To accompany the grief arising from news on Europe's Parliamentary elections, European Central Bank (ECB) President Mario Draghi warned Monday that the Euro-zone economies need to be watchful of the possibility that the zone may enter a price deflationary spiral, undermining expectations on price inflation/financial stability and, thus, hindering growth in demand for credit to finance investment expenditures (see Eva Taylor, "ECB watching deflationary risks and ready to act, says Draghi," on Reuters (May 26, 2014), at: http://www.reuters.com/article/2014/05/26/us-ecb-policy-idUSBREA4M0IV20140526). Draghi pointed to the problem of constraints on bank lending in peripheral EU economies as a source disrupting ECB annual inflation rate targets of just under 2 percent (inflation across the EU is currently in the vicinity of .7 percent annually). Evaluated against the political context of a right-wing populist backlash against economic integration and its consequences for member states (e.g. bailouts for peripheral states with sovereign debt issues), the potentiality for deflation across the Euro-zone appears to be real and, paradoxically, it would stand to reinforce the political stature of the enemies of economic integration whose own actions will, in turn, contribute to the potential for deflation.
With these considerations in mind, it is worth inquiring into the political health of the project of a unified Europe. What, after all, was the point of integrating the western European and, then, the central and eastern European economies into a customs unions and, subsequently, a monetary union? In view of the financial crises, bailouts, and political consequences befalling the Euro-zone of the last decade, are these ends still adequately served or, conversely, are the very institutions constructed to harmonize the economic interests of member states to promote an overarching political stability destabilizing the internal politics of the union? Is it possible that by striving to achieve economic unity and integration between the states of Europe, the member states of the EU institutionalized an alignment of monetary mechanisms guaranteed to privilege certain stronger national economies at the expense of weaker economies? This post seeks to offer a particular response to these issues, shaped and informed by the economic theories of Jane Jacobs and, in particular, her conceptions on the feedback mechanisms associated with monetary fluctuations. In this respect, my intention is to elaborate on Jacobs' basic monetary theoretic perspective and, thenceforth, to apply these conceptions to an analysis of Europe's burgeoning political difficulties, reflected in the rise of the Eurosceptics.
Fundamentals of Jacobs' Monetary Perspective
In Cities and the Wealth of Nations (1985)(New York: Vintage Books), Jacobs advances a chapter length treatment of monetary economy under the theme of "Faulty Feedback to Cities." In this theorization, she conceives of foreign exchange market mechanisms as a feedback system operating as a critical regulator of capital investment at a macroeconomic level against internally integrated monetary economies. Appreciation in the value of a given currency used by a particular monetary economy relative to other currencies makes imports from economies using other relatively lower valued currencies less expensive. In this manner, the strong currency economy can afford to purchase a range of imports in exchange for its own relatively expensive exports (expensive because they must be purchased with the economy's highly valued currency).
This much of the theory is consistent with standard international monetary economics. However, refracted in relation to Jacobs' theories on "new work" and "import replacement systems" (see Jane Jacobs (1970), The Economy of Cities. New York: Vintage Books), momentary currency appreciations of this kind cannot be viewed as static events. They punctuate cycles in which currency values appreciate and depreciate in response to a variety of economic processes rooted in international commodities exchange. The development and evolution of production processes in urban economies constitute a singular dimension shaping this cycle of monetary valuation. Jacobs specifically views the accumulation of imports as grist for the mill of urban economic dynamism insofar as such imports are capable of being copied by local firms. In doing so, local copiers engage in a learning process, developing an understanding of how to both reproduce imports, improve on their design, improvise in the production process to develop greater efficiencies, and discover potential byproducts, spinning off new networks of innovation. All of these processes are critical to enabling urban economies to remain dynamic, to transform their mixes of both imports and exports over time, and to avoid being locked into particular patterns of international/interregional comparative advantage. To the extent that monetary fluctuations tend to speed up or slow down the accumulation of imports by an urban economy, it stands to reason that the subject of international monetary economy would take on a particular significance in Jacobsean urban economics.
