This is the second of a two part series of reflections upon the completion of my Daimler Fellowship this spring at the American Academy in Berlin. The first part, offering thoughts on the constitutional dimensions on the Eurozone crisis in Germany, can be found here. This second part reflects on the ‘power of the European idea’, not merely in relation to the Eurozone crisis but also my own scholarship on the EU.
I am writing this post at 35,000 feet over the Atlantic, on a flight back from Germany to the United States. While I may be leaving Europe for the moment (in fact I’ll be returning at fairly regular intervals), I will hardly be leaving the Eurozone crisis behind. Who could? The current crisis is of tremendous significance for the United States and indeed the world economy, as the recent G8 meeting made clear. People outside Europe obviously ignore it at their peril.
But even if the ramifications of the Eurozone crisis are potentially global, the crisis itself remains, at its core, very much a European phenomenon. Indeed, in its particulars (I am speaking more of politics and culture rather than technical economics), the crisis is also perhaps something that is not well understood even by close observers outside of Europe. In a commentary last month following a trip to the US, Martin Wolf, the FT’s outstanding economics columnist, noted how even ‘informed Americans’ almost all uniformly believed ‘that the eurozone will not survive’ the current crisis. The pessimism was based on an appreciation of the very same ‘centrifugal forces’ that Wolf himself so penetratingly described in his column. But, in contrast with these ‘informed Americans’, Wolf concluded that ‘the eurozone may yet survive’. Why?
One could advance any number of more technical reasons of political economy, as Barry Eichengreen has done. But for Martin Wolf, the principal reason was political-cultural: ‘the commitment to the ideal of an integrated Europe, along with the huge investment of the elite in that project’. Wolf elaborated:
This enormously important motivation is often underestimated by outsiders. While the eurozone is not a country, it is much more than a currency union. For Germany, much the most important member, the eurozone is a capstone of a process of integration with its neighbours that has helped bring stability and prosperity after the disasters of the first half of the 20th century. The stakes for important member countries are huge.
Thus, the big idea that brings members together is that of their place within Europe and the world….
If this were a mere marriage of convenience, a messy divorce would seem probable. But it is far more than such a marriage, even if it will remain less than a federal union. Outsiders should not underestimate the strength of the will behind it.
This is, in some sense, the most crucial question, not merely in relation to the Eurozone crisis but to European integration more generally: What is, in fact, ‘the strength of the will’ behind ‘Europe’ in all its forms? I agree with Wolf that this will is strong. But its power also has limits, as implied by Wolf’s predictions about the course of the current crisis:
The most likely outcome – though far from a certainty – is a compromise between Germanic ideas and a messy European reality. The support for the countries in difficulty will grow. German inflation will rise and its external surpluses will fall. Adjustment will occur. The marriage will be far too miserable. But it can endure.
But note, however, what Wolf did not say here. He did not say anything about mutualization of member-state debts (via Eurobonds or otherwise), for which all Eurozone members would be jointly and severally liable. Nor, even more ambitiously, did he say that there will be a dramatic, constitutional shift in taxing, spending, and borrowing power from the national to the supranational level, perhaps in support of automatic fiscal transfers to countries in difficulty (a European welfare state), democratically legitimated through the European Parliament and a European Commission responsible to it, acting as a new ‘government’ for the EU. He did not say, in other words, that there will be a genuinely federal union. The power of the European idea is strong, but it is not that strong, at least not yet. Europe, rather, will muddle through.
Wolf admits as much in a column that appeared the morning I returned to the US, a hard-copy of which I have in front of me on the plane as I write. In this piece (available online here), Wolf marches through all the possible routes to the resolution of this crisis. Dismantling the EMU is ‘out of the question’ because it is too costly and complicated (Eichengreen agrees). Recourse to ‘true federal finance is unavailable’ for both political and constitutional reasons (inter alia, because neither German voters nor the German Federal Constitutional Court would permit it). And ‘mutual solidarity will remain limited’ via such entities as the EFSF or the future ESM. So ‘what is left?’ Wolf asks.
The answer, in his view, will most likely be economic adjustment based on ‘higher wage[s] … and inflation in core economies’ in order to promote growth and restore competitiveness ‘in the enfeebled periphery’. Otherwise the peripheral countries ‘face year after weary year of debt deflation and depression’, which risks turning the Euro into ‘a detested symbol of impoverishment’. In a real federal union like the United States, Wolf concludes, the federal government would have both tools and the democratic and constitutional legitimacy to ‘bear the strain of such sustained disappointment. The far more fragile eurozone will not’.
