Saturday, April 27, 2013

Dissolving the Eurozone in the Name of Social Democracy

David Lizoain means to provoke: since the crisis does not appear to be producing a swing toward social-democratic majorities across Europe, he argues, perhaps the only hope for social democracy is to dissolve the euro. The logic may be flawed, but the thought, once unthinkable, is increasingly voiced aloud in both the periphery and core of Europe.

Lizoain's final point is that "dissolution would be easier if initiated by the strong partner (Germany), rather than by the periphery. If solidarity cannot be achieved through a progressive reform of Europe’s economic institutions, then perhaps it is time to consider taking them apart." The new German party Alternative für Deutschland would be only too happy to oblige him.

But could dissolution be achieved without exorbitant costs? Conventional wisdom says no, but I am told by a researcher working on the problem that there are numerous historical precedents in which dissolution of a currency union proved far less costly than predicted ex ante. Then the question is, "Would the EU survive a dissolution of the eurozone?" My sense is that it would not. Although the distinction between the two is sharp in principle, the politics of the situation blurs these sharp boundaries. Except for AfD, nearly all of the political forces calling for withdrawal from the Eurozone are also hostile to the EU.

Would the collapse of the EU be a disaster? I am old enough to recall the days when the EU stood not for the thin end of the neoliberal wedge, as anti-EU forces consider it today, but for perpetual peace in Europe after a singularly bloody half-century of war. To be sure, the Single Market has in some respects become an arena for the continuation of war by other means. Germany's dominance in a context of free trade and single currency is no accident.

In theory, the gains from trade should be shared, and indeed the periphery has gained a great deal, but in this period of adjustment, the gains are mostly forgotten and the pain of adjustment is paramount. Some fear that Germany is more redoubtable as a trading partner than it ever was as an armed conqueror. That is a dubious proposition. The peripheral countries need to reflect on their wherewithal to succeed in economic competition. Whether they want to make the changes necessary to do so should be a matter of democratic choice, not imposed obedience. But painful change will be necessary either way: maintaining the EU will require deep structural change, but dissolving it will be wrenching in other ways.

1 comment:

Dionyssis G. Dimitrakopoulos said...

Since 'the social democratic parties of Europe have almost universally lost their ability to articulate this progressive majority in their home countries', why should we believe that exit from the Euro area would restore this ability?

Perhaps one should look at the French experience of the early 1980s and seek to learn from it.