The larger point of Jacobs' specific intervention into international monetary theory is to argue that disproportionalities arise in the effects of monetary fluctuations across monetary systems when such systems incorporate diverse, heterogeneous sub-system economies. That is to say, a monetary system incorporating a range of different city-regional economies and adjacent rural economic supply regions will experience currency fluctuations emanating from a composite of economic activities across all of its urban/city-regional and rural economies. In this respect, it is improbable that these influences will combine to shift currency values in ways that effectively regulate the economic development of all of these different sub-system regional economies. In fact, composite influencing of fluctuations may produce a mix of feedback signals that entirely undermine economic development across the entire monetary system, generating long run stagnation against which urban economies may be incapable of responding innovatively.
For Jacobs, the lesson here is that the smaller a unified currency zone is, the more likely economic agents within the zone will be capable of receiving the appropriate feedback signals from monetary fluctuations to enable them to begin aggressive import replacement. The larger a currency zone is, the more likely it will be that feedback signals get misread by economic agents, especially in urban economies. Thus, for a national economy with a unified currency bolstered by rural-based extractive resources (e.g. an economy with substantial petroleum resources), consumers in cities with fundamentally uncompetitive domestic industries will be able to accumulate substantial quantities of imports as a feedback from international demand for extractive products. Jacobs argues that this is precisely the wrong sort of feedback for such cities because it will inhibit the sort of import replacement processes that such cities need in order to make their industries competitive and innovative. Such cities need to experience monetary depreciation, making their imports relatively expensive and their exports relatively cheap for trading partners, stimulating the development of domestic import replacements and the search for new sources of comparative advantage that will spur an eventual urban-based (i.e. manufacturing and/or services-based) currency appreciation. The potentiality, moreover, exists to counteract such a currency appreciation and stimulate import replacement by enacting tariff protection or other barriers on imports, but such actions punish consumers associated with the same extractive sector that stimulated the currency appreciation in the first place. The best possible solution emerging from this scenario would be to develop separate monetary systems/separate currencies for regions associated with the extractive sectors and for urban regions, whereby each set of regions would receive appropriate monetary feedback signals.
Moving beyond this basic lesson in the impact of monetary feedback on urban economies, Jacobs' theory implies that, as a pure matter of macroeconomic organization, any large nation state, incorporating multiple distinct urban and rural macroeconomic sub-systems, will suffer either from ineffective feedback systems or from coercive, redistributive policy mechanisms (e.g. protective tariffs) if all of its regions are tied together under a common currency. By this reasoning, the United Kingdom, united under the monetary pound sterling, must have regions suffering from diminished economic development by virtue of their inability to receive the appropriate feedback on their economic activities. For city-regions in the English Midlands or Wales, for example, the impact of extractive activities in the Scottish economy and the behemoth influence of the English Southeast and, most critically, the financial activities of the City of London, driving the strength of the pound sterling in international exchange, must make it difficult for exporting firms to develop new sources of comparative advantage for international/interregional commerce to replace dying/extinct industries like the British textile sector. This was precisely the point made by Jacobs in regard to the failures of cities like Manchester to develop true city-regional economies and by the city-region of Birmingham to maintain self-sustaining import replacement. These cities are fighting against the force of monetary appreciation, strangling their abilities to transform their regional economies around new export sectors.
