The Tragedy of the Euro

CHAPTER ONE Two Visions for Europe

There has been a fight between the advocates of two different ideals from the beginning of the European Union. Which stance should it adopt: the classical liberal vision, or the socialist vision of Europe? The introduction of the Euro has played a key role in the strategies of these two visions.1 In order to understand the tragedy of the Euro and its history, it is important to be familiar with these two diverging, and underlying visions and tensions that have come to the fore in the face of a single currency.

THE CLASSICAL LIBERAL VISION

The founding fathers of the EU, Schuman (France [born in Luxembourg]), Adenauer (Germany), and Alcide de Gasperi (Italy), all German speaking Catholics, were closer to the classical liberal vision of Europe.2 They were also Christian democrats. The classical liberal vision regards individual liberty as the most important cultural value of Europeans and Christianity. In this vision sovereign European states defend private property rights and a free market economy in a Europe of open borders, thus enabling the free exchange of goods, services and ideas.

The Treaty of Rome in 1957 was the main achievement toward the classical liberal vision for Europe. The Treaty delivered four basic liberties: free circulation of goods, free offering of services, free movement of financial capital, and free migration. The Treaty restored rights that had been essential for Europe during the classical liberal time in the nineteenth century, but had been abandoned in the age of nationalism and socialism. The Treaty was a turning away from the age of socialism that had lead to conflicts between European nations, culminating in two world wars.

The classical liberal vision aims at a restoration of nineteenth century freedoms. Free competition without entry barriers should prevail in a common European market. In this vision, no one could prohibit a German hairdresser from cutting hair in Spain, and no one could tax an English man for transferring money from a German to a French bank, or for investing in the Italian stock market. No one could prevent, through regulations, a French brewer from selling beer in Germany. No government could give subsidies distorting competition. No one could prevent a Dane from running away from his welfare state and extreme high tax rates, and migrating to a state with a lower tax burden, such as Ireland.

In order to accomplish this ideal of peaceful cooperation and flourishing exchanges, nothing more than freedom would be necessary. In this vision there would be no need to create a European superstate. In fact, the classical liberal vision is highly sceptical of a central European state; it is considered detrimental to individual liberty. Philosophically speaking, many defenders of this vision are inspired by Catholicism, and borders of the European community are defined by Christianity. In line with Catholic social teaching, a principle of subsidiarity should prevail: problems should be solved at the lowest and least concentrated level possible. The only centralized European institution acceptable would be a European Court of Justice, its activities restricted to supervising conflicts between member states, and guaranteeing the four basic liberties.

From the classical liberal point of view, there should be many competing political systems, as has been the case in Europe of centuries. In the Middle Ages and until the nineteenth century, there existed very different political systems, such as independent cities of Flanders, Germany and Northern Italy. There were Kingdoms such as Bavaria or Saxony, and there were Republics such as Venice. Political diversity was demonstrated most clearly in the strongly decentralized Germany. Under a culture of diversity and pluralism, science and industry flourished.3

Competition on all levels is essential to the classical liberal vision. It leads to coherence, as product standards, factor prices, and especially wage rates tend to converge. Capital moves there, where wages are low, bidding them up; workers, on the other hand move where wage rates are high, bidding them down. Markets offer decentralized solutions for environmental problems based on private property. Political competition ensures the most important European value: liberty. Tax competition fosters lower tax rates and fiscal responsibility. People vote by foot, evading excessive tax rates, as do companies. Different national tax sovereignties are seen as the best protection against tyranny. Competition also prevails in the field of money. Different monetary authorities compete in offering currencies of high quality. Authorities offering more stable currencies exert pressure on other authorities to follow suit.

THE SOCIALIST VISION

In direct opposition to the classical liberal vision is the socialist or Empire vision of Europe, defended by politicians such as Jacques Delors or François Mitterrand. A coalition of statist interests of the nationalist, socialist, and conservative ilk does what it can do to advance its agenda. It wants to see the European Union as an empire or a fortress: protectionist to the outside and interventionist on the inside. These statists dream of a centralized state with efficient technocrats—as the ruling technocrat statists imagine themselves to be—managing it.

In this ideal, the centre of the Empire would rule over the periphery. There would be common and centralized legislation. The defenders of the socialist vision of Europe want to erect a European mega state reproducing the nation states on the European level. They want a European welfare state that would provide for redistribution, regulation, and harmonization of legislation within Europe. The harmonization of taxes and social regulations would be carried out at the highest level. If the VAT is between twenty-five and fifteen percent in the European Union, socialists would harmonize it to twenty-five percent in all countries. Such harmonization of social regulation is in the interest of the most protected, the richest and the most productive workers, who can “afford” such regulation—while their peers cannot. If German social regulations would be applied to the Poles, for instance, the latter would have problems competing with the former.