So, as Wolf implies, the question is not really whether the European ideal is ‘strong’ in some abstract sense. Rather, it is whether it is relatively strong enough so that, in political-cultural terms, it can sustain the range of policy choices or decisional structures that European elites seek to place on it. This is the question that animates the legal-historical analysis of my 2010 book Power and Legitimacy: Reconciling Europe and the Nation-State (OUP page here). It is also the question I have been pressing in one form or another over the last five months in Europe, whether on this blog (e.g., here), in my Daimler Lecture at the American Academy in Berlin (text here; video here), or in the pages of the European Constitutional Law Review (see here). Whenever we are discussing European integration, the key question we must always ask is ‘legitimate for what?’
The problem with European integration is not its lack of legitimacy per se. It has plenty of legitimacy of a legal or technocratic nature, not to mention as an instrument of peace. The problem, however, is the EU’s lack of autonomous democratic and constitutional legitimacy, as my book Power and Legitimacy argues in some detail. For decades, scholars of European public law have touted integration’s purported ‘constitutional’ character (at least relative to international organizations), while also speculating on the ways in which the supranational edifice can be made more ‘democratic’, perhaps in some novel, non-hierarchical, ‘non-statal’ way (yes, that is the word they sometimes use). But these sorts of terminological calisthenics carry real risks of overstating the scope of the EU’s legitimacy. If the process European integration had a genuinely democratic and constitutional legitimacy of its own, one corresponding to a European ‘demos’ with all the attendant capacities for intra-European solidarity, then the resolution to this crisis would be reasonably straightforward. But as Martin Wolf pointed out in his column last month on Eurozone survival, ‘the eurozone is no country. If it were, the economic stresses to which it is subject would be easy to handle’. As I put it in my Daimler Lecture in February (forthcoming from the Berlin Journal):
Constitutional interpretations of integration wrongly bracket out the no-demos problem and thus effectively assume a degree of autonomous legitimacy in supranational governance that is fundamentally lacking (or at least is still fundamentally in dispute).
This leads us, then, to the key point: overestimating the legitimacy of European institutions is not merely an error of academic analysis; rather, it can lead to even more profound and dangerous errors of institutional or policy design, as the Eurozone crisis is demonstrating. As the Italian political theorist Stefano Bartolini presciently warned in 2005, in his book Restructuring Europe, “the risk of miscalculating the extent to which true legitimacy surrounds the European institutions and their decisions . . . may lead to the overestimating of the capacity of the EU to overcome major economic and security crises.”
The events of the last two years suggest that European Monetary Union (EMU) was built on just such an overestimation. The common currency was not just flawed economically (although economists never tire of pointing out that the countries of the Eurozone—and certainly Germany and Greece—do not constitute what they call an “optimal currency area”). Rather, it was also flawed constitutionally, in terms of its lack of a foundation in demos-legitimacy. Given the downside risks that the Eurozone crisis is now revealing, the adoption of the euro presupposed a degree of centralized political power and legitimacy—most importantly relating to shared taxing and borrowing authority (Eurobonds)—that the EU, or rather the Eurozone countries collectively, simply lack.
In some sense, what I am driving at here is a weaker, ‘European’ version of what the Harvard economist Dani Rodrik has called the ‘impossibility theorem’ for global economic integration. Substituting the word ‘European’ for ‘global’, the theorem would go something like this: ‘democracy, national sovereignty and [European] economic integration are mutually incompatible: we can combine any two of the three, but never have all three simultaneously and in full’. (Incidentally, Rodrik has a nice chart graphically depicting this ‘inescapable trilemma of the world economy’ based on this theorem.) Rodrik elaborates:
One option is to go for global federalism, where we align the scope of (democratic) politics with the scope of global markets. Realistically, though, this is something that cannot be done at a global scale. It is pretty difficult to achieve even among a relatively like-minded and similar countries, as the experience of the EU demonstrates.
Another option is maintain the nation state, but to make it responsive only to the needs of the international economy. This would be a state that would pursue global economic integration at the expense of other domestic objectives. The nineteenth century gold standard provides a historical example of this kind of a state. The collapse of the Argentine convertibility experiment of the 1990s provides a contemporary illustration of its inherent incompatibility with democracy.
Finally, we can downgrade our ambitions with respect to how much international economic integration we can (or should) achieve. So we go for a limited version of globalization, which is what the post-war Bretton Woods regime was about (with its capital controls and limited trade liberalization). It has unfortunately become a victim of its own success. We have forgotten the compromise embedded in that system, and which was the source of its success.
