European Union dream threatened by austerity and disharmony

 

Valéry Giscard d'Estaing, one of the founding forces behind the European Union, thinks people 'are voting against what Europe is doing'. Photograph: Olivier Hoslet/EPA

European Union dream threatened by austerity and disharmony

Structural problems with the eurozone and economic blunders have dragged the postwar project into a critical phase

William Keegan

The Observer, Saturday 31 May 2014 / http://www.theguardian.com/business/2014/may/31/european-union-dream-austerity-disharmony

This columnist didn't get where he is today by becoming involved in debates about immigration. My Irish surname speaks for itself. But I have spent most of my career keeping a watchful eye on Europe and, in common with many fellow Europeans, I do not like the way that the European dream is turning into a nightmare.

The principal aim of the founding fathers of the European community was to ensure that there should never be another war between Germany and the rest, the most notable member of the rest being France.

But a closely associated aim was to ensure general prosperity that, among other things, would not give rise to either the hyperinflation experienced in Germany after the first world war or the mass unemployment which created the conditions that gave rise to Hitler – who was democratically elected, but after that used undemocratic methods to remain in power.

The aim of the two prominent founding fathers, Jean Monnet and Robert Schuman, was to bring Europe closer together politically by economic means. The nightmare would be if the economic means adopted in recent decades served to pull Europe apart.

One of the prominent successors, decades later, to Monnet and Schuman was Valéry Giscard d'Estaing who, as president of France in the second half of the 1970s, was a leading participant in the formation of the European monetary system and the exchange rate mechanism, the precursor to full monetary union and the euro.

It was noteworthy that in a recent interview with the Financial Times, Giscard observed: "It is said people are voting against Europe – that's not true. They are voting against what Europe is doing wrong."

For Giscard, it is bad management, not the basic architecture, of the eurozone that is the problem. But if he studied the timely new book by Philippe Legrain, European Spring – Why Our Economies and Politics are in a Mess, he might be more inclined to accept that the fundamental structure of the eurozone is also to blame.

Legrain, a former economic adviser to the president of the European commission, gives a vivid insider's account of just how badly the European political and economic elite responded to the financial crisis. As in the UK, the wrong diagnosis was made when laying so much of the blame on putatively excessive public spending – an analysis that may have applied to Greece, but not the others – as opposed to the credit crunch.

Fiscal austerity was the wrong response, rendering the crisis much worse. The crisis was aggravated in the eurozone by the loss of such instruments as independence in the determination of monetary and exchange rate policy. But as Legrain forcefully points out, the UK's freedom from such constraints did not prevent policymakers after 2010 from extending the crisis, with those three years of "flatlining".

Giscard does accept that the eurozone needs "harmonised economic and fiscal policies". Alas, all the evidence is that, on their record so far, eurozone policymakers dominated by a pre-Keynesian consensus in Germany would probably be experts in disharmony.

It will presumably please David Cameron that Giscard distinguishes between the "big project" – the current and potential new members of the European Union in a predominantly free trade zone, and the "inner core" favouring further economic and political integration.

There are several ironies here. The French enthusiasm for the eurozone was motivated partly by its wish for a European Germany rather than a German Europe. French policymakers thought they would be less subject to the restrictive economic policies of the Bundesbank if there were to be a European Central Bank. The demotic phrase was that the French wanted their fingers in the Bundesbank till. But it did not work out that way.

The strategy of successive British governments has been to try to undermine continental plans for "deepening" Europe – ie, for ever-closer union – by broadening or widening Europe. The British were among the strongest advocates of the extension of the EU membership to members of the former Soviet bloc, so it is rather unsporting of us to object to the obvious consequences for flows of workers. We now find that the supposedly unstoppable political will of the European elite for ever-closer union may be up against the irresistible force of those tiresome citizens called voters.

But I am reminded of a conference I attended in Hamburg in November 2008, where both Helmut Schmidt, former chancellor of Germany, and Giscard were panellists. Schmidt was, of course, the other driving force behind the formation of the European monetary system.

It was at that conference that Sir Stephen Wall, whose history of our negotiations with the European community I referred to recently in this column, made the remarkable – at least to me – revelation that towards the end of his life Monnet was having doubts about the goal of ever-closer union.

I suspect that President de Gaulle's vision of a Europe of nation states will prevail in the end, but it is important that they co-operate as much as possible within the European Union. There always seemed to be a fundamental flaw in the idea of a United States of Europe. After all, the United States of America was formed by people who had left Europe.