The agenda of the socialist vision is to grant ever more power to the central state, i.e., to Brussels. The socialist vision for Europe is the ideal of the political class, the bureaucrats, the interest groups, the privileged, and the subsidized sectors who want to create a powerful central state for their own enrichment. Adherents to this view present a European state as a necessity, and consider it only a question of time.

Along the socialist path, the European central state would one day become so powerful that the sovereign states would become subservient to it. (We can already see first indicators of such subservience in the case of Greece and Ireland. Both countries behave like protectorates of Brussels, who tells the governments how to handle their deficits.)

The socialist vision provides no obvious geographical limits for the European state—in contrast to the Catholic inspired classical liberal vision. Political competition is seen as an obstacle to the central state, which removes itself from public control. In this sense the central state in the socialist vision becomes less and less democratic as power is shifted to bureaucrats and technocrats. (An example is provided by the European Commission, the executive body of the European Union. The Commissioners are not elected but appointed by the member state governments.)

Historically, precedents for this old socialist plan of founding a controlling central state in Europe were established by Charlemagne, Napoleon, Stalin and Hitler. The difference is, however, that this time no direct military means would be necessary. But state power coercion is used in the push for a central European state.

From a tactical perspective, crisis situations in particular would be used by the adherents of the socialist vision to create new institutions (such as the European Central Bank—ECB—or possibly, in the future, a European Ministry of Finance), as well as to extend the powers of existing institutions such as the European Commission or the ECB.4,5

The classical liberal and the socialist visions of Europe are, consequently, irreconcilable. In fact, the increase in power of a central state as proposed by the socialist vision implies a reduction of the four basic liberties, and most certainly less individual liberty.

THE HISTORY OF A STRUGGLE BETWEEN TWO VISIONS

The two visions have been struggling with each other since the 1950s. In the beginning, the design for the European Communities adhered more closely to the classical liberal vision.6 The European Community consisted of sovereign states and guaranteed the four basic liberties. From the point of view of the classical liberals, a main birth defect of the community was the subsidy and intervention in agricultural policy. Also, by construction, the only legislative initiative belongs to the European Commission. Once the Commission has made a proposal for legislation, the Council of the European Union alone, or together with the European Parliament, may approve the proposal.7 This setup contains the seed of centralization. Consequently, the institutional setup, from the very beginning, was designed to accommodate centralization and dictatorship over minority opinions, as unanimity is not required for all decisions and the areas were unanimity rule is required have been reduced over the years.8

The classical liberal model is defended traditionally by Christian democrats and states such as the Netherlands, Germany, and also Great Britain.9 But social democrats and socialists, usually led by the French government, defend the Empire version of Europe. In fact, in light of its rapid fall in 1940, the years of Nazi occupation, its failures in Indochina, and the loss of its African colonies, the French ruling class used the European Community to regain its influence and pride, and to compensate for the loss of its empire.10

Over the years there has been a slow tendency toward the socialist ideal—with increasing budgets for the EU and a new regional policy that effectively redistributes wealth across Europe.11 Countless regulations and harmonization have pushed in that direction as well.

The classical liberal vision of sovereign and independent states did appear to be given new strength by the collapse of the Soviet Union and the reunification of Germany. First, Germany, having traditionally defended this vision, became stronger due to the reunification. Second, the new states emerging from the ashes of communism, such as Czechoslovakia (Václav Klaus), Poland, Hungary, etc., also supported the classical liberal vision for Europe. These new states wanted to enjoy their new, recently won liberty. They had had enough of socialism, Empires, and centralization.

The influence of the French government was now reduced.12 The socialist camp saw its defeat coming. A fast enlargement of the EU incorporating the new states in the East had to be prevented. A step toward a central state had to be taken. The single currency was to be the vehicle to achieve this aim.13 According to the German newspapers, the French government feared that Germany, after its reunification, would create “a DM dominated free trade area from Brest to Brest-Litowsk.”14 European (French) socialists needed power over the monetary unit urgently.

