Saturday, February 20, 2016

Europe could become again an inspiring example for the world

Bernard ter Haar, key official in drafting the Maastricht Treaty
Before I tell you why I think Dijsselbloem and Varoufakis are demagogues in their defence of the euro, let me stress that I don't like to call someone a demagogue. I used the term in the previous posts following Robert Triffin's criticism of his colleagues - Robert Triffin: "Most economists are demagogues". I find it a bit demagogic to call someone else a demagogue and sometimes I find myself a demagogue... 

Why do I think Dijsselbloem and Varoufakis are 'demagogues' in defending the euro?
Because the euro monetary system is less rational and less beneficiary to its citizens than they pretend it is or could be. In Dijsselbloem’s view, the euro system is rational and only needs some improvements. Varoufakis does not think it is rational and sees the need to democratise it and base it on more rational diagnosis and more human economic policies. 
But I think the eurozone monetary system is not rational and will not become rational by democratising it or by improving its internal assessment and diagnosis. In my view, it is a system that countries should reform or abandon when they feel it is not in the interest of their people and/or the world at large. Just like they should reform (abandoning is impossible) the US dollar based international monetary system because it is not in the interest of the large majority of US citizens and the world at large. 
Both the euro and the US dollar systems serve the interests of a small minority of people who represent the military industrial complex (term coined by Eisenhower). It's NATO countries that have opposed reform of the international monetary system. By maintaining the US dollar as the key currency the United States is able to spend as much as it wants on its military force, giving protection to the other NATO countries and maintaining their financial and economic power. And by maintaining the dollar as key currency NATO countries have also succeeded in making other countries participants (stakeholders) in the system and having them contribute to the financing of US military expenditures. But the Chinese are moving forward with their bilateral monetary arrangements, foreign investments, and their recently established Asian Infrastructure Investment Bank (AIIB)...

This last thought, a monetary system that serves geopolitical interests and the economic interests of large corporations, rather than the people (though we, the consumers, are benefiting from relatively low-priced products), is the reason I copied in the previous post my letter about China and the need for global power sharing -- Power should be shared globally.

But there is another reason I was critical of the euro even before it was introduced. In the days of drafting the Maastricht Treaty I happened to convene and chair an informal discussion group on international finance comprising officials of both the public and private financial sectors in the Netherlands. One of them, Bernard ter Haar of the Ministry of Finance, happened to be the key official drafting the euro treaty. So we had discussions in our group about the pros and cons of introducing the euro. I was against it because in my view it would limit the policy space of member countries and impose neoliberal policies. I was not the only one against it, but we were a minority in the group.

As Fondad we did in the 1990s (after the creation of the euro system) a three-year project on regional integration and multilateral cooperation dwelling on both themes in the various regions of the world: Latin America, Africa, Europe, and Asia. In the introductory chapter of one of the six books that emerged from this project I wrote in April 1998: 
"This brief account of European integration points to another issue which I see as one of the major problems of an unbridled process of ever-deepening regional integration: How far should it go? Isn't Europe's energetic embracing of a single currency, the Euro, now showing the pitfalls of integration that has gone too fast or too far? Should European nations not put more energy in keeping alive  their rich variety of differences – in cultural, social, political and even economic life – rather than almost blindly following the new dogma of 'conversion' of economic policies? Let me explain. As with other ideals, regional integration should never become a dogma. It is a useful and attractive project as long as those who are intended to benefit from it indeed reap the fruits (without jeopardizing those who remain outside). But on the day that citizens begin to raise serious and well-founded doubts about the supposed beneficial effects, policymakers and entrepreneurs should begin to rethink the wisdom of ever-increasing regional integration. In my view, regional integration should never become an end in itself, but it should be subdued to the broader and 'higher' goals of justice, social equality, cultural identity and respect for nature. In other words, social, political and cultural (and economic!) considerations can be good reasons for a revision of integration plans."

Two-and-a-half years ago I organized at the Dutch central bank (De Nederlandsche Bank) a seminar about the future of the euro. On this blog I wrote a post about it, The future of Europe, in which I said, "Europe could become again an inspiring example for the world -- if it maintains its social ideals, its social system, and creates more effective economic policies, for the sake of Europe and for the world at large." 

The negotiations between Greece (Varoufakis) and the eurogroup (Dijsselbloem) during the first half of 2015 convinced me that the euro does no longer serve the interest of the Greek people. 

I know, it is hard to abandon a regional monetary system that businessmen (large and small) and citizens (e.g., pensioners in northern Europe) do like, or see as the only alternative. But even businesses (and pensioners) need to think about serving the interests of the people in the whole of Europe and not only those of themselves and their own countries. International solidarity is key to both regional arrangements and the global system. 

PS: Last year Paul de Grauwe predicted that the euro would come to an end, Paul de Grauwe: "Europe's monetary union will not last.

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