If the logic of Jacobs' theories on monetary feedback systems can help explain the lingering economic stagnation of peripheral regions in the contemporary economy of the UK under the pound sterling, they are equally relevant in explaining the suffering of entire national economies in the Euro-zone. If city-regions like Lyon and Naples faced an up hill struggle to develop self-sustaining import replacing dynamics to generate robust export sectors under the old French franc and Italian lira, they suffer no less under the unified Euro insofar as they are now confronting not only the influence of dominant city-regional economies (e.g. Paris and Milan) in their own national economies but now suffer the weight of financial activities in Frankfurt and German manufacturing regions as influences boosting the relative value of their currency. Beyond this, the entire Greek economy has suffered from the appreciated value of its currency under the Euro relative to the value of the old Greek drachma. Greece is not developing new robust export sectors, in part, because Greek investors are not receiving the appropriate feedback signals from exchange markets. From the beginnings of the unifed Euro-zone, relatively inexpensive imports could flow into the Greek economy, not because the Greeks were generating a strong base of export demand but because the high demand for export commodities produced in other Euro-zone economies, especially Germany, led to an explosion in the purchasing power of the currency relative to that of the old drachma. Predictably, this led to a crisis in international debt accumulation to pay for Greek domestic consumption that could not be supported by Greek domestic economic activity.
No single theory can illuminate all of the effects on material existence arising from one particular process, like monetary integration. When the European Economic Community began contemplating the possibility of eliminating national currencies and replacing them with a single multi-national currency, it seems certain that policy makers were approaching with a given understanding on transactions-oriented frictions in exchange markets as impediments to increased flows of goods and services between European national economies. In prioritizing this framework, they correctly deduced that a single currency would stimulate the growth of trade volumes between member economies. However, integration has also performed the reality predicted by the sort of Jacobsean approach that I introduce here. Regional economies that performed poorly in mid-range Euro-zone economies like France continue to lag in performance under the Euro. On the other hand, regions that performed relatively well in the Greek economy under the drachma have been hobbled by currency appreciation. At the opposite end, German manufacturing regions that performed relatively well before integration, paying for importation of large quantities of commodities for German consumers, enjoyed new inducements to import replacement evident in an effective currency depreciation when the old West German Mark was replaced by the Euro. In return, German consumers suffered higher prices for imports, again stimulating domestic import replacement. In short, regional economies that did not need to be stimulated obtained a stimulus, and regional economies that needed a stimulus to undertake import replacement in order to develop vigorous export sectors faced irremediable obstacles against import replacement. The point here is that, even to the extent that arguments in favor of European monetary integration posited valid benefits from a single currency, a Jacobsean critique might have illuminated the problems latent in monetary integrations.
Political Corollaries to Jacobsean Monetary Analysis
The generation of theorists and policy makers that first contemplated the potential for a unified, free-trading Europe (among them no less a giant than John Maynard Keynes) understood the political stakes implicated in the establishment of an organizational framework to promote stable long term economic growth and development on the continent. In place of the winner take all scenario of military conflict that had obtained for more than three centuries, from the start of the Thirty Years War to the end of World War II, the states of Western Europe would be tied together under the motivation of mutual economic benefit from trade. The establishment of the Euro under the Maastricht Treaty embodied similar motivations, recognizing that any increase in trade volumes among member states to the European Economic Community/European Union emanating from reductions in the transactional frictions under a common currency would be apt to bolster the economic interdependence of member states and diminish potential sources of political conflict.
Approaching the contemporary political problems of the EU with the same hopes for peaceful development and mutual gain enshrined in the long history of modern liberal, pro-market economic thought from Adam Smith's Wealth of Nations to the present, I nonetheless have to acknowledge the logic of Jacobs' larger critique on the heterogeneous nature of economic space and its implications for macroeconomic policy management. Granted, as a wide range of Keynesian-oriented theorists and policy makers have argued, the EU may be fundamentally flawed by the presence of a monetary union without a complementary fiscal union capable of exercising countercyclical policy initiatives that might have avoided the potential threat of systemic deflation arising, in part, from the effects of austerity measures in debt-ridden peripheral member states. However, the larger point is that the presence of a monetary union necessitates the creation of institutional mechanisms and organizational (fiscal) capacities to regulate economic dynamics and to prevent economically and politically destabilizing reactions to consequent developmental unevenness. At a time in which the federal government of my own country is being strangled by partisan gridlock and driven into irresponsible inaction in fiscal policy management to stabilize, among other things, the participation of middle income Americans in markets for real estate purchases, I have, perhaps, developed a bias against macroeconomic organizational arrangements that require active policy initiatives by fiscal and/or monetary policy agents.