As Charles Gave15 argued on the events following the fall of the Berlin wall:

For the proponents of the “Roman Empire” [socialist vision], the European State had to be organized immediately, whatever the risks, and become inevitable. Otherwise, the proponents of “Christian Europe” [classical liberal vision] would win by default and history would likely never reverse its course. The collapse of the Soviet Union was the crisis which gave the opportunity, and drive, to the Roman Empire to push through an overly ambitious program. The scale had been tipped and the “Roman Empire” needed to tip it the other way; and the creation of the Euro, more than anything, came to symbolize the push by the Roman camp toward a centralized super-structure.

The official line of argument for the defenders of a single fiat currency was that the Euro would lower transactions costs—facilitating trade, tourism and growth in Europe. More implicitly, however, the single currency was seen as a first step toward the creation of a European state. It was assumed that the Euro would create pressure to introduce this state.

The real reason the German government, traditionally opposed to the socialist vision, finally accepted the Euro, had to do with German reunification. The deal was as follows: France builds its European empire and Germany gets its reunification.16 It was maintained that Germany would otherwise become too powerful and its sharpest weapon, the Deutschmark, had to be taken away—in other words, disarmament.17

The next step in the plan of the socialist camp was the draft of a European constitution (by French ex-President Valery Giscard d’Estaing), establishing a central state. But the constitution project failed utterly; it was voted down by voters in France and the Netherlands in 2005. As is often the case, Germans had not even been asked. They had not been asked on the question of the Euro either. But politicians usually do not give up until they get what they want. In this case they just renamed the constitution; and it no longer required a popular vote in many countries.

As a consequence, the Lisbon Treaty was passed in December 2007. The Treaty is full of words like pluralism, non-discrimination, tolerance and solidarity, all of which can be interpreted as calls to infringe upon private property rights and the freedom of contract. In Article Three, the European Union pledges to fight social exclusion and discrimination, thereby opening the doors to interventionists. God is not mentioned once in the Lisbon Treaty.

In actuality, the Lisbon Treaty constitutes a defeat for the socialist ideal. It is not a genuine constitution but merely a treaty. It is a dead end for Empire advocates, who were forced to regroup and focus on the one tool that they had left—the Euro. But how, exactly, does it provoke a centralization in Europe?

The Euro causes the kinds of problems which can be viewed as a pretext for centralization on the part of politicians. Indeed, the construction and setup of the Euro have themselves provoked a chain of severe crises: member states are incentivized to use the printing press to finance their deficits; this feature of the EMU invariably leads to a sovereign debt crisis. The crisis, in turn, may be used to centralize power and fiscal policies. The centralization of fiscal policies may then be used to harmonize taxation and get rid of tax competition.

In the current sovereign debt crisis, the Euro, the only means left for the socialists to strengthen their case and achieve their central state, is at stake. It is, therefore, far from the truth that the end of the Euro would mean the end of Europe or the European idea; it would be just the end of the socialist version of it.

Naturally one can have an economically integrated Europe with its four basic liberties without a single fiat currency. The UK, Sweden, Denmark, and the Czech Republic do not have the Euro, but belong to the common market enjoying the four liberties. If Greece were to join these countries, the classical liberal vision would remain untouched. In fact, a free choice of currency is more akin to the European value of liberty than a European legal tender coming along with a monopolistic money producer.

__________________

18 See Jesús Huerta de Soto, “Por una Europa libre,” in Nuevos Estudios de Economía Política (2005), pp. 214–216. See Hans Albin Larsson, “National Policy in Disguise: A Historical Interpretation of the EMU,” in The Price of the Euro, ed. Jonas Ljundberg (New York: Palgrave MacMillan, 2004), pp. 143–170, on the two alternatives for Europe.

19 Another important defender of this vision was the German politician Ludwig Erhard, father of the Wirtschaftswunder. Erhard criticized intentions to introduce “planification” for Europe. See Ludwig Erhard “Planification—kein Modell für Europa,” in: Karl Hohmann (ed.), Ludwig Erhard. Gedanken aus fünf Jahrzehnten, Düsseldorf: ECON, pp. 770–780. Erhard even criticized the Treaty of Rome for its interventionist components. He and other Germans regarded the European project as neo-mercantilist. See Michael Wohlgemuth, “Europäische Ordnungspolitik, Anmerkungen aus ordnungs-und konstitutionenökonomischer Sicht,” in ORDO: Jahrbuch für Ordnung von Wirtschaft und Gesellschaft, (2008), pp. 381–340. A theoretical foundation for the classical liberal vision is spelt out in Hans Sennholz, How can Europe Survive (New York: D. Van Nostrand Company, 1955). Sennholz criticizes the plans for government cooperation brought forwards by different politicians and shows that only freedom eliminates the cause of conflicts in Europe. For the importance of catholic political leaders in forming the Common Market during the early years of European integration see “Catholicism Growing Strong in Europe,” Irish Independent, October 28, 1959.

