The #EUROat20 celebration should remind us of a few things we have known all along and others we figured out along the way. This thread traces some points I have made in my work on the € in the past three decades (which is a depressingly long period of time!). 1/20
I was fortunate to work on the politics of EMU @CEPS_thinktank in the early 1990s w/ Daniel Gros, Jeff Frieden, Francisco Torres, @pisaniferry, and a group of others as they puzzled through the implications of building a single currency. 2/20
@CEPS_thinktank @pisaniferry The book I wrote out of that experience was called ‘The Politics of Economic and Monetary Union: Integration and Idiosyncracy’ (rowman.com/ISBN/978084769…) and was published in 2002. The basic argument was upbeat – but with five important qualifications. 3/20
@CEPS_thinktank @pisaniferry First, Europe’s single currency could reduce market volatility within Europe, but it remains vulnerable to the influence of the United States. In that sense: ‘The single-currency is only a second-best solution to the wider reform of global financial markets’ (pp. 140-141). 4/20
@CEPS_thinktank @pisaniferry Second, monetary integration empowers national policymakers financially more than it constrains them. The danger is that countries ‘will take advantage of their relaxed current account constraints and strengthened creditworthiness to ignore...excessive imbalances’ (p. 119). 5/20
@CEPS_thinktank @pisaniferry Third, the Franco-German partnership may not be powerful enough to push necessary reforms: ‘By implication, it is important to consider what exactly [Franco-German reform] objectives are, and the extent to which they are shared beyond the Franco-German couple’ (p. 164). 6/20
@CEPS_thinktank @pisaniferry Fourth, the symbolic role of the euro is even more challenging to manage than its economic implications. As a result, ‘politicians who ignore the diversity of meanings attached to the euro are likely to confront some unpleasant surprises’ (p. 181) 7/20
@CEPS_thinktank @pisaniferry Fifth, the greatest threat to the single currency: 'is that EMU will become the focus for conflict between cleavages which cut across the monetary union, be it north and south or labor and capital or some other set of opposing coalitions’ (p. 14). 8/20
@CEPS_thinktank @pisaniferry I highlight these insights because they turned out to be important as the € evolved over the intervening period. Nevertheless, it would be a mistake to blame the current dilemmas of Europe as some inevitable consequence of EMU. This is where I get to more recent work. 9/20
@CEPS_thinktank @pisaniferry To begin with, the wider framework for macroeconomic policymaking adopted at the European level centered too much on rules and so proved more fragile than anyone who observed the evolution of the ‘Brussels-Frankfurt consensus’ expected. 10/20 doi.org/10.1017/CBO978…
@CEPS_thinktank @pisaniferry Moreover, much of the early analysis of the European economic and financial crisis misdiagnosed the forces at work and so policymakers responded in ways that made matters worse rather than better. 11/20 doi.org/10.1080/070363…
@CEPS_thinktank @pisaniferry This misdiagnosis is understandable. The crisis was unfamiliar territory and the one thing we know about the role of ideas in moments of crisis is that politicians do weird things when their models don’t work. 12/20 doi.org/10.1057/978023…
@CEPS_thinktank @pisaniferry Crucially, the crisis had little to with national culture. Many people were affected no matter what their country or origin, religion, or whatever. 13/20 doi.org/10.1057/eps.20…
@CEPS_thinktank @pisaniferry Indeed, you would have had this crisis even if you didn’t have the euro as a common currency; all you needed were integrated financial markets. 14/20 doi.org/10.1093/acprof…
@CEPS_thinktank @pisaniferry The problem was not so much a matter of ‘competitiveness’ (even if we agree on what that means) as it was a matter of financial market dynamics. 15/20 doi.org/10.1093/acprof…
@CEPS_thinktank @pisaniferry If there is a general story to be told here, it is a story about the growth of finance and not about Europe’s progress toward monetary integration. 16/20 doi.org/10.1093/acprof…
@CEPS_thinktank @pisaniferry As a result, this story will only find a happy ending if we focus more attention on financial market regulation. Building common fiscal institutions, for example, is not the solution. 17/20 doi.org/10.1080/039327…
@CEPS_thinktank @pisaniferry European leaders have figured this out, but their success at taming financial market integration has been only incremental and fragmentary. That is unsurprising (and they are making progress!), but it is still problematic. 18/20 doi.org/10.1177/001041…
@CEPS_thinktank @pisaniferry As we celebrate #EUROat20 we should be cautious that there is still a lot of work to do to ensure that the € lasts another twenty years. That work centers on Europe as a financial union. 19/20 swiftinstitute.org/research/theor…
@CEPS_thinktank @pisaniferry The € was a tremendous achievement. But it was always just a part of a larger project. Another big part still needs to be completed. Fingers crossed. 20/20
