Hegemony in an era of turmoil – EU trends outline (July 1995)

Essay for the LSE Summer School on International Political Economy

(official title: The Politics of Global Finance)

This is part of the re-print of an Essay on "Hegemony in an Era of Turmoil"

I wrote the essay in 1995, as part of my participation of a Summer School at LSE in London.

The official title of the school? The Politics of Global Finance.

Visit GettingAroundTheWorld.Net to read the essay- and the 2010 follow-up.

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 Hegemony in an era of turmoil – EU trends outline (July 1995)
Essay for the LSE Summer School on International Political Economy
(official title: The Politics of Global Finance)

NOW AND TOMORROW

1. a common currency isn't a necessary element for the single market
MONETARY STABILITY
2. priority: protection of the internal value of money
A UNION FOR WHAT → maximum long-term stability
3. undefined goal of Union & risk of fixing external exchange rates without previous convergence of
economies
MISSING ELEMENTS
4. who is in charge of what: mandate is given but without effective power to enforce policy
→ consensus-building partner for central bank
policy sharing: the same rationale is needed at the national and regional level (German experience)
> growing culture for stability in society
> lex imperfecta: ruling without sanctions
BINDING POLICIES
5. lex incompleta: community made of single nation states
→ lack of mandate from the European people
→ only unanimous ≡ state-decisions can change ECB statute (undemocratic)
→ convergence criteria: “negative” binding of policies
(lack of deterrence power = either in or out)
→ need of positive formulation of common economic & fiscal policies
BUILDING INSTITUTIONS
6. common currency &common state
→ how will EU resist to exogenous shocks&crises when only solidarity and not a common framework of
policies, purposes, and institutions unite them?
→ “crises” after 1973:
1973-1974, 1979-1980 Oil ▲
1985-1986 Oil ▼
1980s Reaganomics
USSR ▼
Unification of Germany ????
→ Strains on solidarity and common purposes
→ effect of ≠ in EU after single currency: risks
- productivity, wages, infrastructural
- unlikely migration like US: ≠ culture, language
- pressure to move vs. “blue banana” (more developed)

TRANSITIONAL INFRASTRUCTURE
7. push to increase transfer payments to achieve even level of welfare EU-wide
- structural & cohesion fund: helps weaker ares to “take-off”
- risk of lack of distinction between
equal income → EU, single market
equality of income/redistribution → political union
- German example of costs to unite ≠ level of development
→ troubles in Federal State, what for EU? Financial strain
→ who pays/wants to pay?
- increasing divergencies: critic of “big bang” approach
 Hegemony in an era of turmoil – EU trends outline (July 1995)
Essay for the LSE Summer School on International Political Economy
(official title: The Politics of Global Finance)

PROPOSALS
NO QUICK FIXES
“to build Europe on solid foundations and not to play any tricks”
- balancing between political need to include and economical reasons to exclude short-/mid-term
[ → building democratic, EU-wide support]
- ratify now, then start sorting the mess (re-write Maastricht)
- anyway, national sovereignty has already melted down due to trade integration and financial markets
→ no way back to the past, too expensive (see COMECON experience now)
- need to clarify the Union's finality

HOW TO GET THERE

- keep EMS working also if stage 3 will not start
→ needed for single market (from 1985 Single European Act)
- high interlocking of EU economics
(60& of D export to EU, 20% to EFTA) also SMEs
↓↓ implies
need for reliable and stable monetary relationship

PROBLEMS
NEED FOR CLEAR PRIORITIES
- realisation and completion of the internal market
- Sutherland report: pessimistic, as states pursue national interests by exploiting the single market
- no common consensus on the need for common policies on
Competition, environment, regional ≠s, transnational infrastructures, social standards
- single market success: linked to the existence of those policies
SINS OF THE 80S – what to do
- top priority: continuity, confirmation, strenghtening of monetary system
- no weakening of the rules
- goal-setting is needed
“we need to know the goal that lies ahead and that has to be built solidly and soberly on excellent
foundations”
- depoliticize exchange-rate fixing, breaking the link between government's fate and specific
→ EU will not have soon a fixed exchange-rate with $ or ¥
DEPOLITICISE
- make central banks really independent