It’s quite a difficult problem for the german government, of course they could try to save 4 billion more but even all the things they tried to save money until now were stopped in the Bundesrat.

So what should they do ?

Interesting post, Scott. But one question: on your own blog, you note (somewhat mockingly) Vaclav Klaus’s comment that “you cannot have democratic accountability in anything bigger than a nation state,” followed with the comment “Then what are the United States?” I take your meaning to be that, since some sort of democratic accountability appears to be present in the US, Klaus is wrong to think that it cannot develop in the EU. This presumes, however, that the various 50 states are, in fact, as the different European nation-states are, distinct “nations,” or at the very least wholly distinct sovereign units. But doesn’t your argument about the euro in fact deny this is the case (and thus implicitly, if unintentionally, support Klaus’s claim)? You compare the euro to the dollar, then give two advantages that the dollar has over the euro to explain why it works as a common currency. Aren’t both of those characteristics (mobility relatively unhindered by cultural or linguistic barriers, and spending by a federal entity assumed to be superior to--or at least equal to--the component parts it incorporates) keyed, historically at least, to the existence of a single sovereign nationality? Certainly that seems to be the case with the US (especially after the Civil War). It seems to me that to believe that financial stability, much less democratic accountability, can exist outside that particular historically-proven framework involves a real leap of faith.

Of course, as you note, “the European political class specializes in muddling through and never letting anything come to a head…[which is] sort of the point of the whole European integration project.” Maybe they prefer to muddle because they understand that what they want Europe to be is something entirely new, and they don’t want to rush into the unknown too quickly. Then again, maybe they don’t want anything to come to a head because they fear, when push comes to shove, that the union they imagine isn’t an achievable one.

First, I think there need to be some clarification of my “nation states” comment, especially since the same misunderstanding occured between Matt Welch and a commenter on Reason’s Hit & Run blog.

My point wasn’t that the 50 US states are “nations” or distinct political units, but rather that the theory Klaus is putting forth -- that the only source of democratic legitimacy is the nation state -- strikes me as totally bogus and weirdly essentialist. Belief in the nation state always seems a complete tautology -- it’s based on belief in the nation state. Nobody ever really knows exactly how to define a nation state, but everybody seems to recognize one when they see it.

I’m using the word “nation” here in the European sense, which in some books means a ethnic nation (say, the Hungarians) occupying a parcel of land (the Carpathian Basin), with its own government (situated in Budapest). As an American, I’m not sure how Belgium and Switzerland fit into that equation. The United States is NOT a nation state nor a federation of nation states. If anything, it’s a nationless state. Being American has nothing to do with speaking “American” or coming from anywhere in particular or even living in some particular place. It has only to do with having US citizenship and, more broadly, living under the U.S. Constitution.

I wrote an article about the EU constitution for the Boston Globe in June, on my blog I threw out some more related thoughts on the nation-state question. Click on “comments” to read the article itself.

All that’s neither here nor there. Your question stands, and I don’t have a particularly tidy answer, except to say that the euro is here, it’s worked so far, and if the Europeans really wanted to get rid of it, they could elect more people like Klaus. They haven’t. Will it unravel because it’s impossible for the reasons I mentioned in this post? I don’t hear many voices predicting that, and I’m certainly not about to go out on that limb.

You’re definitely right about the leap of faith. The thing is, Europe has already made that leap of faith. They seems to think they can create an accountable democracy with a common currency without a nation state. I wish ’em the best. Whether the lack of centralized spending and U-Hauls will tear the euro apart, or whether the euro will in fact lead to more federalized spending and U-Hauls (and therefore a sense of European nationhood?), or neither, remains to be seen. In any case, it’s a social experiment the likes of which few of us have ever seen. I don’t share the euroskeptic view that there’s something sinister about it, and I’m glad to be around to watch it unfold.

I have, in other places, commented that I’m a pro-Euro eurosceptic -- the Euro is good, but it will never work for us if we do not do our part--, and I’ve commented, to Edward mostly, that there was an error, an hubristic error to say, in the conditions of the stability pact. One of the errors was that it set some limits in an absolute way, instead of a relative way. My suspicion is on the monetary thinking that was in vogue at the time of its setting. And to an excessive pandering to Thatcher (or Major), like that would have got the UK in Euroland.

As to the willingness of European to move where there is work, at least in the past, when it was harder, it was the norm. My parents migrated to France from Spain, even if they returned after, partly because they had got most of what they wanted and then Spain was at last at a better level, at least in Majorca. They were not an exception, migrating to Germany was very usual, even if the language was even harder on Spaniards than French, do not forget that then it was unusual to go school beyond primary learning, and language was not on the curriculum.

