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The Euro May Die So Europe Can Live

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A few hours after the prediction on this blog of a multi-track euro, the Germans and French went public with their desire to oust certain countries from the euro and build a new eurozone with much deeper policy integration and a much more selective membership. Such a move gives the lie to several persistent and powerful myths of the European Union, but may well prove a very optimistic development for democracy in the new eurozone.

First, as also noted on this blog, the Franco-German team has now demonstrated that the Union treaties are just so many words to be disregarded in a crisis. Close watchers of the Union over the past several years can also confirm that they can be disregarded when there is not a crisis (see the Stability and Growth Pact). The ECB's legal counsel has confirmed that there is no mechanism by which any country can be ejected from the euro, but that is exactly what Merkel and Sarkozy are planning.

This temptation to skirt fundamental rules is not new nor is it geographically limited to Europe. When he was Assistant Secretary of War during WWII, John McCloy, while considering relocation of Japanese-Americans to internment camps in 1942, famously stated:

[I]f it is a question of safety of the country, [or] the Constitution of the United States, why the Constitution is just a scrap of paper to me. (Kai Bird, The Chairman, p. 146)

And the United States came to regret that view, just as the Union might if its long-term attractiveness to existing and prospective members who might be interested in getting what they think they bargained for in joining the Union.

If done in a way that prolongs the seeming solvency of the soon-to-be-untouchables in the current crisis, it may be possible to bribe undesirable euro countries to ask to leave the euro, for which there is a mechanism. That may be the only hope for Merkel and Sarkozy, and Germany seems willing to pay, presumably up to a point.

Whether those countries want to accept their indirect expulsion from the eurozone, and at what cost, is a separate matter, as we have not yet been apprised of who's out.

Second, the longstanding notion of the euro as the "currency of the European Union," as stated in the Lisbon Treaty, is dead. Germany and France seem to be willing to scuttle the influence and controls they have developed in member states aspiring to the euro in order to make a better club for themselves and whoever else they deem fit to be in the euro. If you are a non-euro member state, and you haven't got a call over the last three months or so, don't hold your breath. You won't be in the new euro.

Third, Sarkozy and Merkel have finally exploded the concept that the end of the euro is the end of the European Union. Also from yesterday's Reuters report:

In Sarkozy's vision, the euro zone would rapidly deepen its integration, including in sensitive areas such as corporate and personal taxation, while the remainder of the EU would be left as a "confederation", possibly expanding from 27 to 35 in the coming decade, with enlargement to the Balkans and beyond.

In short, the end of the euro is not even the end of Union expansion. And, to eliminate doubt over what is being planned, when Sarkozy says we can still call the new euro the "euro," he means the old one is gone.

Compare this to Merkel not six months ago, when she said to a Polish audience that if the euro fails, "then Europe and the idea of European union will fail."

This sentiment can now be seen as the simple scare tactic it always was, made more pitiable by the fact that their unwitting Polish audience will likely not be part of either the old or the new euro, despite its virtuous attempts to become so.

The most positive aspect by far, though, is the end of the idea that further integration need not reference the desire of the people of the member states. What Merkel and Sarkozy are proposing is not a tweak or a "cleaning up exercise" of existing treaties. The new euro, in Sarkozy's words, will seek integration (read regulation) of "corporate and personal taxation." Member state governments ignore the political gravity of handing over direct taxation to a mini-Commission of eurozone powers at their peril. Those worthies that are chosen will then have to seek and secure their peoples' consent to such an unprecedented arrangement.

And this is precisely the type of consent that is needed to effectively and democratically govern the Union. Not only would a new eurozone along those lines be much more efficient, it would be much more legitimate, and likely more accountable, as directly taxed citizens might pay more attention to what comes out of Brussels and Strasbourg.

That combination of efficiency and democratic legitimacy even on this smaller scale would satisfy a long-term stated goal of the Union. It may even lead to further reforms to Union structures to facilitate the separation of executive and legislative powers when they are now multifarious and overlapping and put some real limits on Union competencies where today few exist.

But for now, a currency with a treasury has always been what the euro needed to succeed. It will only be for a few and chosen by standards unknown if any. That explicit restriction will not come as a tonic to fans of deeper integration of the Union as a whole, but the possibility of greater democratic accountability, even in part of the Union, should appeal to all.

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