The Euro-a Road to Hell Paved with Good Intentions?

The Nobel prize winner, Amartya Sen, wrote about the EU’s flagship policy of the single currency in the following terms: “If proof were needed of the maxim that the road to hell is paved with good intentions, the economic crisis in Europe provides it. The worthy but narrow intentions of the European Union’s policy makers have been inadequate for a sound European economy, and have produced a world of misery, chaos and confusion”.[1]In an identically titled article, Mary Kaldor and Sabine Selchow the Euro, far from bringing Europeans together, is driving them apart. They conclude that “If what is happening is a crisis of representative democracy, we will have to acknowledge that, even if the euro is saved, Europe will not be. And, vice versa, unless the political crisis is resolved, it may not be possible to save the euro.” [2]

What follows is a presentation of a series of mainly Eurosceptic books from the UK, France and Germany, to use the Manichean dichotomy much in use in the media. “Pro-Europeans” are generally labelled “progressive”, in that they look on the Euro as a major step to the ultimate objective of creating a strong federation, governing over what is intended to become a European nation of nations. “Euro skeptics” are by contrast cast as “swivel-eyed loons” for dragging their feet for a multiplicity of reasons, most of which are deemed to be “backward looking”. In this rogues gallery, the prime sinner is by broad consent the UK. Former Prime Minister Michel Rocard for instance has declared that: “If the British leave the EU, I will shout Hurray”. [3]The FT’s Philip Stephens went so far as to dismiss the UK’s EU policy as playing at “silly buggers”, because, he alleged, it sought to block changes while others were determined to move ahead.[4]

As a counterpoint to this view of the UK as a block to the EU’s progress, I propose to start our review with a very pro-EU book by Stephen Wall, before moving on to more critical books by UK, French and German authors. I will end with some concluding remarks.

The UK: A Stranger in Europe.

Stephen Wall is about as pro-European as they come. As a Foreign and Commonwealth Office (FCO) mandarin, he was at the heart of UK policy from the premierships of Margaret Thatcher to Tony Blair. In A Stranger in Europe: Britain and the EU from Thatcher to Blair, Oxford, Oxford University Press, 2008, he writes that “The one thing which all three Prime Ministers covered in this book had in common was their belief in a Europe that was primarily a Europe of governments, a Europe in which the independent authority of the supranational institutions was to be feared, and held in check” In the future, he goes on, the problems will “require Britain to work with her European partners and many of them will require, not the lengthy, lowest common denominator approach of intergovernmental negotiation but the effective decision-making, and subsequent enforcement which can only be achieved by the so-called Community method. Britain, as never before, needs in her national interest the Europe of the founders: a Europe which has strong supranational institutions and which honours and advances the unique institutional framework which accounts for its success”. (p.219).

The book is an excellent account of the UK’s relationship with the EU since Harold MacMillan’s statement in September 1962 that “accession to the Rome Treaty would not involve a one sided surrender of sovereignty on our part but a pooling of sovereignty by all concerned, mainly in economic and social fields”. As Wall rightly points out, the language of the Rome Treaty talked about ever-closer union among the peoples of Europe, implying movement no faster than popular consent would allow. In this regard, the France of both Presidents de Gaulle, and Pompidou, ensured that the EU remained in effect largely a Europe of the states, with a common farm policy, beneficial to France, and some components of a common market. beneficial to Germany.  When the UK finally entered the club in 1973, it did so on disadvantageous terms, and just as 1970s inflationary recession began to set in. The UK’s position in the EU was made all the more complicated when in the course of the decade, President Giscard d’Estaing steered France in a more integrationist direction, and laid the foundations for a rejuvenated Franco-German relationship. By the early 1980s, French policy began to give absolute priority to binding Germany westwards, for fear that a united Germany would become neutral between the two blocs, while asserting its leadership through the Bundesbank on monetary and exchange rate policy across western Europe. In 1983, member states signed on to a Solemn Declaration, which redefined “ever closer union” to mean union “among the peoples and member states” in other words a concept which embraces the idea of leadership of states, and in particularly of France and Germany in setting the pace and direction of integration.