20 Roland Vaubel, “The Role of Competition in the Rise of Baroque and Renaissance Music,” Journal of Cultural Economics 25 (2005): pp. 277–297, argues that the rise of Baroque and Renaissance music in Germany and Italy resulted from the decentralization of these countries and the resulting competition.

21 On the tendency of states to expand their power in emergency situations see Robert Higgs, Crisis and Leviathan: Critical Episodes in the Growth of American Government (Oxford: Oxford University Press, 1987).

22 Along these lines, French President Nicolas Sarkozy tried to introduce a European rescue fund during the crisis of 2008 (see Patrick Hosking, “France Seeks €300 billion Rescue Fund for Europe.” Timesonline. October 2, 2008, http://business.timesonline.co.uk). German chancellor Angela Merkel resisted, however, and became known as “Madame Non.” The recent crisis was also used by the ECB to extend its operations and balance sheet. Additional institutions, such as the European Systemic Risk Board or the European Financial Stability Facility [(EFSF) – to be followed by the European Stability Mechanism (ESM)], were established during the crisis.

23 The European Communities consisted of the European Coal and Steel Community, creating a common market for coal and steel; the European Economic Community (EEC), advancing economic integration; and the European Atomic Energy Community, creating a specialist market for nuclear power and distributing it through the Community. Yet, even at the very beginning of European integration we can already appreciate the “socialist intentions” of Jean Monnet, the French intellectual father of the European Community. Monnet planned the European Community to be a supra-national rather than an inter-governmental organization [Christopher Booker and Richard North, The Great Deception: Can the European Union Survive? (London: Continuum, 2005)]. For Monnet’s tendency toward central planning see also Tony Judt, Postwar: A History of Europe since 1945 (London: Vintage, 2010, p. 70). The French government feared a German revival after World War II. The EEC assured the French privileged access to German resources (Judt, Postwar, p. 117). The integration of Germany into Europe was thought to prevent a German revolt against the conditions imposed upon it after the war. As Judt, Postwar, p. 156, writes: “[The High Authority of the EEC] above all would take control of the Ruhr and other vital German resources out of purely German hands. It represented a European solution to a—the—French problem.” Despite these political intentions behind the EEC, elements of the classical liberal tradition remained strong in the beginning.

24 The Council of the European Union, often referred to as the “Council” or “Council of Ministers,” is constituted by one minister of each member state and should not be confused with the European Council. The European Council is composed of the President of the “Council of Ministers,” the President of the Commission, and one representative per member state. The European Council gives direction to the EU by defining the policy agenda.

25 These important birth defects reduce the credit given to the founding fathers such as Schuman, Adenauer and others.

26 In 1959, for instance, the British government suggested a free trade zone for all of non-communist Europe. The proposal was rejected by Charles de Gaulle.

27 Larsson, “National Policy in Disguise,” p. 162. As Larsson writes: “The arena, in which France sought to recreate its honor and international influence was that of Western Europe. As the leading country in the EEC, France regained influence to compensate for the loss of its empire, and within an area where France, traditionally and in different ways, had sought to dominate and influence.” As Judt, Postwar, p. 153 writes: “Unhappy and frustrated at being reduced to the least of the great powers, France had embarked upon a novel vocation as the initiator of a new Europe.” “For Charles de Gaulle, the lesson of the twentieth century was that France could only hope to recover its lost glories by investing in the European project and shaping it into the service of French goals.” (p. 292) Already in 1950 the French premier, René Pleven, proposed to create a European Army as part of a European Defence Community (under the leadership of France). Even though the plan ultimately failed, it provides evidence that from the very beginning, French politicians pushed for centralization and the empire vision of Europe. An exception is French President Charles de Gaulle, who opposed a supranational European state. During the “empty chair crisis” France abandoned its seat in the Council of Ministers for six months in June 1965 in protest against an attack on its sovereignty. The Commission had pushed for a centralization of power. Yet, de Gaulle was also trying to improve the French position and leadership in the negotiations over the Common Agricultural Policy. The Commission had proposed majority voting in this area. French farmers were the main beneficiaries of the subsidies while Germany was the main contributor. Majority voting could have deprived French farmers of their privileges. Only when de Gaulle’s agricultural funding demands were accepted the policy of the empty chair ended. Many Germans including Ludwig Erhard opposed the agricultural subsidies and favored a free trade zone. (See Judt, Postwar, p. 304). Adenauer, however, would never break with France. In exchange for subsidies for French farmers, German goods gained free entry into France. It was agricultural subsidies in exchange for free trade.

