Question: Summarise the cases for and against
Britain’s exit from the European Union Question to be answered in essay type response, no
introduction or conclusion required just
straight to the point. I have attached some resources please use them and any
other resources you think are good also please reference them. Around 600-700 word response required.
Thankyou
23580_feldsteinpolitical.pdf
23580_alesinaeuropean.pdf
reference.pdf
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The political economy of the European economic and monetary union: …
Feldstein, Martin
The Journal of Economic Perspectives; Fall 1997; 11, 4; ProQuest Central
pg. 23
journal of Economic Pnspectives-Volume 11, Numbrr 4-Fall 1997-Pages 23-42
The Political Economy of the European
Economic and Monetary Union:
Political Sources of an Economic
Liability
Martin Feldstein
T
he introduction of the European economic and monetary union (EMU) 1
could be the most far-reaching European political event of the twentieth
century. Its significance would not just be the substituting of a single European currency for the individual national currencies of the member countries,
but that doing so could lead, as many of its proponents hope, to a political union
that would fundamentally change the politics of Europe and of the world. If, instead, the shift to a single currency were now abandoned, the Maastricht treaty with
its explicit provisions for future political union and the coordination of foreign and
security policies would be effectively dead.
As I write this essay, it is still uncertain whether the economic and monetary
union will begin on schedule in January 1999, will be postponed to a later year, or
will be postponed and never occur. Vinat is clear to me is that the decision will not
depend on the economic advantages and disadvantages of a single currency. The
decision of whether or not to form a monetary union will reflect deeply held political views about the appropriate future for Europe and about the political advantages and disadvantages to the individual countries and even to the indiidual political decisionmakers themselves. Although the decision on whether to go forward
will formally be decided by a “qualified majority” of the entire European Council
1
Although EMU signifies “economic and monetary union,”‘ the essential feature is the monetary union;
that is, the shift to a single currency and a single European central bank. The EMU should of course be
distinguished from the earlier “single market” agreement to eliminate barriers to cross-border trade,
investment and employment within the countries of the European Union.
• Marlin Feldstein is Professor of Emnomics, Harvard University and President of the National Bureau of Economic Research, both in Cambridge, Massachusetts. His e-mail address
is ( msfeldst@nber.org).
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24
Journal of Economic PerspPCtives
of Heads of State or Government (that is, by a majority vote in which countries
have unequal numbers of votes), the actual decision will depend overwhelmingly
on the preferences of the German and French political leaders.
I stress the importance of these political motivations to emphasize that it would
be wrong to infer from a European decision to form a monetary union that expert
opinion in Europe had concluded that doing so would be economically advantageous. Similarly, if that effort is now abandoned, it would be wrong to infer that
the experts had concluded that the economic costs would outweigh the economic
benefits.
The shift to a single currency for all of Europe would be an unprecedented
event. No sizable country an;where in the world is without its own currency. A
national currency is both a symbol of sovereignty and the key to the pursuit of an
independent economic and budget policy. The tentative decision of the European
Union member states (with the exceptions of Denmark and the United Kingdom),
embodied in the Maastricht treaty, to abandon their national currencies in favor
of the euro is therefore a decision of fundamental political significance. ,.I though
Europeans debate the extent to which this change will automatically lead to a shift
of power from the national governments to a European government (embodied in
the European Commission, the European Parliament, the Council of Ministers, and
the European Central Bank), there can be no doubt that eliminating individual
currencies would be a major psychological and substantive step toward a European
central government. For the residents of Europe, substituting the new euros for
their own familiar national currencies would be a powerful signal that Europe had
become the operative state and that their own countries were now subsidiary political subdivisions.
As economists, we can evaluate the likely effects of monetary union on emplo;ment, inflation, trade and overall economic well-being. But we should recognize that the officials who are pursuing monetary union are motivated by political
considerations that transcend questions about the likely performance of the European Central Bank and whether the European economy satisfies the Mundell
(1961) criteria for an optimal currency area. It is useful to explore these political
considerations before looking at the likely consequences of EMU for the economies
of Europe and the rest of the world.
My own judgement is that the net economic effect of a European Monetary
Union would be negative.~ The standard of living of the typical European would
be lower in the medium term and long term if EMU goes ahead than if Europe
continues with its current economic policies of a single market for trade in goods
and services, the free flow of capital and labor, adjustable exchange rates within
broad bands, and domestic monetary policies aimed at low inflation. But in the
end, it should be for the Europeans themselves to decide whether there are net
political advantages of EMU that outweigh the net economic disadvantages. Unfor-
‘For earlier statements of my own views, see Feldstein ( 1992, 1993).
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Martin Feldstein
25
tunately, the public discussion of EMU in Europe has not focused on this trade-off,
because EMU is being marketed as a source of improved economic performance.
The Politics of European Monetary Union
Although political considerations are dominant in creating a European monetary union, there is no single coherent political case for doing so. The political
driving forces that are responsible for EMU are in fact a strange mixture of proEuropean internationalism and the pursuit of narrowly defined national selfinterest. Although no individual advocates all of these views and the views themselves may be mutually contradictorv, taken together they may propel Europe into
a monetary union.