Much of the early part of his book is devoted to Thatcher’s efforts to reduce the UK’s budgetary contributions, which successive French governments had essentially considered as a new resource to finance French farm exports on world markets. The matter became all thee more urgent when Spain and Portugal, both with large farm populations, placed their candidacies for entry. Someone had to finance Iberia’s entry, and neither France nor Germany was keen to. The battle of the UK budget was tightly fought, and was finally settled when in 1983, President Mitterrand decided to give priority to his relationship with Chancellor Kohl, while Kohl used cheque book diplomacy to back Spain’s entry. The UK budget contribution was settled at Fontainebleau in 1984, but left the UK, as Wall points out, with few friends. This was even more the case when Prime Minister Thatcher in her speech in Bruges in August 1988 spelt out the traditional UK view of “willing and active cooperation between independent sovereign states”(p.79). But what really angered her audience at the Collége d’Europe was her statement that “we have not successfully rolled back the frontiers of the state in Britain, only to see them re-imposed at a European level with a European super state exercising a new dominance from Brussels”(p.81).

For Wall, the UK’s isolation in the affairs of the EU is grounded in its reluctance to share the supranational ideals of other member states, and he ends his book with a plea that the UK should sing from the EU federal hymn sheet in its own interests. It is only by pooling resources that European member states can “punch above their weight” in world affairs (p.208).

A very different message comes from Bernard Connally’s reprinted version of his book, The Rotten heart of Europe: The Dirty War for Europe’s Money, London, Faber & Faber, reprint, 2013. Connally, too, was an insider, in fact he was head of the Commission economics and monetary department. In the preface to his reprint, he gives no quarter; “The intention of the EU’s progenitors was, he writes, “to create an empire defined above all by its hostility to a so-called Anglo-Saxon model”(p.1). Connally sees a damnable coalition between France and Germany, on the one side, and various hues of Marxist apologists to create a new Soviet Union, an EUSSR, more concerned about exercising authority than promoting liberty; more intent on establishing hierarchy, while speaking equality; and more apt to promote a culture of rights rather than responsibilities. His book in effect recounts what he categorizes as a battle led by France to bind Germany westwards as it moved to unification, in exchange for surrender of the DM, and the transformation of the negotiated exchange rate mechanism between national currencies, to a single currency. In the process, Connally argues, the Vichy tendency in France won out over de Gaulle’s declaration of an unvanquished France in April 1940. “German monetary leadership in Europe has been simultaneously embraced in France, if only by the Vichy tendency in the French élite, as necessary expiation for past sins (suffering being inflicted on ordinary people, who do not matter, not on the élite themselves) and bitterly resented. By hamstringing the ability of French governments to act in the interests of the French people… that embrace has destroyed political legitimacy in France”(p.390).

“The monetary union”, he writes in the body of the book published in 1995,  “now so fervently wished for by the French élite would not restore legitimacy in France. Instead it would be the one thing most likely to reawaken “old demons” in Germany because, if it were run to suit France (via inflationary growth)…it would interfere in the ordering by Germans of their own domestic affairs. In other words, it would destroy political legitimacy in Germany, just as the franc fort policy and the drive to “Europe” have done in France.”

He ends with this prophetic statement. “ The cynicism of the French technocrats, traitors to their own people, and the arrogant, overbearing, menacing zeal of the German federalists, not to mention the grandiose ambitions of Helmut Kohl, remain on a collision course. The result of this clash of forces cannot be predicted with any precision. But it will be extremely unpleasant for the peoples of Europe”(p.392). In short, the struggle for power and supremacy in Europe lived on, aggravated by the high stakes involved in the EU policy process and ambitions. In theory, the EU preached the pacification of Europe; in practice, and especially in monetary affairs, it had succeeded in aggravating tensions between the states and their peoples, the very opposite of the EU’s proclaimed objectives.