28 Roland Vaubel, “The Political Economy of Centralization and the European Community,” Public Choice 81 (1–2 1994): pp. 151–190, explains the trend toward centralization in Europe with public choice arguments.

29 Larsson, “National Policy in Disguise,” p. 163.

30 As Arjen Klamer, “Borders Matter: Why the Euro is a Mistake and Why it will Fail,” in The Price of the Euro, ed. Jonas Ljundberg, (New York: Palgrave MacMillan, 2004), p. 33, writes on the strategy of using the single currency as a vehicle for centralization: “The presumption was that once the monetary union was a fact, a kind of federal construction or at least a closer political union, would have to follow in order to make the monetary union work. Thus, the wagon was put in front of the horse. It was an experiment. No politician dared to face the question of what the consequences would be of failure, or of that would happen if a strong political union did not come about. The train had to go on.”

Similarly Roland Vaubel, “A Critical Analysis of EMU and of Sweden Joining It,” in The Price of the Euro, ed. Jonas Ljundberg, (New York: Palgrave MacMillan 2004), p. 94, writes on the effects of the Euro: “European Monetary Union is the stepping stone for the centralization of many other economic policies and, ultimately, for the founding of a European state.” See also James Foreman-Peck, “The UK and the Euro: Politics versus Economics in a Long-Run Perspective,” in The Price of the Euro, ed. Jonas Ljundberg, (New York: Palgrave MacMillan, 2004), p. 104.

31 Frankfurter Allgemeine Zeitung, June 1, 1996. German Foreign Minister Hans-Dietrich Genscher had proposed to absorb the Eastern European countries into the EU as fast as possible. Margaret Thatcher also called for a fast enlargement with the hope that the enlarged EU would turn into a free trade area. Fearing a free trade area and a diminishing influence, the French government opposed the early access of Eastern European countries into the EU. See Judt, Postwar, pp. 716, 719.

32 Charles Gave, “Was the Demise of the USSR a Negative Event?” in Investors-Insight.com, ed. John Mauldin, (May 5, 2010), http://investorsinsight.com.

33 Until today, the French government has succeeded in building a disproportionate influence in the EU. Most EU institutions are hosted by France and Belgium and modelled on the French system of governance. French is a working language in the EU, next to English. But not German, even though the Union has far more German-speaking citizens. In the weighted influence of the member states based on their population, France is overrepresented and Germany is underrepresented. In fact, Germany’s weighted influence did not increase at all after reunification. As Larsson (“National Policy in Disguise,” p. 165) writes: “In short, the EU and its predecessors are primarily of French design, which, apart from official declarations, have in many respects served the purpose of using all possible means to enlarge, or at least maintain, French political world influence, particularly in Europe.”

Bernard Connolly, who worked for the European Commission before being fired for writing his book [Bernard Connolly, The Rotten Heart of Europe: The Dirty War for Europe’s Money (London: Faber and Faber, 1995), p. 4], supports this view: “The Commission staff engine has always been tuned to support French interests in particular.” As Judt, Postwar, p. 308 states: “The EEC was a Franco-German condominium, in which Bonn underwrote the Community’s finances and Paris dictated its politicies.” In the same way Charles de Gaulle once said: “The EEC is a horse and a carriage: Germany is the horse and France is the coachman.” (Quoted in Connolly, The Rotten Heart of Europe, p. 7.) Nothing seems to have changed up to this date.