Protecting Peace and Projecting Force
The roots of EMU can be traced back to the years immediately after World
War II when Jean Monnet and others dreamed of preventing future European wars
by forming a United States of Europe. The first step toward that goal was the European Coal and Steel Community, transformed in 1957 by the Treaty of Rome
into the European Common Market. The strategy of gradual evolution led next to
the creation of the European Communities in 1967, the European Monetary System
(EMS) in 1979, the Single European Market in 1992 and the European Union in
1993, with increases at each stage in the range of coordination and in the centralization of power.
Chancellor Helmut Kohl of Germany, the most important proponent of monetary union, argues that the greater political cohesion that would follow EMU is
the best way to prevent a recurrence of war in Europe. As someone who lived
through World War II, Chancellor Kohl knows the powerful appeal of such an
argument to the people of his own generation. He argues further that Germany’s
reliability as a peaceful neighbor will be enhanced if it is contained within a strong
European confederation. Although the memory of World War II is diminished for
the population as a whole after more than 50 years, the history of three major wars
involving Germany since the Franco-Prussian war of 1870 makes this belief, if true,
a very important reason for welcoming EMC and the political transformation of
Europe to which it might contribute.
Assessing the likelihood offuture military conflicts under different institutional
arrangements is of course extremely difficult.:i It is certainly not clear that peace in
Europe needs (or would even benefit from) the much stronger political ties envisioned in the Maastricht treaty and in the subsequent official discussions among
1
\’ar may seem unthinkable in the current age of weapons of mass destruction. Unfortunately, such an
optimistic view was widely held before both World War I and World War II; sec Kagan (1995, especially
pp. 1-11)
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26
Journal of Eronomir Penpectivfs
European leaders. Western Europe has avoided war for half a century with its existing structure of nation-states and military cooperation through NATO. The freedom that individual nations have had to pursue their own economic, social and
international policies may create less conflict than would result if a strong political
union sought to impose common policies on nations with very different political,
religious and historic experiences and potentially very different economic interests.
Conflicts could be even greater if an initial core group of EMC members unilaterally
imposed conditions on non-EMU members 1 and on future EMU entrants. A longterm split of the European Union into EMU members and those who do not join
EMU would create a two-class Europe with the potential for serious economic and
political conflicts. Such a long-term division is not unlikely as the European Union
expands to the east.
A strong constitutional political union is certainly not a guarantee against a
new war among its members, as the devastating civil war between the member states
of the United States clearly demonstrated. The ethnic-based struggles in eastern
Europe and the former Soviet Union and the splitting of Czechoslovakia into Slovakia and the Czech Republic show that separation may be a more stable peaceful
equilibrium than integration.
It is even more difficult to assess how a politically unified and powerful European Union would affect potential conflict with others. Russia, although still a major
nuclear power, is now relatively weak and focusing on achieving economic reform
and industrial rebuilding. Might a stronger Russia at some time in the future and
v,;th a more secure political leadership try to reassert control over the now independent Ukraine? Would a strong unified European Union discourage such action?
Would a united Europe be tempted to transform a Russian takeover of Ukraine
into a broader conflict, reminiscent of Germany’s invasion of Russia in World War I
and again in World War II?
Until recently, the threat of attack by the Soviet Union has made Europe militarily dependent on the U.S.-dominated NATO. The existing political structure of
Europe has also prevented Europe from developing the capability to pursue independent military policies. This was demonstrated most dramatically and decisively
when England and France were forced by the United States to abandon their attack
on the Suez Canal in 1956. As Henry Kissinger (1994, eh. 21) has noted, this episode
showed the Europeans that they had lost their previous ability to play a major
independent role in world affairs and convinced them that a new structure of Europe was needed if they were to regain their earlier power and influence. Kissinger
( 1994, p. 54 7, quoting Finer, 1964, p. 467) describes the following revealing
episode:
‘The new European Monetary System rules. agreed to at the December 1996 Dublin European Council
meeting, requires all members of the European Union (including those that are not members of the
monetary· union) to pursue convergence poli”ies w~th specific targets for budget balance and inflation,
a major change from pre,fous EMS rules. (Only the L’K is not legally bound to avoid a budget deficit in
excess of 3 percent of gross domestic product.) The fact that there is no clear mechanism for enforcing
this legal obligation is itself a potential source of conflict.
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The Political Economy of the European Economic and Monetary Union
27
Adenauer happened to be in Paris on November 6, the day Eden and Mollet
decided they would have to yield to American pressures (to withdraw from
Suez). According to the French Foreign Minister Christian Pineau, Adenauer
said: “France and England will never be powers comparable to the United
States and the Soviet Union. Nor Germany, either. There remains to them
only one way of playing a decisive role in the world; that is to unite to make
Europe. England is not ripe for it but the affair of Suez will help to prepare
her spirits for it. We have no time to waste: Europe will be your revenge.”
That was a year before the Treaty of Rome launched the Common Market and tw”o
years before Charles de Gaulle, unable to achieve what he regarded as a satisfactory
restructuring of NATO, withdrew France from the NATO military alliance and
moved to develop an independent French nuclear capability. France and Germany
also moved to establish closer ties, leading to their 1963 treaty of friendship and
collaboration.