Such a conclusion would have been no surprise to Enoch Powell, Prime Minister Heath’s Conservative opponent. His views are presented, and analyzed in Enoch at 100: a Re-evaluation of the Life, Politics and Philosophy of Enoch Powell, edited by Lord Howard of Rising, London, Biteback, 2012). As Andrew Roberts points out, Powell dates the start of the modern British state from the Henrician revolution of the early sixteenth century, when the English Crown in effect declared independence from the universal claims of the Papacy, and when the Crown in parliament emerged as the central institution of British freedoms, loyalties, and sovereignty. To Powell, “A Europe of nations, of sovereign nations, is the only Europe to which Britain, so long as she remains a nation, could belong”. (p.7). Arguments about the UK joining “Europe” in order to exert “influence at the top table”; to be in “the heart of Europe”; to “punch above its weight” or to be “left standing on the sidelines” are so many arguments designed to appease the powers that be on the European continent, regardless of the sacrifice of British sovereignty and British freedoms. Definitely, such a sense of distinction from the EU is borne out in the policy of successive governments not to enter the Euro, and most definitely in the Commission’s Eurobarometer finding in May 2013, that 79% of respondents in the UK oppose a European economic and monetary union, as against a modest 51% in favour in the EU as a whole. The UK is indded a Eurosceptic nation.

In A Doomed Marriage: Britain and Europe, Notting Hill editions, 2012, Daniel Hannan, the MEP for South East England, goes a step further in arguing, in echo of Michel Rocard, that the greatest gift the UK could give the EU was to leave it. As Hannan rightly points out, in the collective mind of the EU, the demon that has to be laid to rest is the nation state. In the EU’s collective mind, nationalism divides Europe into a congery of small to medium size states, reminiscent of the Germany following the Treaty of Westphalia. Just as France and the other European powers kept the German lands divided, so in the future, will the great powers of the world divide and rule Europe, unless it unites. Hence, the propensity of Brussels to extend its regulatory reach, regardless of the costs of regulation (p.90); its contemptuous attitude to national opinions, exemplified in the request to smaller countries to “think again” when they vote, like Denmark or Ireland, against Brussels wishes; or its insistence on resurrecting the Constitutional Treaty in barely modified form, once the French and Dutch had voted against in 2005. Not least, Hannan writes, there is the constant drumbeat of EU antipathy to Israel, to the US and to the UK. Illustrative of this is the Captain Euro cartoon, (, a federalist superhero who does battle against Dr. D. Vider, an international financier, described as “a ruthless speculator” who hopes to divide the EU so as to conquer it. The cartoon,rightly, has been accused of anti Semitism.[5]

Not surprisingly, Britain’s pro-EU contingent has found it very hard work to win popular approval for the project. David Charter writes, in his highly readable  Au Revoir Europe: What if Britain left the EU? Biteback, 2012, that “their ambitions to play a full role in the future of the EU lie in ruins”(p.16). They failed ever to explain to UK voters what the EU really was about , and pretended that the UK government could retain  much of its sovereignty as possible, while maximizing its influence in the EU. But as time passed, and more powers accrued to the EU, the UK’s ability to exert influence dwindled, as the scope of majority voting in the EU institutions widened. Thus, in 1973, the year of entry, the UK wielded 10 out of 58, or 17.2% of votes; by 2013, that was down to 29 out of 348, or 8.4% of the total. When Malcolm Rifkind pointed out that this surrender of powers amounted to  a one way street, the conservative Frankfurter Allgemeine Seating, created a diplomatic incident by referring to “the Jew Rifkind”(p.44). The theme of anti-Semitism seems never to be too far away from EU affairs.

By the time that the financial crisis hit, the UK was already, the author argues, tiptoeing to the exits. Continentals, by contrast, argued overwhelmingly for “more Europe”. British attempts under the coalition government to repatriate powers, and to renegotiate the UK’s relationship within the EU, he argues, are on a hiding for nothing. The member states would either not allow such a renegotiation to happen, or like Rocard, would shout hurrah that the awkward partner leaves.  “The familiar pattern of frequent arguments, muddles and joint initiatives that has always marked Britain’s relationship with the continent continue unabated”(p.306).

David Owen, the former Foreign Secretary, does not make such assumptions. In his stimulating book, Europe Restructured: The Eurozone Crisis and its Aftermath, London, Methuen, 2012, he points out that other countries are coming round to the UK defense of national sovereignty. Given that development, what is needed, Owen writes, is that the UK works out a viable position on EU reform. The UK, he concludes, should push for a wider Europe, inclusive of Turkey, and a deeper one, understood as maintenance and development of the single market, of which the UK remains an active member, and equally, the maintenance and the development of a more integrated Eurozone. “The British…just want our politicians to uphold our right to democratic self government in this country”(p.334). They are not alone, Owen maintains, in this demand.