Lastly, since quite a few have come to claim to have discovered that they got the pact wrong (so to say), maybe it would make sense to redesign it, after all what is better, keeping the helm on a fixed course when you’ve just found there is an iceberg in front is not wise. Luis De Sebastián
Economist at Esade, a Business school in Barcelona, argues that it may be more damaging to harm the economies of France and Germany that represent the 60% of the EU (I think he means Euroland) by hampering their recovery, than to the Euro credibility bay redefining the pact.

DSW

But Antoni, the EU has persistently failed to address its employment problems as this shows:

“European Union member states are failing to tackle effectively the significant employment challenges Europe is facing, warned the European Employment Taskforce (EET) yesterday.” - from: http://www.euobserver.com/index.phtml?sid=9&aid=13697

Bob, I would admit it as long no one claimed that the UK is any better in this aspect.

DSW

Antoni,

“I would admit it as long no one claimed that the UK is any better in this aspect.”

By end 1995, Britain’s standardised unemployment rate was lower than that of France, Germany or Italy and the employment rate higher.

Checking out the stats annex at the back of The Economist, I see that Britain’s current unemployment rate stands at 5%, compared with 8.8% for the Eurozone. Britain’s inflation rate is lower than the Eurozone’s and Britain’s annual rate of GDP growth higher of 2% is higher than the Eurozone’s growth rate of 0.3%.

There was and is a good rationale in the EU Stability and Growth Pact of 1997 for restricting the size of national fiscal deficits to 3% of national GDP:

“The idea was that debts would have to be controlled in a currency union. If there were no rules, then countries might feel free to run up higher debts in the knowledge that they would be bailed out by other countries in the euro zone.” - from:
http://www.euobserver.com/index.phtml?sid=9&aid;=13686

That was the position of Duisenberg, the retiring president of the European Central Bank (ECB): “the danger [of unravelling the Pact] is certainly there and that would be a disaster for Europe. And I do hope, and I am sure the ECB will do everything it can to uphold, to keep upright, the Stability and Growth Pact, which now is certainly under strain” - from: http://www.euobserver.com/index.phtml?sid=9&aid=13336

Trichet, the incoming ECB president, takes the same position: “In comments with hardline undertones, Mr Trichet said that the three percent ceiling of the EU’s Stability Pact - which France and Germany have both breached - ’must not be placed in doubt’.” - from: http://www.euobserver.com/index.phtml?sid=9&aid=13446

If it is now being seriously claimed that neither Duisenberg nor Trichet really understand what they are talking about, that hardly says much for the management of the European Central Bank or for the credibility of the Euro as and when the currency comes upon challenging market conditions downstream. It seems those EU states which have chosen to opt out from the Euro currency union really did make wise choices.

Scott, thanks for the reminder about your Boston Globe article; I remember reading that and printing it out (I have it around the office somewhere). A few responses to your comments:

“the theory Klaus is putting forth -- that the only source of democratic legitimacy is the nation state -- strikes me as totally bogus and weirdly essentialist”

Is that really what he’s saying--that there can be no legitimate democratic arrangements whatsoever outside of a nation-state framework? No democratic communities, federations, etc.? Given the context of this comments, I took him to be saying that he doubted democratic legitimacy was possible in specifically supra-national arrangements; that is, in a context which was “larger” (conceptually, and perhaps spatially too) than a “nation,” however defined (see below). Perhaps that’s a bogus claim too, but it’s a slightly different claim, I think, from the one you associate him with. (And as for it being “essentialist,” well, I surely don’t have any idea what Klaus’s views on essences are. But plausible arguments can be made about what might be called the “essential” nature and/or role of certain associations; not every group can be equally easily broken down into a bunch of contracting individuals.)

“I’m using the word ’nation’ here in the European sense, which in some books means a ethnic nation…The United States is NOT a nation state nor a federation of nation states. If anything, it’s a nationless state. Being American…has only to do with having US citizenship and, more broadly, living under the U.S. Constitution.”

As I’m sure you’re aware, the argument about whether or not there can be “civic” nations as opposed to “ethnic” ones, and what those terms may mean, and which would best describe the US, is a huge and perplexing debate. If Klaus was truly speaking of nation-states in an explicitly “European” ethnic sense (and you would know better than I), then I’d be much more sympathetic to your point about the EU’s muddling. But absent that clarification, being “national” seems to me to have many more aspects than the purely ethnic, and to call the US a “nationless” state is to, I think, buy into a certain notion of belonging (lineage, etc.) which ignores, for example, the aspect of affectivity attachment in constituting identity and deepening what otherwise might be seen as “merely” subjective political choices.

“Europe has…made that leap of faith. They seems to think they can create an accountable democracy with a common currency without a nation state…it’s a social experiment the likes of which few of us have ever seen. I don’t share the euroskeptic view that there’s something sinister about it, and I’m glad to be around to watch it unfold.”