It is, of course, open to question whether a European Union operating under substantially free trade and a multiplication of currencies, not merely revived national currencies but even sub-national regional currencies developed to amplify appropriate feedback signals for diverse regional economies, would alleviate the need for active fiscal policies to harmonize developing inequalities. To imagine such an outcome would amount to an instance of extreme naiveté on my part. On the other hand, it makes sense to question both the theoretic basis on which monetary integration was forged and to ask what political consequences have arisen, at least in part, as a result of monetary integration. Thus, how can we make sense of the European parliamentary electoral results of last week in light of a Jacobsean analysis on the influence of monetary feedback mechanisms?
It is my contention, in following from my reflections on faulty monetary feedback mechanisms, that the weak national economies, which experienced significant currency appreciations after integration, should demonstrate the strongest support for Eurosceptic EFD candidates and/or far-left anti-austerity/anti-globalization/anti-capitalist candidates. Conversely, the strong national economies, which experienced some measure of currency depreciation with monetary integration, should demonstrate the most emphatic support for the EU, measured in support for center-right European Peoples' Party (EPP), centrist Alliance of Liberals and Democrats (ALD), and center-left Progressive Alliance of Socialists and Democrats (S&D) candidates. This singular focus on the effects of monetary feedback mechanisms on electoral patterns emphatically cannot explain all of the variations in national voting patterns. For that matter, in the manner that I have framed this proposition I cannot clearly explain why particular national electorates in the weaker economies would select far-right as opposed to far-left candidates in protest of EU policies. The point is not to posit the effects of adverse feedback mechanisms as an all-encompassing explanation for European parliamentary elections but to show that the theory can at least partly illuminate the nature of this year's partial electoral setback for moderate, liberal, pro-European unity partisan forces.
I want to approach this question with comparisons of voting patterns on two levels: between EU states and between individual regions in individual states. On the first level, I want to situate the electoral results from a diverse selection of EU member states. I am not going to posit any scientific methodology for this selection. Rather, it is based solely on my offhand reflections on the relative strength of these economies before and since the introduction of the Euro as the everyday currency in commercial transactions for the Euro-zone states in 2002. The national economies selected should provide a broad portrait of the larger political effects of monetary integration manifest through parliamentary results. Table 1 provides a finite introductory macroeconomic portrait of six national economies in the Euro-zone and their relationship to the Euro-zone as a whole. The information reported here is derived from OECD real per capita GDP statistics in constant 2005 U.S. dollars, used to calculate an index of per capita GDP with the 17 economy Euro-zone per capita GDP statistic in 2001 set equal to 100. The years I selected here might give us some sense of the differences in the relative performance of individual economies from before the introduction of everyday Euro currency (coins and banknotes) (2001), five years in and prior to the onset of global financial crises in 2007-2008 (2006), and during the course of the European sovereign debt crisis (2011).
Again, differences in the relative national economic performance cannot be limited to differences in per capita GDP and differences in per capita GDP of each of these national economies cannot be reduced to the effects of monetary integration - each index value tells a much larger story about how the real economies of these countries have changed since the turn of the century, how each has adjusted to liberalized trade across the EU and multilaterally with the rest of the world over time, and how urban and rural sub-national economies have specialized and/or reconfigured their specialization in order to remain competitive in export markets. On the other hand, differences in the relative strength of individual national currencies prior to integration reflect the capacities for each of these economies to adjust once all of them operated under a single currency. Before integration, the Italian lira registered a composite of real economic signals, reflecting the continued strength of manufacturing and advanced producer service industries in the northern provinces and the continued stagnation of the south. The relative weakness of the lira in comparison to the Euro in international exchange places an additional weight upon the southern Italian economy making it difficult from low-wage, low-skilled export processing operations from which it might otherwise benefit. By contrast, the Austrian economy was never characterized by such a vast disparity in economic development prior monetary integration. Its limited range of export-oriented manufacturing industries, advanced producer service sector in the Viennese city-region, the continued strength of its tourism sector meant that the schilling be replaced as a strong currency that might exert upward pressure on the value of the Euro.