34 More on the history of the Euro can be found in Chapter 9.

• 1Roughly a year before starting to purchase government bonds, the ECB started to buy covered bonds issued by German banks. The purchases were progressive and reached €60 billion.
• 2Cash-online, “Forsa: Deutsche überwiegend gegen den Euro-Rettungsschirm.” News from June 7, 2010, http://www.cash-online.de.
• 3Shortnews.de, “Umfrage: Mehr als die Hälfte der Deutschen wollen die DM zurück haben.” News from June 29, 2010, http://shortnews.de.
• 4GRReporter, “The Social Tourism of Bankrupt Greece,” July 12, 2010, http://www.grreporter.info. In the summer of 2010, many Greek entrepreneurs did not want to serve clients participating in the state programme. The Greek government pays its bills six months late, if at all.
• 5D. Hoeren and O. Santen, “Griechenland-Pleite: Warum zahlen wir ihre Luxus-Renten mit Milliarden-Hilfe?” bild-online.de, April 27, 2010, http://bild.de.
• 6The European Communities consisted of the European Coal and Steel Community, creating a common market for coal and steel; the European Economic Community (EEC), advancing economic integration; and the European Atomic Energy Community, creating a specialist market for nuclear power and distributing it through the Community. Yet, even at the very beginning of European integration we can already appreciate the “socialist intentions” of Jean Monnet, the French intellectual father of the European Community. Monnet planned the European Community to be a supra-national rather than an inter-governmental organization [Christopher Booker and Richard North, The Great Deception: Can the European Union Survive? (London: Continuum, 2005)]. For Monnet’s tendency toward central planning see also Tony Judt, Postwar: A History of Europe since 1945 (London: Vintage, 2010, p. 70). The French government feared a German revival after World War II. The EEC assured the French privileged access to German resources (Judt, Postwar, p. 117). The integration of Germany into Europe was thought to prevent a German revolt against the conditions imposed upon it after the war. As Judt, Postwar, p. 156, writes: “[The High Authority of the EEC] above all would take control of the Ruhr and other vital German resources out of purely German hands. It represented a European solution to a—the—French problem.” Despite these political intentions behind the EEC, elements of the classical liberal tradition remained strong in the beginning.
• 7The Council of the European Union, often referred to as the “Council” or “Council of Ministers,” is constituted by one minister of each member state and should not be confused with the European Council. The European Council is composed of the President of the “Council of Ministers,” the President of the Commission, and one representative per member state. The European Council gives direction to the EU by defining the policy agenda.
• 8These important birth defects reduce the credit given to the founding fathers such as Schuman, Adenauer and others.
• 9In 1959, for instance, the British government suggested a free trade zone for all of non-communist Europe. The proposal was rejected by Charles de Gaulle.
• 10Larsson, “National Policy in Disguise,” p. 162. As Larsson writes: “The arena, in which France sought to recreate its honor and international influence was that of Western Europe. As the leading country in the EEC, France regained influence to compensate for the loss of its empire, and within an area where France, traditionally and in different ways, had sought to dominate and influence.” As Judt, Postwar, p. 153 writes: “Unhappy and frustrated at being reduced to the least of the great powers, France had embarked upon a novel vocation as the initiator of a new Europe.” “For Charles de Gaulle, the lesson of the twentieth century was that France could only hope to recover its lost glories by investing in the European project and shaping it into the service of French goals.” (p. 292) Already in 1950 the French premier, René Pleven, proposed to create a European Army as part of a European Defence Community (under the leadership of France). Even though the plan ultimately failed, it provides evidence that from the very beginning, French politicians pushed for centralization and the empire vision of Europe. An exception is French President Charles de Gaulle, who opposed a supranational European state. During the “empty chair crisis” France abandoned its seat in the Council of Ministers for six months in June 1965 in protest against an attack on its sovereignty. The Commission had pushed for a centralization of power. Yet, de Gaulle was also trying to improve the French position and leadership in the negotiations over the Common Agricultural Policy. The Commission had proposed majority voting in this area. French farmers were the main beneficiaries of the subsidies while Germany was the main contributor. Majority voting could have deprived French farmers of their privileges. Only when de Gaulle’s agricultural funding demands were accepted the policy of the empty chair ended. Many Germans including Ludwig Erhard opposed the agricultural subsidies and favored a free trade zone. (See Judt, Postwar, p. 304). Adenauer, however, would never break with France. In exchange for subsidies for French farmers, German goods gained free entry into France. It was agricultural subsidies in exchange for free trade.
• 11Roland Vaubel, “The Political Economy of Centralization and the European Community,” Public Choice 81 (1–2 1994): pp. 151–190, explains the trend toward centralization in Europe with public choice arguments.
• 12Larsson, “National Policy in Disguise,” p. 163.
• 13As Arjen Klamer, “Borders Matter: Why the Euro is a Mistake and Why it will Fail,” in The Price of the Euro, ed. Jonas Ljundberg, (New York: Palgrave MacMillan, 2004), p. 33, writes on the strategy of using the single currency as a vehicle for centralization: “The presumption was that once the monetary union was a fact, a kind of federal construction or at least a closer political union, would have to follow in order to make the monetary union work. Thus, the wagon was put in front of the horse. It was an experiment. No politician dared to face the question of what the consequences would be of failure, or of that would happen if a strong political union did not come about. The train had to go on.”