France: the European error.

French political debate set much of the tone in the 1950s and 1960s informing the public debates about “la construction européene”. In the 1950s, French politicians under the IVth Republic tended to favour the supranational path to European unity; in the 1960s, Charles de Gaulle affirmed that the only viable Europe would be a Europe des patries.  In this latter tradition, Europe is conceived a mosaic of states and peoples, with their own histories and extra-European special relationships, yet highly interdependent among themselves and with the rest of the world, and sharing an underlying common religion and culture. As Eric Jones, the Australian historian has cogently argued, in The European Miracle: Environments, Economies, and Geopolitics in the History of Europe and Asia,  Cambridge, Cambridge University Press, 3rd edition, 2003, Europe’s tradition is one of de-centralization and competition among its components that drove innovation and experimentation on an unprecedented scale. Europe alone managed the politically remarkable feat of curtailing arbitrary power, thus reducing risk and uncertainty, while encouraging more productive investment and promoting growth.

By contrast, the Eurasian systems of the Ottomans, the Mughals and the Manchus were all, “alien, imposed military despotisms: revenue pumps”. (p229). All of these powers emerged from the turmoil of the steppes, to be absorbed into their new empires of China, India or the greater mid-East. As a reminder of their attitudes to development, he quotes Genghis Khan: “The greatest pleasure is to vanquish your enemies and chase them before you, to rob them of their wealth and see those dear to them bathed in tears, to ride their horses and clasp to your bosom their wives and daughters”. p.230.

It is surely safe to say that Genghis Khan does not ride again in Brussels. But there is no gainsaying the EU’s ambition to create a superstate. This ambition attracts the ire of the former editor of the yellow pages of economic and business news in Le Figaro, Jean Jacques Rosa, L’erreur Européenne, Paris, Grasset, 1998. The single currency, writes Rosa, is already a disaster, before it has been launched. The two forces driving the single currency, according to Rosa, are France’s Napoleonic élite, and  Germany’s own ambitions for leadership in Europe. Battle was joined in the course of the 1970s and 1980s, when the French élites came round to the viewpoint that Germany had to be shorn of the DM-the Federal Republic’s pride and joy. Once France shared power in a European Central Bank with Germany, the calculation ran, the external constraint of Germany’s pursuit of trade surpluses along with the Bundesbank’s deflationary policies on the rest of the continental member states would be raised.

There was no evidence, Rosa argues, that this would be the case. The single currency had to be negotiated on Germany’s terms, not on those of France. Hence, from the start, the single currency was a prescription for permanent deflation. The French economy had to forego growth, watch unemployment rise, and see tax revenues shrink. Worse, binding heterogeneous economies together in a single currency was a recipe to ensure serious interstate conflicts. The member states did not form an optimal currency zone, -labour mobility was absent; there was no common federal fiscal authority; business cycles were not synchronized; the internal market was far from completion. For Rosa, the Euro experiment represents social engineering on a grand scale. Once in operation, the single currency, far from bringing the Europeans together, would tear them apart.

It is no exaggeration to say that Mitterrand was a politician to his fingertips. His grasp of economics was by contrast extremely limited. He thought, lived and breathed politics around the clock, particularly French politics of which, by the time he was elected President in 1981, it is fair to say that he was a master. As Rosa argues, his propensity was to use this experience from French politics and project it onto Europe. For instance, he cozied up to the German government in order to get them to hand over the DM, much as he had cozied up to the communist party at home, the better to strangle them. With Germany, Mitterrand’s assumption was that France would eventually prevail in the battle over stability or growth.

In similar fashion, it may be argued, Mitterrand sought to divide the French right, much as he successfully managed to separate Germany from the UK by talking “ever closer union”. As Philippe Cohen and Pierre Péan, point out in Le Pen: Une Histoire Française, Robert Laffont, 2012, he introduced proportional representation to the French electoral system, thereby giving Le Pen’s far right National Front the opportunity to steal votes from the centre-right conservative parties. At the same time, Mitterrand set about creating a cordon sanitaire around the National Front, with a view to making it risky for centre right parties to be seen to forge alliances with  Le Pen’s movement. Le Pen, of course, played into Mitterrand’s hands by remarking that the Holocaust was a “detail” in the history of the second world war. The two authors record the interesting detail that  Alfred Sherman- an ardent British supporter of Prime Minister Thatcher, former communist, and of Jewish extraction- rushed over to meet Le Pen to get him to retract. Le Pen, the authors record, would not (p.303).

