Some of you know I’m keen on the topic of Monetary Union. I find it interesting in the same way that some people find cars interesting or some people find Lord of the Rings interesting. I just wanted to note this idea as I think there is a bit of pessimism regarding the stability of monetary unions as well as the definition. This is by no means an academic essay but here so I can remember my thoughts.
The fact is that the term ‘Monetary Union’ relates to the type of regime. Is, for example, Switzerland a currency union? Well it sort of is and isn’t. It is insofar as there are territorial and economic areas of a defined area which are united under a single monetary area but at the same time it isn’t because it is one entity. There is a highly political element to the definition of what these unions actually are and the difference between the standard state centred currency and a shared currency. This relationship refers to the political nature of its governance.
What the specific difficulty though is not the asymmetry. This is a fairly nationalistic way of looking at it as we are often looking at the boundaries between states. The economies which constitute the union are going to have smaller variation within their boundaries than between due to the long term direction of the economic policies, but there will be a degree of asymmetry within any territory, region, state or even city. That is because economies are not uniformally structured. They all have a degree of asymmetry whether we are looking at Switzerland or the European Union. There will be more opportunity for there to be greater policy divergence between states but we have to recognise that no currency is immune to asymmetry.
Asymmetry for me is the important aspect of any currency union as it has been the source of many a failed currency union. The failure of unions is not based on the asymmetry but the ability of whatever form of governance there is to correct the fault. For example, in a unitary state the regions are all subject to one government and so responsibility over policy and fund transfer goes back to one point. While in a confederal system there is less central direction and the responsibility lies below the point of union. That means that there is more difficulty regarding areas such as moral hazard in the transfer of funds between regions, more difficulty in creating unified policies and difficulty in deciding upon the best type of monetary policy.
Therefore what I tend to think is that the credibility of any currency area or monetary union relies on the ability of the political body at the centre, or the political bodies negotiating, to redistribute funds and create common policies instead of creating some sort of symmetric economic area. Essentially policy makers have to be able to adjust the use of government funds in order to correct asymmetric shocks in the short and long term. This basically means that in order to share a currency; you need to have quite a strong degree of political union. If there is a great deal of policy divergence or even asymmetry then there is a requirement for the governing body to have more tools to deal with the shocks which can occur. If this is not the case then the union will not look credible.
I apologise for my style of writing in advance. I have been writing many an essay recently.
One is generally told not to engage in semantic discussions unless any prospective listeners require some sort of aid to help them sleep. The use of terms and words though can carry much meaning and allow us to have more insight into what someone’s motive or viewpoint actually is. For example; if I had a friend who suggested that we should bake a cake out of sand then I might regard this as an ‘interesting’ idea. ‘Interesting’ on the face of it would show that the idea is one which provokes some thoughts but hides the fact that these thoughts are of the variety which makes me want to abandon my friend. In the context of the language surrounding a party’s stance on Europe there are lots of labels which parties fix to themselves such as; Euroskeptic, Pro-Europe and more recently ‘Euro Realist’. In this short article I want to make the point that these labels are actually pretty devoid of meaning and instead are a reflection of the underlying viewpoints towards Europe.
Let us begin with the terms ‘Euroskeptic’ and ‘Pro-Europe’. The general assumption is that Euroskeptics want to withdraw from Europe and Pro-Europeans want to stay in. These terms suggest little of great substance as they merely reflect whether we should be in or out rather than what type of Europe or what relationship with Europe one wants beyond simply the question of membership. Indeed, everyone could be considered a ‘skeptic’ as it is the duty of any good citizen to be naturally skeptical about anything which happens before we are supportive of it. Naturally the term Pro-Europe is a bit empty too as all the person wants to convey is their support of the continuation of our membership rather than any precise viewpoint of what that should look like. When parties discuss domestic politics they will assign themselves to an ideology be that ‘Social Democratic’ or whatever. The point here is that these reflect visions for what the country should be like and suggest that the debate surrounds a genuine vision whereas the terms Pro-Europe and Euroskeptic suggest that the debate has failed to move beyond membership.
A new term has arisen even more devoid of meaning than its predecessors. The term ‘Euro-Realist’ is of laughably poor quality as it suggests that those wearing the label are simply being ‘realistic’. The obvious question is; what does an opponent of this view think? Are they ‘Euro-unrealistic’? It reminds me of the view that in the debate surrounding abortion one is ‘pro-choice’ or ‘pro-life’ but nobody is ‘anti-choice’ or ‘anti-life’ as they are either pro or anti abortion.
At least these views suggest that the wearer of this label has an actual stance on the issue that one could disagree with. The term ‘Euro-Realist’, however, reeks of a fear of being called out for being mildly controversial. It suggests that one is neither ‘Europhile’ or ‘Europhobes’ yet nobody really wears those labels without a hint of irony as they are terms assigned to people by their antagonists. What the term ‘Euro-Realist’ suggests is a desire not to seem idealistic on the matter when really anyone with a view on Europe will think that their view is at least anchored to a modicum of reality.
Really what this suggests is that people are trying to get away from the old pro or anti EU stances and instead try and talk about having some sort of vision for it. Those who have decided to take this view however are those who are generally more inclined to be fierce critics of things. For example; it is political judgement whether Britain will be realistically able to negotiate a different form of membership of the European Union and thus detractors of the Conservative stance would rightly label it unrealistic.
The general fear of standing up for anything fairly controversial shows that parties are still cautious to genuinely discuss some general vision of what they want to see Europe looking like because it is so hard to move beyond the discussion of whether we should be in it or not. What is noticeable as well as these are labels which are apparent when people discuss the EU with the general public. No serious politician identifies themselves as ‘Neo-Functionalist’ or ‘Intergovernmentalist’ but at least these carry a stance which could be criticised and contribute to some sort of debate. An alternative realistic term could be people who aspire to a ‘Social Europe’ suggesting they desire Europe to be more focussed on the people of Europe. Ultimately these terms carry their own issues and points, but it is important to keep in mind that the language one uses to describe oneself can say a lot more than simply the face value.