On the back of an ingrained inferiority to the United States, Russia, China and India, European politicians built the dream of the EU that could match even the largest Super Power. The problem was that people did not dream of it in the same way. So the union dreams became a real nightmare that is sending one country after another into the abyss.
The EU has obviously some ideological problems with the difference between political ambitions and the citizens becoming more pronounced. But the absolute biggest practical problem the EU has – what are the root of most problems and a root for the EU to develop in a disastrous direction economically and increasingly ignoring on democratic processes – related to the common currency, the euro. The idea of a single currency in Europe goes far back, way back to the EC, and even to the time before the EC. In fact, the idea was discussed even before World War II, the League of Nations, and forerunner of the United Nations. Back then, it had only a grandiose vision, and first with the Werner Report in 1970, it firmly placed the agenda of the Community. Like many other grandiose visions, the euro is also impressive, ambitious and logical in the best of all worlds. If you could create a single economic and monetary union with a population larger than the U.S. would the international political power, of course, also reflect it. One must not underestimate the fact that it has been an underlying dream of European politicians for decades. Like so much else in the EU are major parts of this project was driven by European politicians inferiority to the United States, Russia, and later others, actual or potential superpowers such as China, India and the Middle East.
The main problem for politicians, however, has been that the majority of European citizens did not have any desire to create a political union, which must be the foundation of a monetary union. The citizens of the wealthy countries did not want to give up their national identity, nor their economic benefits to be part of a common pool. This ‘solidarity’ with poorer, less disciplined and less educated people locked the countries as permanent contributors. Not surprisingly, the main enthusiasm was high on the list just the economically weak countries that predicted significant advantages in such a system, without even being willing to throw their nation states overboard along the way, and indeed also without throwing some of their bad habits overboard – it seems that especially the southern European countries and some Eastern European members always looked at the EU as a cornucopia from which all the world’s riches will flow, without having to make an effort to earn them.
European politicians knew really well that an underlying foundation in the form of a political and financial union was a necessary condition for the single currency. There were many warning voices in the run-up to the formation of the EMU. But although it was clear to some, it was chosen anyway to get the project started with a foundation so weak as a sand castle in the shallows. On expected after grant, one might say, or – as has been shown in recent years – with a hidden agenda, namely to force the foundation piece in small but crucial bits, without having bothered to ask the people of Europe. The process continues unabated, even in countries not being a member of the Eurozone, but the politicians want a more comprehensive integration than people are ready to absorb but to prove their political loyalty to the rulers in Brussels, being unfair to their own people is often the path to good jobs with lots of crosses, ribbons and stars and the illusion of political importance among friends.
What exactly is the problem with a common currency when it now sounds both practical and appropriate to avoid currency conversion and exchange rate risks and to create a strong central bank can make an impact on the international level? By entering into a common currency you give up essential tools that a national central bank would normally have available. The most obvious is of course the possibility of adjusting the exchange rate, either by or revaluation, or to simply leave the rate fixed statement to the financial markets, which of course is good Latin for most other assets. The second key tool is the ability to adjust the cycle through the short-term interest rates. Adjustment mechanisms are critically important, and in the absence of those, the seeds of disaster are a risk for any region or country, unless there is consensus that the resulting inequalities can be adjusted in other ways. It may be common bonds, fiscal transfers, etc., as seen in other nation states outside the Eurozone.
Fundamental rights have been put under pressure in the Eurozone in the past few weeks. The handling of the unfortunate Cyprus situation underlines the hopelessness that the 17 euro countries are in. The panic is so great that no steps seem too extreme to save the project and defend the political capital that has been invested in this monumental failure. The original proposal to break the European bank failures was good but unpalatable it will subsequently be withdrawn again. But the cat is out of the bag and it is difficult to determine where the boundaries will be in the future, as the European crisis gets worse and worse. Although the idea of depositors taking responsibility for their actions is fair enough – the random way is the EU policy development on a dangerous signal to send to both small and large depositors in European banks. It seems like everything developed on the back of a napkin during the actual process, which is not a good recipe for confidence in the Eurozone.
One of those who has repeatedly warned against the development of the EU, the Czech Republic’s former president, Vaclav Klaus. In his book Europe – “Integration without illusions”, writes Vaclav Klaus, it is ironic that the project, which was to unite Europe in peace, has been a source of strife and poverty. It is an important book, where the now retired president takes stock of European cooperation development – and possible settlement.