Twenty years on, it is clear that it is France that is being asphyxiated by the Euro, and Marine Le Pen, Le Pen père’s daughter, who is riding high. In October 2013, the National front candidate won 40% of the vote for a seat on the Var department council in Brignoles, near Toulon. The National Front now draws votes not only from the mainstream centre right, with le Pen fille’s anti-immigrant and law-and-order rhetoric; she is also winning over disgruntled ex-communist and socialist voters with her stance against the EU and the Euro. She advocates withdrawal from the Euro; a return to protectionism; and the clear exercise of sovereign powers by France in Paris. By October 2013, Marine Le Pen was recording a popularity rating of 42%, by contrast to President Hollande’s 35%.[6]  Against this powerful pull on French patriotism, the defenders of the Euro and of the EU offer thin gruel.

Patrick Artus and Isabelle Gravet, two French academics,  suggest, in La crise de l’Euro: Comprendre les Causes. En Sortir par de Nouvelles Institutions, ( Paris Armand Colin, 2012), that the only way out of the crisis in a Euroland without a federal budget is by contraction of demand. During the early years of the Euro, from 2001 to 2008, Euroland grew more heterogeneous as specialization developed between the member states. In order to finance, their growing imports from northern European suppliers, the southern deficit countries borrowed heavily. The sums lent to deficit countries amounted to 40% German gdp; 80% of The Netherland’s economy; 40% of Belgian gdp; and 20% of Finland’s. These transfers via the banks ceased in 2008, and have been relayed by the TARGET II mechanism under the aegis of the ECB. In effect, what this amounts to is a procedure whereby, for example, a German car sale to Spain, will be paid for by the ECB, but Spanish liability will be chalked up on TARGET II to Germany (See graph below: source. Euro crisis monitor). The authors conclude that given this tangle of credits and assets, disbanding the Euro would come at a very high cost. So the only moral solution is via “more Europe”, in other words, by the creation of a federation, which has the combined credit to underwrite debts and deficits in poorer member states.

Jacques Attali, Mitterrand’s former ideas guru, make a similar case in Urgences Françaises, Paris, Fayard, 2013. While favouring a federal solution, Attali adds the crucial point that good housekeeping begins at home. The solution to French problems will not be found in Brussels, he suggests. France is its own worst enemy. Why? Because “the state is frozen in defense of vested interests of innumerable groups”(p.92). For decades now, France has failed to reform, and ever more French people seek to live off the rents that they have negotiated with the state. What France has to do is radical reform to preempt revolution. These reforms include control over expenditures, reforms of taxation and pensions, and the introduction of Danish type flexisecurity of employment. Simultaneously, the Franco-German couple has to be revived in order to promote a federal power, with a Euroland Finance Minister and a strong EU investment tool in the shape of the European Bank for Reconstruction and Development, of which Attali was first chairman.

François Heisbourg, in La Fin du Reve Européen, Editions Stock, 2013, formerly the head of the London based Institute for International Security Studies, is no less a member of the French élite. He also professes his ardent federalism for Europe. But, he says, the Euro dream has become a nightmare. “Féderalisme impossible, institutions contestables, mais aussi people introuvable”(p.148). All three realities make any attempt by Brussels to continue on the path of furtive integration a real and present danger. The nub of his argument is that the EU lacks legitimacy, and nowhere more than in the UK. Were the UK to leave, there is no, doubt, writes Heisbourg- that Germany’s primacy in the EU would grow. Priority, he argues, must be therefore given to salvaging the EU, and that requires an orderly dismantlement of the Euro, agreed first and foremost between Paris and Berlin. It is unrealistic, he argues, to consider that France can undergo deep domestic reforms, without growth. And since Germany will not change its ways, the only option is to end the Euro. Thereafter, he writes, we can return to the European construction, but the next time around, build the political system first before establishing a single currency.

Germany: Reluctant Hegemon?