As the European experience suggests, given the absence of demos-legitimacy in the EU, a version of strongly-legitimated European federalism is, at this point in Europe’s history at least, probably out of the question. So Europe has tried to preserve the nation-state but increasingly align it with the needs of European integration (with particularly coercive effects in the context of the Eurozone crisis). But this also has had profound and perhaps ultimately unacceptable consequences for national democracy, as I’ve pointed out on this blog (see, e.g., here and here).
So all that is left is a downgrade of European ambitions, as well as a muddling through the Eurozone crisis along the lines described by Martin Wolf. This view is entirely in line with thesis I advance in Power and Legitimacy, as I pointed out on this blog (here) late last year. For many strong advocates of European integration, this is a particularly difficult realization to make. And yet the strength of the European idea – good for some things, but not others –may warrant it.
The Eurozone crisis suggests that the integration process has reached a crucial point. Unless and until Europeans are willing to change their understanding of what democratic self-government is and where it is located (still largely national), the ability to transfer the sort of supranational power needed to resolve the Eurozone crisis, in an optimal way at least (via Eurobonds), seems to be limited. The nature of EU legitimacy, whether legal, technocratic, or as an instrument of peace after the devastating consequences of the first half of the twentieth century, seems inadequate to the demands of genuine monetary integration. For this, the EU needs its own democratic and constitutional legitimacy, and this – despite the extensive efforts of prominent European theorists over many decades, the EU does not yet possess in a genuinely political-cultural sense. In this sense, monetary union without political union really may have been illusory.
Indeed, I would suggest that a ‘downgrade of ambitions’ in this context is not merely a pragmatic choice but also a constitutional imperative, unless again Europeans are prepared to shift their specifically democratic loyalties to a polity beyond the nation-state. If Europeans are not yet prepared to make that shift (perhaps because the ‘power of the European idea’ is not yet strong enough), then they need to recognize the implications for the process of European integration itself. As an exercise in delegated, technocratic (i.e., ‘administrative, not constitutional’) governance, the integration process can certainly continue within the basic legal and political limits defined over the last half-century – what Power and Legitimacy calls ‘the postwar constitutional settlement of administrative governance’, modified to the functional demands of integration. But in order to preserve the democratic character of the nation-state (to which European integration is purportedly committed; see, e.g., Articles 2, 4 and 7 TEU), Europeans must recognize that there exists a substantive ‘reserve’ of democratic sovereignty that cannot be transferred to the supranational level.
The idea of such a Souveränitätsreserve is admittedly controversial – many strongly pro-European legal theorists reject the idea (see, e.g., here). And no doubt the balance between the functional demands of integration and the continued attachment to national forms of democracy will be, as it always has been, a difficult one to strike. But striking that balance is a necessary consequence of the significant, but still ultimately limited, power of the European idea in relation to ideas of democracy that, for better or worse, remain wedded to the nation-state.
All this said, let me conclude with this final caveat: Even if the European idea is not strong enough to support a fully federal union, the functional demands of the crisis may yet demand a diluted kind of federalism. The costs of trying to turn back the clock, indeed even just holding the line, may be too great. As one commentator observed recently, ‘The historical irony is that an environment of crisis is forcing Europeans to make choices that they did not want to envisage, much less confront, in quieter times’. But what follows will necessarily be a process of contestation and reconciliation, in which, as I write in Power and Legitimacy (pp.13-14) ‘functional and political demands are satisfied but the outcome is still recognizable from the perspective of persistent, though evolving, cultural conceptions of [democratic and constitutional] legitimacy’.
Thus, I do not believe that the ‘adjustment’ process described by Wolf is the only likely outcome. As the crisis deepens and the functional demands intensify, the limited power of the European idea may lose its relevance. Some form of burden sharing may become unavoidable. This could take the form of the so-called ‘debt redemption pact’ of Germany’s fünf Wirtschaftsweisen (or ‘five economic wise men’, now including one woman). Or it could take the form of the so-called ‘euro-coupons’ rather than ‘eurobonds’ (i.e., mutualize the interest payments rather than the principal), as two other European economists have recently argued. Whatever the route chosen, as The Economist argued in its most recent edition, it will have to be ‘[l]imited in scope and time’ so as not to ‘fall foul of Germany’s constitutional constraints’. If combined with the beefed-up discipline and oversight of the Fiscal Pact and ‘Six Pack’, this may be enough to keep the solution on the acceptable side of the constitutional fault-line defined by the Bundesverfassungsgericht in its effort to preserve national democracy in some historically or culturally recognizable sense.