Mario Draghi emphatically says that, “the ECB is ready to do whatever it takes to preserve the euro,” but mounting strains on euro member states are raising questions about whether the costs of saving the euro are worth the benefits.
Preserving the euro as a single currency with its 17 members comes at an extremely high price. Economic, financial, political, and social burdens jeopardize the ideals held sacrosanct by Europeans. Paradoxically, by preserving the unity offered by the euro, European leaders are forging the type of disunity the euro was designed to eradicate.
The founding of the European Union marked a watershed moment in European history wherein the countries of Europe consciously ceded a small portion of their sovereignty for the expressed purpose of preventing political conflict, promoting liberal democratic conceptions of human rights, and creating efficient markets. As the euro project slogs onward, it undermines all three of these goals.
The single currency area initially facilitated an economic boom fueled by the unmolested movement of citizens, low trade barriers, free capital flows, and integrated infrastructure. The single currency provided markets with a common medium of exchange that allowed for smoother functioning of financial markets, but the real benefits of European integration came from common-sense structural reform programs. The Herculean efforts to save the currency are undoing these reforms.
For instance, as imbalances between Greece and Germany grow, Jens Weidmann, president of the Bundesbank, talks openly about making asset claims in southern Europe to settle outstanding debts. German officials in general are becoming increasingly assertive, and European leaders no longer blush at the notion of imposing capital controls to prevent the efficient mobility of money across the continent. Xenophobic politicians like François Hollande are raising protectionist walls while making already-rigid labor markets even more rigid. Hollande has been shameless in his protectionism, saying, “… we must think exclusively of France” while advocating trade barriers and increased worker protections. Meanwhile, political intractability and a general lack of financial health have stymied efforts to improve important European infrastructure like roads, railways, broadband, and energy distribution. The European Commission estimates that Europe is at least €1.5 trillion short in meeting its infrastructure goals.
More pernicious than economic disarray is the blatant disregard for democratic liberalism that has typified core Europe. Increasingly, unelected bureaucrats in Brussels or Frankfurt are making decisions to which member states must adhere. The so-called Troika of the IMF, European Commission, and ECB are imposing conditions on democratically chosen programs without consulting with electorates or parliaments, and the citizenry is expected to go along peaceably as social policy is dictated to them.
Such usurpation has contributed to near-perpetual political dysfunction. Since the start of the crisis, governments have fallen in 12 of 17 euro countries because of euro strains. Turnovers happened in Belgium after 541 days without a government coalition; in Cyprus after the entire government resigned; in Finland, where the 56-year ruling party was ousted; in France after a vitriolic fight that saw the German chancellor openly campaigning for the incumbent French president; in Greece, where instability has given a voice to political parties advocating the use of land mines and the introduction of war tribunals; in Ireland after an early emergency election failed to produce a majority for any party; in Italy after a technocratic government ousted the democratically elected leader with a vote of no confidence; in the Netherlands after the cabinet resigned in protest of austerity; in Portugal, where mass resignations prompted extreme turnover in government; in Slovakia, where the government coalition collapsed upon failing to agree to Troika demands; in Slovenia, where a newly formed political party seized control of government after the parliament was closed mid-session; and in Spain after a pro-Europe, pro-austerity government backed by the Troika deposed the ruling party.
The strains of this democratic deficit, coupled with collapsing economies, have produced growing feuds between eurozone member states that evoke bad memories for Europeans. Germans are dictating social policy to smaller countries, the French are waxing eloquent about the virtues of French industry, and fear of outsiders is prompting disturbing talk about restricted immigration.
Consequently, the good of the euro is being swallowed by the insanity of preserving the single currency. It is now virtually impossible to conceive of a eurozone breakup without a breakup of the E.U. as well, and a free trade, free movement, freedom-loving Europe is a mere relic of last decade.
And despite the sacrifices made thus far, the eurozone is still disintegrating. Facing a budget shortfall of more than €1 trillion over the next 18 months, and with traders predicting further increases in bond prices and depreciation of the single currency, European leaders will find it increasingly difficult to ignore the signals that the system is unsustainable.
If the ECB is truly going to do whatever it takes to save the euro, it appears as though it will be forced to sacrifice the very things the E.U. was created to foster. Democracy, good will between nations, and economic efficiency are all evaporating as the costs of preserving the currency rise.
The costs of a single currency area are rising rapidly. Europeans need to ask themselves if they want to continue footing the bill.
Daniel Hanson is a researcher at the American Enterprise Institute. His research focuses on sovereign wealth management, trade policy, the euro crisis, and other topics of international economic interest.