I have written elsewhere in my blog about how Germany has emerged in the first decade of this century as the de facto leader of Europe, the indispensible state for all major policy initiatives. [7] But, according to Thomas Mayer, formerly chief economist at Deutsche Bank, this is not a happy situation. In his excellent book, Europe’s Unfinished Currency: the political economics of the Euro, London, Anthem press, 2012, Mayer argues that the story of the Euro is one “ of a hugely ambitious political project pursued with an occasionally reckless negligence of economics”. Mayer traces the origins of the Euro in the quest for European unification, and in particular in the history of Franco-German relations. Monetary matters received scant attention in the Rome Treaty, not least because they were so controversial, and the negotiators felt that they had more important fish to fry, such as Euratom to ensure the European Community of energy independence, and the creation of a single market. But in the 1960s, as the dollar became less of a reliable currency benchmark, and the DM glided on the back of permanent trade surpluses to substitute for the pound sterling as the world’s second currency, France returned again and again to proposals for some sort of intra EU currency arrangement, ending in the negotiations around the Maastricht Treaty at the turn of the 1990s, coinciding with German unity.

Mayer then goes on to maintain that once Germany was united, and the cold war history, the momentum which had driven European integration, the avoidance of war, lost its deeper meaning. With war no longer conceivable, and German unity achieved, Germany closed its chequebook, which it had deployed so abundantly in the 1980s to ensure support by member states in the ever more likely event of German unification. Nor was any progress made in achieving the full political union, which Kohl considered indispensible to the success of the single currency. By the time of the Dutch and French referendums in 2005, rejecting the Constitutional Treaty, German public opinion was cooling to the idea of European integration, as the world war receded into the past; dependence on the western alliance for national security was much reduced; and Germany began to develop its independent foreign policy, notably with regard to growing dependence on Russia for coal, oil and natural gas, and visibly in its reluctance to back French or British foreign policies in the Mid East.

Mayer then turns to the history of past monetary unions to underline the point that currency unions without strong political union tended to fall apart. That was the history of Napoleon III’s Latin monetary union, cobbled together in 1865, but that received a deadly blow with French defeat at Sedan in 1870; the Scandinavian currency union lasted between Sweden, Denmark and Norway from 1872 to 1924; the gold standard, predicated on co-operation in monetary and financial affairs between the members of the system in effect closed down in 1914 with the outbreak of war, and was revived in more sickly form as the gold exchange standard in 1923, only to die an early death in 1931. The one example which did work was the US, where the creation of the union came first, with the establishment of the Fed coming nearly 130 years later, after the union had been cemented by the victory of the northern states in the civil war of 1861 to 1865. And it has worked because there is a no bailout clause operating for each one of the states. Not least, the federal government following the Roosevelt presidencies has extensive fiscal and other means to offset downturns in the business cycle across different parts of the country, now falling under a more active Supreme Court, which extended the legal foundations for an integrated US domestic market.

No such conditions, Mayer states, pertain in Europe. There is a fairly integrated goods market. With free movement of capital, money moves about unimpeded. But the EU budget of just over 1% EU gdp is miniscule, compared to the US Federal budget. There is not one European labour market, but many national labour markets. Nor did the states stick to the budget deficit rules they had themselves drawn up. Why then was the risk of monetary union taken?, he asks. The answer, which Mayer does not provide, is fear: a lack of confidence in Germany’s democracy, in Germany and among its neighbours. In short, France remains suspicious of German motives; Germany of French; and the British of both.

Mayer then goes through the first happy years of the Euro, telling the well known story of how performance between northern and southern Europe diverged; how monies flowed southwards through the banks to fund the growing current account of southern countries; then the crash, spelling the extreme vulnerability of Euroland to shocks in the global financial system; through to the replacement of bank loans by the TARGET system under the aegis of the ECB. In a fascinating passage on the TARGET mechanism, he asks the pointed question why it was that the designers of the interbank payments system did not follow in the footsteps of the US system, whereby states alone stood for their own debts. Was it, he asks, that the weak balance of payments countries ensured that they would have unlimited access to the funding of their balance of payments through the Eurosystem? He gives no answer, other than a pregnant silence. One of the main weaknesses, in other words, in the Euroland design, is the lack of trust between the member states.