Although the United States and the countries of western Europe have had an
extremely close alliance since the end of World War II and continue to coordinate
military efforts within the NATO structure, there is no doubt that many Europeans
in positions of responsibility see their economic interests and their foreign policy
goals differing from those of the United States with respect to many parts of the
world, including eastern Europe, the Middle East, Africa and even the Caribbean.
A more united Europe would undoubtedly be able to pursue an independent foreign policy more effectively than the current separate nations within the European
Union. Indeed, the German government originally emphasized the importance of
this by demanding that political union and harmonization of foreign and military
policies should precede monetary union (as it did when Prussia united Germany
under its leadership in the nineteenth century). Although Germany has now accepted that the order be reversed, with monetary union preceding political union,
the Bonn government always emphasizes that monetary union is a prelude to the
coordination of these other noneconomic policies. 5 With the U.S. military presence
in Europe diminished and the Russian threat in abeyance, a united Europe could
build on the existing small Franco-German joint military collaboration to develop
the ability to project military force outside Europe and thereby to pursue an independent foreign policy. Indeed, France and Germany announced jointly in
March 1997, on the 40th anniversary of the treaty of Rome, their desire to see a
merger of the European Union with the European military alliance (the Western
‘Helmut Schlesinger, former head of the Bundesbank, explained as follows in his John Foster Dulles
Lecture at Princeton’s Woodrow Wilson School on October 31, 1994 (mimeo, p. 11): “Sometime there
was an attempt to draw parallels between German unification and the path to a united Europe. I think
only one point is really comparable and that is: the final goal in both cases is a political one in which
the economic union is an important vehicle to reach this target. Since 1952, the beginning of the creation
of the European Community, the final goal was and is to reach any type of political unification in Europe,
a federation of states, an association of states or even a stronger form of union. The political target has
been guiding Germany since the beginning and will certainly continue to do so in the future.”
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28
Journal of Ernnomir Perspectives
European Union) to strengthen military coordination of European nations outside
the NATO framework.Ii W11ether such developments would be good or bad for longrun world peace cannot be foretold with any certainty. The likely further reductions
in the U.S. military presence in Europe would undoubtedly make Europe more
nilnerable to some future attack. The weakening of America’s global hegemony
would undoubtedly complicate international military relationships more generally.
National Interests
Although some politicians and bureaucrats may judge the desirability of a
stronger and more unified European Union solely in terms of its impact on Europe
as a whole, most ·will focus on what EMU and a more centralized Europe would
mean for their own country. Regardless of the formal procedure, it is the French
and Germans who will now determine whether or not monetary union will occur
and it is likely that each will determine its position in terms of its perception of
national self-interest. The other members of the European Union can only decide
whether, if there is a monetary union, they wish to join. 7
France sees EMU and the stronger political union to which EMU will lead as
an opportunity for France to be a “co-manager” of Europe as an equal of Germany
rather than being dominated by a Germany that has nearly 50 percent more population than France.H In the economic sphere, the current domination of European
monetary policy by the German Bundesbank would be replaced by the European
Central Bank at which Germany and France would sit and vote as equals. With its
“natural” Mediterranean allies of Italy and Spain, France may come to have the
decisive influence on the evolution of European policies. The center of gravity of
Europe would become Brussels or Strasbourg rather than Berlin. The very skillful
international French civil servants may come to dominate the administration of the
European government. All of this may be wishful thinking in Paris, but it persuades
French officials that France is likely to be better off with monetary union and the
political evolution that would follow than with a continuation of the current system.
Germany’s reason for wanting monetary union and a closer coordination of
noneconomic policies is harder to understand. Some German leaders no doubt
believe that such a policy increases the prospects for peace and “helps to contain
“France has recently indicated a willingness to reenter the KATO military structure but only if it can
replace the Cnited States as head of the NATO Southern Command that is responsible for the Mediterranean area, a condition that the United States has rejected.
‘For an excellent explicit c>xample of such an analysis for Sweden, see Calmfors (1996). The Swedish
government has announced that it does not want to join the EMU in January 1999. Although all members
of the European Union (other than Denmark and the UK) are in principle required by the Maastricht
treaty to join the monetary union, the Swedish experience shows that a country can decide whether it
is “readv”‘ to do so.
·’Compare Kissinger”s (1994, p. 606) description of French aspirations at an earlier time: “V.’hat
de Gaulle had in mind was a Europe organized along the lines of Bismarck’s Germany-that is, unified
on the basis of states, one of which (France) would play the dominant role.
. Everybody would have
some role in de Gaulle’s redefinition of Richelieu’s pre-eminent France:
. France to diverting German
national aspirations into European unity.”
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Martin Fddstein
29
a potentially dangerous Germany within Europe.” Otht’r Germans disagree with
the French assessment of the consequences of greater economic and political integration. They sec Germany as the natural leader within the European Cnion,
because of its economic weight, military capability and central location in a European Union that will soon include Poland, the Czech Republic and Hungary. ”ith
the European Central Bank in Frankfurt and …
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