I should be clear that I don’t think there’s anything sinister about it either. It’s a fascinating experiment. I just suspect that to build a state without acknowledging and/or cultivating some kind (European) “nationality” is going to be a hard row to hoe.

Thanks also for the link to Hit & Run; interesting discussion there. Like with Tobias’s post below, I may have to work out my thoughts on this matter at greather length.

Bob, British productivity was in recent years rather lower that either French or German one, so my take is that it is not better to have a 5% unemployment than a 10% as long as the respective productivity is not on a par level.

For example, there is this statistic of people who are on less than 11$ a day:
http://www.nationmaster.com/red/graph-T/eco_pop_und_11_a_day&id;=EUN&id;=us

DSW

Antoni, Antoni,

“British productivity was in recent years rather lower that either French or German one”

I’ve been tracking the relative performance of Britain’s economy since the 1950s - yes, the Nineteen-fifties. West Germany’s GDP per capita overtook Britain’s around the late 1950s or early 1960s. And France’s GDP per capita overtook Britain’s by the late 1960s to early 1970s. As to why that happened is a challenging issue for technical discussion among economists. One early diagnosis from the late 1950s was by Andrew Shonfield, then economics editor of The Observer, whose writings first got me, as a teen then, interested in economics.

By chance, in a second-hand bookshop I recently came across the revised edition of his book: British Economic Policy Since the War (Penguin 1959) so promptly bought it. The second chapter starts: “Why does Britain’s wealth grow so much more slowly than the wealth of countries on the continent of Europe? . .” It goes on to quote West German growth for the period 1952-56 as 38%, the Netherlands at 27%, France at 20% and Britain at a miserable 15%.

From the 1950s through the 1970s, Britain’s GDP per capita growth regularly featured, with America’s, at around the bottom of the growth league tables for the major advanced, market economies. What happened in the 1980s through to 1996 can be seen from the tables of OECD data at: http://www.umsl.edu/services/govdocs/hies97/c/c.htm Instead of lagging near the bottom of league tables for the affluent, large economies, Britain’s GDP per capita growth moved to near the top. Britain’s productivity still lags France and Germany but from the early 1980s it started to catch up. Some would argue, as I do, that Mrs Thatcher’s governments had something to do with it but that take is still highly contentious in Britain.

However, the EU’s Stability and Growth Pact of 1997 relates mainly to Stabilisation policy concerns and to worries about maintaining the Euro’s credibility in the currency markets, not to Growth policy - the Pact’s principle and presently embarrassing concern is to restrict the upper limit of fiscal deficits in Eurozone countries to 3% of GDP, the breaching of that restriction by Germany and France being the cause of the current hiatus among Eurozone country governments.

The reasons for the Pact restrictions are valid enough. The concern was and is that without it, some Eurozone governments would revert to old habits of running large fiscal deficits thereby pushing up interest rates on government bonds issued by all Eurozone governments and eventually risk the market credibility of the Euro. That is the reason both Duisenberg, the retiring president of the ECB, and Trichet, the incoming president, have been so clear on the importance of maintaining the fiscal disciplines enshrined in the Pact.

The fact remains, unpalatable though it be to Euro enthusiasts, that Britain’s current unemployment and inflation rates are both lower than the Eurozone’s, and Britain’s GDP growth is currently much stronger. The British economy is presently able to run at higher growth and with lower inflation and unemployment rates than the Eurozone without incurring unacceptable rates of inflation.

The sad and undeniable fact is that the Eurozone has serious structural problems in its job markets, not because I say so but because a string of ECB reports and this say so: “European Union member states are failing to tackle effectively the significant employment challenges Europe is facing, warned the European Employment Taskforce (EET) yesterday.” - from: http://www.euobserver.com/index.phtml?sid=9&aid=13697

Unfortunately, there are long standing reasons for those concerns about Europe’s failing capability to generate enough jobs in expanding activities to compensate for the inevitable loss of jobs in declining sectors: “While Western Europe reported no net new jobs from 1973 to 1994, the United States generated 38 million net new jobs.” [Lester Thurow: The Future of Capitalism (1996) citing the Economic Report to the US President 1995] And since I have been accused by some Europeans of quoting a right-wing American pundit, let me assure readers that whatever else, such a label does not fit Lester Thurow.

Russell,

You have slayed me with philophical rigor! Seriously, I should have known better than to pull out a word like “essentialist” on you.

I don’t know for certain what Klaus meant by his statement. I’m sure if you pressed him about it, he wouldn’t fall back on an explicitly ethnic argument. He’s probably speak about common language, common historical experience, and that third thing that I can never remember. But in practice, to me it’s basically the same thing as an ethnic nation state -- especially as I’m sure Klaus would be the first to dismiss any efforts to cultivate a real sense of European nationhood on the grounds that it would be somehow “artificial.”

