Not Really Uniting, to Not Really Save the Euro…Not Really

The British newspapers are full of lines like “UK vetoes EU uniting to save euro” and worse. This illuminates a huge problem with the European Union.

The first problem is that this assumes that somebody’s going to save the euro. This is an error of the same form as the classic Yes, Minister joke:

We’ve got to do something. This is something. Therefore we’ve got to do it.

Given what I’ve already said about this, I’m very far from convinced that balanced-budget amendments will “save the euro”. Further, the UK isn’t opposed to the euro as a matter of policy and you have to be very, very Commission-minded to imagine that everyone outside is secretly either desperate to get in, or else desperately trying to keep the euro from sucking them in. Also, there’s nothing intrinsically good about “uniting around” a bad idea. Being united and wrong isn’t a good thing. As we used to say at school:

Why did you do it? Lee told me to do it. If Lee told you to do it, would you jump off a cliff?

But all this is a special case of a general problem. There is a dreadful poverty of discourse about the EU. Whatever happens gets discussed in terms of europhiles vs. eurosceptics, intergovernmental vs. supranational, nation A vs. nation B. In the UK’s national context, this meant that the prime minister could announce a veto on lower reserve capital requirements for banks and be accused of selling out to the City. I mean, it’s weird enough in itself, but it doesn’t make sense to claim that he’s selling out to the banks in doing something that directly, mathematically costs them money.

It is rare that any policy proposal regarding the EU gets discussed seriously on its content, rather than as part of a specialised form of horse-race journalism. Is one nation or institution getting an edge in the game of diplomacy? Last week’s summit cut across all the standard EU dichotomies. A Tory veto on lower reserve requirements? French and German backing for a purely intergovernmental arrangement? Core European demands for aggressively procyclical economics? If you were working on any of the usual rules, you’d be completely disoriented, and it’s painfully obvious that so many people are.

So let’s discuss the merits. The headline proposal is to make everyone have a balanced-budget amendment in their national constitution. (They weren’t exactly holding back!) This sets a limit of 0.5% of GDP for the cyclically-adjusted structural budget deficit, and requires a 1/60th reduction every year in the public debt over and above 60% of GDP. This sounds pretty Hooverite, but it’s worth noting that it’s also full of language that leaves lots of room for interpretation. “Cyclically adjusted” means that there could be leeway for a stimulus, and a “structural” budget deficit is precisely whatever the person who defines “structural” wants it to be.

Further, it mentions leveraging the EFSF and states that the EFSF and ESM will operate with the European Central Bank as their agent. This sounds like something worth having, and the ECB’s announcements on Friday do suggest that there might be quite a bit more central bank liquidity coming.

It also takes note of the trade problem – at last. This is important. There is language in there that accepts that the intra-eurozone trade imbalances are a problem and that it’s not enough to flog the deficit states. However, if the budgetary outs were vague, this is far vaguer.

And finally, there were a gaggle of added extras like wanting to have all transactions in euros cleared via the ECB and maybe moving the European Banking Authority to Paris, which seems to have freaked out David Cameron something good and proper. I can’t see why this stuff should have been on a serious agenda – it’s more Silvio Berlusconi’s style – but perhaps the temptation was unavoidable, and I may come back to this in a post on the diplomatic side of the story.

In conclusion, whether this “fiscal compact” is going to be Euro-Hooverism or “hard Keynesianism” seems to depend mostly on political will and interpretation, the first being the father of the second. A reading that emphasises the hard numbers and takes an ungenerous definition of “cyclical” and “structural”, that considers the ECB’s role as “agent” to mean just acting as a broker, and that considers the clause on trade imbalances to be hot air, will give us the first.

However, a reading that takes a sceptical view of the reality of “structural”, that thinks the pits of a depression are the place to exploit a cyclical adjustment if there ever was one, and that insists on pushing the imbalances clause, would get us somewhere else entirely, especially if it also suggests that the “agent” might have more “agency” than just processing transactions.

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