Mayer then discusses how to save the Euro. It cannot be done through “more Europe”, or by the tried and tested step by step methods of the past. The only answer, he argues, is to return to the original design of the monetary union, whereby each country is responsible for its government finances and the ECB aims for price stability across the union. In this context alone can the Euro emerge as a stable counterpoint in the global financial system to the inflationary fiat monetary system that the US launched on the world economy in 1971, as the chosen way both to enjoy growth at home while maintaining its imperial positions abroad. His proposal is that monetary union would become a hard currency union  by the exit of all countries unable to sustain a hard budget constraint-the path most definitely chosen by Chancellor Merkel. “Presently, he writes, the creditor countries seem to be trapped into a currency that the debtor countries could debase by forcing the central bank to print money so as to prevent default of the debtors and financial collapse”(p.209). If this were to occur, creditor countries could take the option to leave the monetary union.

This is the theme spelt out in less guarded tones by Hans-Olaf Henkel, in Die Euro-Lügner: UnSinnige Rettungspakete, Vertuschte Risiken. So Werden wir getäuscht, München, Wilhelm Heyne Verlag, 2013. Henkel is an angry main, a former head of the employer’s organisation, the BDI, with a successful career behind him in IBM, and a former ardent supporter of the single currency, for all the good reasons previously adumbrated. He is extremely critical of the policy whereby the Euro must be defended, regardless of the cost. The Euro, he points out, has become an article of faith, and considered by the good and the great of Brussels as the necessary staging post on the way to a federal Europe. For me the highlight of this book is his quotation of an interview with Lord Dahrendorf in the weekly magazine, Der Spiegel in December 1995 ( Dahrendorf was a former German government minister from the liberal party in Germany; a former EU Commissioner; a member of the UK House of Lords; and a Warden of St Antony’s College, Oxford. Here are the key extracts from the interview (my translation):

“The single currency project seeks to remake other European countries into a German mold, but not every country want to behave in a German way. For Italy, occasional devaluations are much more useful than fixed exchange rates, and for France, higher state expenditures are more meaningful than rigid adhesion to a stability criterion, that serves Germany first and foremost”.

“It was always a fatal mistake (to consider that Maastricht was the price to be paid for reunification). Why do we need an ever closer European union? In most countries the only answer is: to bind Germany in. What is remarkable is that the German answer is the same, at least for (Chancellor Kohl) and his predecessor, Helmut Schmidt”.

“What this position represents is an enormous lack of self trust. I have always been amazed by this lack of trust concerning Germany’s solidity. Whether Germany drifts from the democratic path, lusts after hegemony, or losens its ties to the West, depends on its internal structures, not on any external policy of binding Germany in.”

“The currency union is a major error, an adventurous, mad and false objective, and it will divide, not unite Europe”.

The conclusion that Henkel makes in his book is similar to Mayer’s, but expressed in more colourful language: the Euro should be terminated as it is. Present policy is asphyxiating southern Europe; it is dragging Germany into underwriting the liabilities of debtor countries; and it is part of a wider policy to centralize power in Europe. His chosen recipe is the creation by agreement of a harder northern Euro and a softer southern Euro.


What conclusions can be drawn from this survey? One is that  David Owen is surely correct that the UK is not alone in wanting to be self-governed; the French authors discuss the need for growth and domestic reform, and have very divergent views on the federal dimension of their country’s foreign policy; our two German authors do not want Germany to become the milch cow of poorer European countries. Either the southern countries live with a hard budget constraint, implying bold supply side reforms, or the Euro is broken up, preferably in  an orderly fashion. The latter is Heisbourg’s preference, though he clings to his federal faith with the argument that the next time around, the EU must build its political edifice first, and the monetary and economic infrastructure later. How this is to be done after so much political capital has been expended on the Euro, and lost, he does not spell out.

The second conclusion must be that surely Dahrendorf too  was right. A one size fits all policy runs against the grain of European history, and of existing political cultures. If the purpose of European union is to “bind Germany in”, then that presupposes an enormous lack of trust in Germany’s democracy-a curious position for many pro-Europeans to take, in view of their frequent praise of Germany as a model European constitutional state. If the purpose is for European states to have an organization which helps them co-operate together, in advancement of their mutual and overlapping interests, then so much the better. But the message must be in a polity as complex as Europe to limit ambitions to the doable, the boring and the pragmatic.

