Session at European Parliament in Strasbourg. Demotix/Serge Mouraret. All rights reserved.Europe is suffering from excessive austerity. Many people believe that policies must change. Even President Obama has said: "You cannot squeeze countries in the midst of depression". Yet there are also those who argue that bitter medicine is necessary to get out of the crisis. Such opposing views are legitimate and ought to be part of a vibrant democracy. But Europe is not a democracy. It is governed by a complex system of rules and regulations agreed between nation states. Although people can elect new governments in their member states, European policies do not seem to change. In their frustration, voters switch to radical right and left-wing populist parties which are threatening to destroy the euro and ultimately the European integration project. One way to end the disease is to kill off the patient.
Bringing Europe back to prosperity and full employment would require new economic strategies. The path is not easy. Even in the USA it took more than six years to reduce unemployment by half. However, in Europe political difficulties are overshadowing economics. The question is not only what policies would produce better results, but also how can the broad policy orientations be changed? The issue is democracy. The election of new governments in individual member states will not bring fundamental change to Europe as long as decisions are made by a collective of European governments. The nation state has become dysfunctional, because it raises hopes and expectations which cannot be fulfilled. Without tackling Europe’s fundamental problem, economic alternatives will remain worthless daydreams. In this essay, I will focus on the political obstacles which prevent Europe from changing track.
The fundamental problem
Europe’s fundamental problem, especially in the monetary union, is its economic governance without a government. Some scholars have argued that democracy and having a government do not matter for the European Union, because the common policies are of secondary order and the important stuff is done by democratically elected governments. Others have warned that politicizing and democratizing the EU would lead to distributional conflicts which would reduce welfare. The best way to proceed, they propose, is to set up tight rules and regulations and let markets get on with what matters for everyone’s life. Yet realities have proven these thinkers wrong. The euro crisis has profoundly affected everyday lives of ordinary citizens and proven that the existing governance system has not worked satisfactorily. The reason for the prolonged economic slump is the dysfunctional combination of policy externalities, policy inconsistencies and political agency.
