Why a monetary union cannot work without also being a political union

4 Jul, 2018 at 10:59 | Posted in Economics | Comments Off on Why a monetary union cannot work without also being a political union

Foreseeing the future is difficult. But sometimes it seems as though some people get it terribly right …

Some day the nations of Europe may be ready to merge their national identities and create a new European Union – the United States of Europe. If and when they do, a European Government will take over all the functions which the Federal government now provides in the U.S., or in Canada or Australia. This will involve the creation of a “full economic and monetary union”. But it is a dangerous error to believe that monetary and economic union can precede a political union or that it will act (in the words of the Werner report) “as a leaven for the evolvement of a political union which in the long run it will in any case be unable to do without”. For if the creation of a monetary union and Community control over national budgets generates pressures which lead to a breakdown of the whole system it will prevent the development of a political union, not promote it.

Nicholas Kaldor (1971)

There would, of course, be huge problems of turning the European Union into a kind of United States of Europe. And when the peoples of Europe are asked about the prospect, a clear majority says no.

Turning the eurozone into a political-fiscal union would give a couple of countries — especially Germany — the power to more or less dictate earlier sovereign countries’ taxes and spendings.

The peoples of Europe do not want to deprive themselves of economic and political autonomy. They do not want to be enforced to lower wages and slash social welfare at the slightest sign of economic distress. Increasing income inequality and a federal überstate is not the stuff that our dreams are made of.