The third conclusion must be that “ever closer union” between states and peoples is a very high risk formula. It implies leadership, originally by France and Germany. But since 2008 at the latest, it has become obvious that French and German objectives in monetary union lay far apart at the time it was negotiated, and remain far apart now. For monetary union to work, there would have in effect to be a supply side revolution across the EU, freeing up labour markets, rendering welfare policies compatible and flexible, and encouraging the development of a common constitutional patriotism for a European federation. Arguably, the EU is no closer to that goal than it was in the 1960s.

Finally, none of our books can leave a happy account of the Euro, even the most favourably inclined. Wall writes that the UK should join, but he wrote that before the crisis broke. Yet none of them can find any easy solution to the dramatic situation Europe has worked itself into. The UK can either exit, or work to stay in the EU single market. But France and Germany cannot find, if these books are a reasonable mirror of public discussions, an easy way ahead.  The formula of “more Europe” lacks positive consent; trust is scarce, as evidenced by German fears of being made the milch cow of Europe; and Latin patience with German ordained stability is wafer thin.

Perhaps one minor conclusion should be that the Manichean language of pro-Europeans and Euro-skeptics be dropped, in favour of a more realistic and political sensible discussion of Europe, which remains what it has been for the centuries since the break up of the Roman Empire-a mosaic of states and peoples with much to gain by co-operation, and much to lose by dreaming up false utopias.

[1][1] “The crisis of European democracy”, New York Times of May 24, 2012.

[2] “The crisis of European democracy”, Project Syndicate, June 26, 2012,

[3] “ Si la Grande Bretagne quittait l’Europe, je titrerais un grand Hurrah”, Metis, Aout 29, 2012.

[4] .”Hollande holds the key to Merkel’s euro plan”, October 31, 2013.

[5] Andras Simonyi, Amanda Norris, A Superhero’s soft power falls flat”, Huffington Post, March 25, 2013   (

[6] “Sondage: popularité record pour Marine Le Pen, Hollande au plus bas”, L’actualité international, October 15, 2013.  

About Jonathan Story, Professor Emeritus, INSEAD

Jonathan Story is Emeritus Professor of International Political Economy at INSEAD. Prior to joining INSEAD in 1974, he worked in Brussels and Washington, where he obtained his PhD from Johns Hopkins School of Advanced International Studies. He has held the Marusi Chair of Global Business at Rensselaer Polytechnic Institute, and is currently Distinguished Visiting Professor at the Graduate Schoold of Business, Fordham University, New York. He is preparing a monograph on China’s impact on the world political economy, and another on a proposal for a contextual approach to business studies. He has a chapter forthcoming on the Euro crisis. His latest book is China UnCovered: What you need to know to do business in China, (FT/ Pearson’s, 2010) ( His previous books include “China: The Race to Market” (FT/Pearsons, 2003), The Frontiers of Fortune, (Pitman’s, 1999); and The Political Economy of Financial Integration in Europe : The Battle of the Systems,(MIT Press, 1998) on monetary union and financial markets in the EU, and co-authored with Ingo Walter of NYU. His books have been translated into French, Italian, German, Spanish, Chinese, Korean and Arabic. He is also a co-author in the Oxford Handbook on Business and Government(2010), and has contributed numerous chapters in books and articles in professional journals. He is a regular contributor to newspapers, and has been four times winner of the European Case Clearing House “Best Case of the Year” award. His latest cases detail hotel investments in Egypt and Argentina, as well as a women’s garment manufacturer in Sri Lanka and a Chinese auto parts producer. He teaches courses on international business and the global political economy. At the INSEAD campus, in Fontainebleau and Singapore, he has taught European and world politics, markets, and business in the MBA, and PhD programs. He has taught on INSEAD’s flagship Advanced Management Programme for the last three decades, as well as on other Executive Development and Company Specific courses. Jonathan Story works with governments, international organisations and multinational corporations. He is married with four children, and, now, thirteen grandchildren. Besides English, he is fluent in French, German, Spanish, Italian, reads Portuguese and is learning Russian. He has a bass voice, and gives concerts, including Afro-American spirituals, Russian folk, classical opera and oratorio.
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1 Response to The Euro-a Road to Hell Paved with Good Intentions?

  1. jari65 says:

    Reblogged this on Jari65 Blog.


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