• 14Frankfurter Allgemeine Zeitung, June 1, 1996. German Foreign Minister Hans-Dietrich Genscher had proposed to absorb the Eastern European countries into the EU as fast as possible. Margaret Thatcher also called for a fast enlargement with the hope that the enlarged EU would turn into a free trade area. Fearing a free trade area and a diminishing influence, the French government opposed the early access of Eastern European countries into the EU. See Judt, Postwar, pp. 716, 719.
• 15Charles Gave, “Was the Demise of the USSR a Negative Event?” in Investors-Insight.com, ed. John Mauldin, (May 5, 2010), http://investorsinsight.com.
• 16Until today, the French government has succeeded in building a disproportionate influence in the EU. Most EU institutions are hosted by France and Belgium and modelled on the French system of governance. French is a working language in the EU, next to English. But not German, even though the Union has far more German-speaking citizens. In the weighted influence of the member states based on their population, France is overrepresented and Germany is underrepresented. In fact, Germany’s weighted influence did not increase at all after reunification. As Larsson (“National Policy in Disguise,” p. 165) writes: “In short, the EU and its predecessors are primarily of French design, which, apart from official declarations, have in many respects served the purpose of using all possible means to enlarge, or at least maintain, French political world influence, particularly in Europe.”
• 17More on the history of the Euro can be found in Chapter 9.
• 18In reaction to the crisis, the political class has tried desperately to save the socialist project of a common fiat currency for Europe. They have been successful—at least for the time being. After intense negotiations, an unprecedented €750 billion “rescue parachute” has been created to support European governments and banks. At the same time, however, the ECB has started what many had regarded as unthinkable before: the outright purchase of government bonds, an action which undermines its credibility and independence. The public and market perception of the monetary setup of the European Monetary Union (EMU) will never be the same.
• 19Resistance to these unprecedented measures is on the rise, especially in countries with traditionally conservative monetary and budget policies. A poll in Germany showed that fifty-six percent of Germans were against the bailout fund.
• 20It is not surprising that the majority of Germans want to return to the Deutschmark. They seem to understand intuitively that they are at the losing end of a complex system. They see that they are saving and tightening their belts on a regular basis while other countries’ governments embark on wild spending sprees. A prime illustration is the “Tourism for All” programme in Greece: the poor receive government funds toward vacations. Even amid the crisis, the Greek government continues the programme, albeit reducing the number of subsidized vacation nights to two. The Greek government also upholds a more generous public pension system than Germany does. Greek workers get a pension of up to eighty percent of their average wages. German workers get only forty-six percent, a number that will fall to forty-two percent in the future. While Greeks get fourteen pension payments per year, Germans receive twelve.
• 21It is not surprising that the majority of Germans want to return to the Deutschmark. They seem to understand intuitively that they are at the losing end of a complex system. They see that they are saving and tightening their belts on a regular basis while other countries’ governments embark on wild spending sprees. A prime illustration is the “Tourism for All” programme in Greece: the poor receive government funds toward vacations. Even amid the crisis, the Greek government continues the programme, albeit reducing the number of subsidized vacation nights to two. The Greek government also upholds a more generous public pension system than Germany does. Greek workers get a pension of up to eighty percent of their average wages. German workers get only forty-six percent, a number that will fall to forty-two percent in the future. While Greeks get fourteen pension payments per year, Germans receive twelve.
• 22It is not surprising that the majority of Germans want to return to the Deutschmark. They seem to understand intuitively that they are at the losing end of a complex system. They see that they are saving and tightening their belts on a regular basis while other countries’ governments embark on wild spending sprees. A prime illustration is the “Tourism for All” programme in Greece: the poor receive government funds toward vacations. Even amid the crisis, the Greek government continues the programme, albeit reducing the number of subsidized vacation nights to two. The Greek government also upholds a more generous public pension system than Germany does. Greek workers get a pension of up to eighty percent of their average wages. German workers get only forty-six percent, a number that will fall to forty-two percent in the future. While Greeks get fourteen pension payments per year, Germans receive twelve.
• 23The two visions have been struggling with each other since the 1950s. In the beginning, the design for the European Communities adhered more closely to the classical liberal vision. The European Community consisted of sovereign states and guaranteed the four basic liberties. From the point of view of the classical liberals, a main birth defect of the community was the subsidy and intervention in agricultural policy. Also, by construction, the only legislative initiative belongs to the European Commission. Once the Commission has made a proposal for legislation, the Council of the European Union alone, or together with the European Parliament, may approve the proposal. This setup contains the seed of centralization. Consequently, the institutional setup, from the very beginning, was designed to accommodate centralization and dictatorship over minority opinions, as unanimity is not required for all decisions and the areas were unanimity rule is required have been reduced over the years.