With regard to your last point, I do think the Europeans are -- knowingly or not -- cultivating a sense of non-ethnic nationhood, no thanks to the likes of Klaus. (On a tangent, I’m tempted to say something silly like “post-national nationhood” rather than “non-ethnic” because Europeans, by and large, are still rather ethnically homogenous -- and more to the point, “European” is still loosely conceived as an ethnic category. Witness the hand-wringing over Europe’s “assimilation” of its Arab immigrant population and its enduring concept of “nationality” as opposed to citizenship, which so often sounds strange to American ears. The Czech passport, by the way, has a space for “nationality.” That’s a whole new can of worms.)

But yes, I do see a sense of Europeanness quietly emerging -- or rather, it’s been there for a while, and people are finally starting to acknowledge it -- but I also see nation-staters like Klaus fighting it tooth and nail on grounds that are, whether they admit it or not, basically ethnic. And for lack of a better word, rather stodgy.

Scott

“As to the willingness of European to move where there is work”

Antoni and I have discussed this previously: my feeling is that ’willingness to move’ can only be understood in terms of differing kinship systems, family structures, and family ties and obligations. The majority of the Spanish emigrants to Germany and Switzerland in fact seem to have returned.

The UK in this sense is much more like the US: you leave home earlier, and often for another city. Even today the number of Spanish students who leave their city/region to go to university is incredibly small. That this mobility question is not only trans-national can be seen from the German case where workers in one region (the East) with comparatively high unemployment remain while in another (the South) employment and life opportunities are much better. Conclusion: to understand this you need the help of anthropologists, economic factors alone are not sufficient, even if a majority of the contemporary practitioners of economic science in the US would deny the validity of what I’ve just said.

On the question of Germany it occurs to me that maybe I should clarify something in order not to appear to be inconsistent (maybe I am inconsistent, but i don’t like it being too obvious).

Last spring I called on my blog for the German economy to be freed from the shackles of the stability pact. I did this for two principal reasons. Firstly the German economy is probably the one which has suffered most at the hands of the ’one ring to fit them all’ monetary policy which forms an integral part of the euro project. The German economy has long laboured under the weight of an unduly high real rate of interest due to the need to hold rates up for the benefit of the more inflation-prone economies.

Secondly, and this is more a pragmatic question, the German economy has a tremendous specific weight inside the eurozone and is running perilously close to entering a deflationary cycle. If Germany should cross the threshold and enter deflation land, it seems to me it will be extremely difficult to haul them out given the constraints which would apply to using what Bernanke calls the ’unconventional tools’ in the context of a currency union.

So it is better to avoid the problem first if possible.

This brings us back to the points Scott rightly makes about mobility and budgetary solidarity. Most of the ways of presenting this are far too abstract for my taste. If the euro is to work, cross border solidarity of a high order would be needed. The currnt German situation is the ideal place to demonstrate this. But this would mean using due process for decision making, and taking Germany as a special case. The precedent shouldn’t be too hard to swallow, since many of those asked to sacrifice have been willing recipients of German aid via structural funds.

Would this work, can the German economy resurect itself? I don’t know, but it would seem worth a try, since doing nothing and allowing them simply to follow Japan along the deflation road will probably mean the de facto death of the euro as an economic reality in any event.

What we have now of course is a complete mockery of this. In the place of due process we have a polite wave of two fingers in the direction of the ECB and the Commission, and instead of stong ’exemplary exceptionalism’ we have a jumping on the ’special case’ bandwagon by both France and (implicitly) Italy.

Edward,
“[…] and instead of stong ’exemplary exceptionalism’ we have a jumping on the ’special case’ bandwagon by both France and (implicitly) Italy” and the Spanish position is one of dubious virtue. We are growing at a greater rate than most of Euroland but we are the main recipient of aid.

As to migrations, most of them in Europe are temporary --as you say--, still since population growth is small --if present-- and phases of expansion and depression are cyclical, it is quite normal. Familiar life is different from most of UK it seems, after all the rate of divorces is highest there.

One question whose answer I still don’t have is how immigrants from ROTW will behave, my take in this moment is that they will supply most of the workers mobility. If you come from Argentina, going from France to Italy, or Denmark, is of little relevance.

DSW

Scott, fwiw, I finally got around to linking to this discussion and some other stuff of yours over on my blog (here: http://philosophenweg.blogspot.com/2003_11_01_philosophenweg_archive.html#107024963868544567). And thanks for the food for thought. I agree that many defenders of “traditional” nations are, as you put it, stodgy (at best). Defenders of the national principle today need to do just as much hard thinking--maybe more!--about the present world as do those who hope to move beyond it to some new kind of European identity (even if my intitial sympathy is with the former bunch rather than the latter).