in a completely different historical context the same argument works partly to understand the EU and the Euro. As in post-Second World War Germany there exists a political 'vacuum' due to the fact that the European Council of Finance Ministers (ECOF IN) and the European Commission have neither the instruments nor the powers to claim to be governing the Euro. Relative to such a weakness in the institutional and political framework, there arose the logic of 'loading' theECB with exclusive responsibility for handling monetary policy.

Which orientation will the ECB follow for the monetary policy of the Euro?

The experts expect a restrictive monetary policy, perhaps even stricter than the economic situation of the moment might require. Especially if EU economies, considering the Commission's recent data, will confirm the growth already seen in 1997. It must further be considered that the fiscal rigidity foreseen in the Pact for Stability and Growth cannot be disregarded by member states participating in the launch of the Euro.

Restrictive monetary policy, likely combining rising interest rates with strict budgetary discipline, may provoke a series of short-term economic consequences which, through increased competition with diminished production costs, will lead to further labor problems.Not even the predicted growth will bring great advantages since it occurs more slowly in the big economies and risks suffocating the small ones by creating differences among Euro-participating member states.

Who will manage these differences? How will further unemployment be faced while at the same time expecting that the restructuring of the European enterprises (those which will have survived the shock of monetary unification) will relaunch the international competitiveness of the EU (which is generally expected to be the long-term consequence of the introduction of the Euro)?

One must ask, however, how to make a unified monetary policy without the harmonization of constituent national fiscal policies, without making social welfare regimes more transparent, and without more flexible labor policies. It is obvious that the answer is not to be found in the role of the ECB but rather in what Italian Finance Minister Carlo Azeglio Ciampi bluntly defines as a 'politico-economic institution with political authority.'

In the absence of this economic government one dares to say that the monetary policy of the ECB will not bring us that far, thus risking increasing fragmentation of markets and growing differences among national economic systems. On the other hand, it is considered to be in the interest of the ECB to avoid accepting all the responsibility for the success or the failure of the Euro. Once having 'locked in' all national monetary policies within the European one, the need for a 'credible' political interlocutor will spontaneously arise. Here we face the true problem: political legitimacy and efficacy.

As shown above, however, it is the neo-functional technique that will ultimately produce a 'spill-over' into the area of political institutions. The Euro represents exactly the step towards this final stage. This is not only explained through the economic and monetary affairs which brought about the Euro, but through the wider significance of the single currency in the designing of the political integration of Europe.

In fact, though the economic consequences have been thoroughly examined, the general policies which are intrinsically linked to the presence of the Euro have not.

The first consequence is that with the Euro one already has the outline for a Union of reinforced cooperation, which the Amsterdam Treaty has desperately tried to apply either within the first communitarian pillar (Article 5a) or within the third pillar, relating to justice and internal affairs (Article Kl2-l 7). The three-stage Maastricht Treaty with its plan for EMU, with the final stage reserved for the countries of the Euro 'club' (including independent organs and procedures), has already fixed the basic rules of reinforced cooperation.

This has at least two 'strong' political consequences:

Above all an Governing Council will have to be initiated not only with economic but also with political characteristics. It is hard to believe that those who take part in the launching of the Euro will not also take the 'leading role' in the construction of the Political Union. No one can deny the full legitimacy of the countries participating in the Euro in seeking to advance on their own in the area of political integration as well. This prospect will facilitate the embarking on the path to the political government of the economy of the like suggested by Carlo Ciampi, and will also lead to its responsibilities in other aspects of integration.

Further, the Euro 'club' will facilitate the design of a Union enlarged to twenty or more members. It will allow the massive inclusion of structurally much weaker countries than those participating in the Euro, without affecting the efforts of the leading group to more rapidly and more deeply integrate. Without this leading group enlargement would risk reducing the EU to a multilateral framework without real political and economic direction. Also, in this case, the strategy of EU enlargement would have to be lead and controlled by a political government able to avoid fractures and discrimination either with regard to the leading group or the new adherents.

The second consequence of the birth of the Euro regards the reinforcement of the Union's international role. It is obvious that the dollar-Euro relation will constitute the central focus for the foreseeable future, at minimum in the field of monetary policy. But it is also easy to predict that decision-making in the monetary field will also affect commercial, financial, and other related policies, in this way unifying the whole external economic policy of the EU.

From here it is but a short step to the more general political relations between the United States and Europe. These horizontal effects, from the monetary to economic, to the political and finally to the security sector, are the direct consequences of a progressive diffusion, in practice more than in theory, of the concept of global security and thus a soldering of the economic, diplomatic, and military policies in international relations.

It must further be added that economic questions have today assumed an absolute priority on the agenda of western governments and have been transformed into questions of national security (e.g. Tarnoff Doctrine, cf. the US President's decision to create a National Economic Council parallel to the traditional National Security Council). From its beginning, essentially regarded as a civilian power, the EU's launch of the Euro represents a decisive step on the way to reinforcement of the concept of internal and external policies. The Euro shows the major role of economic power as used as a means to promote internal and external stability. This projection of stability will have powerful impacts on the issue of common security as well.

In this view, the Euro definitely assumes the significance of a primary factor of security for the Union and of an instrument for the adoption of new responsibilities in the field of international relations. Obviously, this new factor must be governed and managed with responsibility and political efficiency: this aspect requires a strong political government for the Euro.'

If these considerations have a base it is even more obvious which way the European governments have to go in order to regain the support of a public already disillusioned by the lack of mobilizing projects and by the too rhetorical and too technical symbolism surrounding the Euro. The lack of courage in explaining the true character of the Euro, due to the hesitations of the governments less inclined toward integration, has continued to deprive the Euro of its revolutionary significance. That significance is the ultimate passage towards the political government of Europe and thereby to the completion of the process of economic integration in view of the political one.

Without the power of this ideal end-state project, the Union risks limiting or even wasting the opportunities and potential of the Euro, one of the major European events of the post-Second World War period.

Gianni Bonvicini is Professorial Lecturer in International Relations at the Johns Hopkins University SAIS Bologna Center and Director of the Istituto Affari Internazionali (IAI) in Rome. He has a degree in Political Science from the University of Florence and edits the quarterly journal The International Spectactor. Publications include The Community and the Emerging European Democracies and Italia senza Europa.