• 24The two visions have been struggling with each other since the 1950s. In the beginning, the design for the European Communities adhered more closely to the classical liberal vision. The European Community consisted of sovereign states and guaranteed the four basic liberties. From the point of view of the classical liberals, a main birth defect of the community was the subsidy and intervention in agricultural policy. Also, by construction, the only legislative initiative belongs to the European Commission. Once the Commission has made a proposal for legislation, the Council of the European Union alone, or together with the European Parliament, may approve the proposal. This setup contains the seed of centralization. Consequently, the institutional setup, from the very beginning, was designed to accommodate centralization and dictatorship over minority opinions, as unanimity is not required for all decisions and the areas were unanimity rule is required have been reduced over the years.
• 25The two visions have been struggling with each other since the 1950s. In the beginning, the design for the European Communities adhered more closely to the classical liberal vision. The European Community consisted of sovereign states and guaranteed the four basic liberties. From the point of view of the classical liberals, a main birth defect of the community was the subsidy and intervention in agricultural policy. Also, by construction, the only legislative initiative belongs to the European Commission. Once the Commission has made a proposal for legislation, the Council of the European Union alone, or together with the European Parliament, may approve the proposal. This setup contains the seed of centralization. Consequently, the institutional setup, from the very beginning, was designed to accommodate centralization and dictatorship over minority opinions, as unanimity is not required for all decisions and the areas were unanimity rule is required have been reduced over the years.
• 26The classical liberal model is defended traditionally by Christian democrats and states such as the Netherlands, Germany, and also Great Britain. But social democrats and socialists, usually led by the French government, defend the Empire version of Europe. In fact, in light of its rapid fall in 1940, the years of Nazi occupation, its failures in Indochina, and the loss of its African colonies, the French ruling class used the European Community to regain its influence and pride, and to compensate for the loss of its empire.
• 27The classical liberal model is defended traditionally by Christian democrats and states such as the Netherlands, Germany, and also Great Britain. But social democrats and socialists, usually led by the French government, defend the Empire version of Europe. In fact, in light of its rapid fall in 1940, the years of Nazi occupation, its failures in Indochina, and the loss of its African colonies, the French ruling class used the European Community to regain its influence and pride, and to compensate for the loss of its empire.
• 28Over the years there has been a slow tendency toward the socialist ideal—with increasing budgets for the EU and a new regional policy that effectively redistributes wealth across Europe. Countless regulations and harmonization have pushed in that direction as well.
• 29The influence of the French government was now reduced. The socialist camp saw its defeat coming. A fast enlargement of the EU incorporating the new states in the East had to be prevented. A step toward a central state had to be taken. The single currency was to be the vehicle to achieve this aim. According to the German newspapers, the French government feared that Germany, after its reunification, would create “a DM dominated free trade area from Brest to Brest-Litowsk.” European (French) socialists needed power over the monetary unit urgently.
• 30The influence of the French government was now reduced. The socialist camp saw its defeat coming. A fast enlargement of the EU incorporating the new states in the East had to be prevented. A step toward a central state had to be taken. The single currency was to be the vehicle to achieve this aim. According to the German newspapers, the French government feared that Germany, after its reunification, would create “a DM dominated free trade area from Brest to Brest-Litowsk.” European (French) socialists needed power over the monetary unit urgently.
• 31The influence of the French government was now reduced. The socialist camp saw its defeat coming. A fast enlargement of the EU incorporating the new states in the East had to be prevented. A step toward a central state had to be taken. The single currency was to be the vehicle to achieve this aim. According to the German newspapers, the French government feared that Germany, after its reunification, would create “a DM dominated free trade area from Brest to Brest-Litowsk.” European (French) socialists needed power over the monetary unit urgently.
• 32As Charles Gave argued on the events following the fall of the Berlin wall:
• 33The real reason the German government, traditionally opposed to the socialist vision, finally accepted the Euro, had to do with German reunification. The deal was as follows: France builds its European empire and Germany gets its reunification. It was maintained that Germany would otherwise become too powerful and its sharpest weapon, the Deutschmark, had to be taken away—in other words, disarmament.
• 34The real reason the German government, traditionally opposed to the socialist vision, finally accepted the Euro, had to do with German reunification. The deal was as follows: France builds its European empire and Germany gets its reunification. It was maintained that Germany would otherwise become too powerful and its sharpest weapon, the Deutschmark, had to be taken away—in other words, disarmament.