It is precisely the point that, under a unified currency, certain monetary fluctuations become pro-cyclical, reinforcing the uncompetitive nature of particular regional economies rather than supporting their emergence in new export sectors, and these fluctuations promote nefarious political developments. With this in mind, let us look at the 2009 and 2014 electoral results in these countries for various EU parliamentary groups/parties in Tables 2A and 2B.
To provide a synopsis of what I take out of these results, reflecting my initial hypothesis, the stronger performing economies that had stronger currencies entering into monetary integration appear to demonstrate the strongest support for centrist (ALD), center-left (S&D), and center-right (EPP/Christian Democrat) parties, all of whom represent supporters of the monetary union and progressive integration (including, perhaps, fiscal union) for the EU member states. Austria most emphatically demonstrates this pattern for both years. To a lesser extent, Netherlands also shows such a pattern of support for pro-European candidates, however balanced by strains of support for the far-left (GUE/NGL), center-right Eurosceptic (EFD), and unaffiliated (NI) far-right Eurosceptics (Party for Freedom/Partij voor de vrijheid). Finland, likewise, shows a strong tendency to support pro-European centrist parties. On the other hand, more recent declines and/or reversals of GDP growth here appear to induce a minor reaction, supporting a growth in support for GUE/NGL (Vasemistoliitto) and conservative/reformist (Perussuomalaiset) parties.
By contrast, the weaker economies that came into monetary integration with weaker currencies demonstrate stronger support for far-left (GUE/NGL and unaffiliated NI communist or other radical party). Greece, Ireland, and Italy have all been affected to different degrees by the financial crises of the last seven years, with Greece constituting one of the epicenters for Europe's crisis in sovereign debt. While Greece has consistently shown no support for parties affiliated with the centrist ALD group, it demonstrated fairly strong support for EPP and S&D parties in 2009. This support declines sharply in 2014, with the strongest electoral support given to the anti-capitalist/anti-austerity Coalition of the Radical Left (SYRIZA, GUO/NGL) (taking 6 of 21 European Parliament seats). Likewise, Greek voters gave adequate support to the anti-EU neo-fascist Golden Dawn Party to secure 3 seats. In Ireland, conversely, support for center-right Fine Gael (EPP) remains constant for 2009 and 2014, but the remaining electorate appears to shift to the left, giving 17 percent of the vote to Sinn Féin (GUE/NGL) and reducing support for both Fianna Fáil (ALD) and Labour (S&D).
Italy, with the largest European Parliamentary delegation and the largest national economy of any of the countries considered here is, likewise, noteworthy for the leftward shift in its voting in 2014. The center-left Partito Democratico (PD)(S&D) gained ten seats over its performance in 2009. In some regard, this shift reflects continued acquiescence in a vision of European unity by the larger Italian polity, perhaps with a reinvigorated conception of the need for fiscal union and redistribution of the burdens of securing fiscal solvency for all states within the EU, something that remains important for Italy. Moreover, the disintegration of Italia dei Valori, nominally a constituent of the ALD centrist group notwithstanding its left-wing populist tendencies, has bolstered a shift of pro-European support toward the left, from which the PD has been the primary beneficiary. Likewise, the pro-European center-right EPP affiliated parties suffered a noteworthy decline, losing 18 seats. Further, the Eurosceptic right (EFD), represented in certain ways by the EFD affiliated federalist, libertarian Lega Nord, lost 4 seats. Conversely, the radical-democratic, centrist, ecologist unaffiliated Five-Star Movement made huge gains, grabbing 17 seats. In general, these electoral results suggest to me that Italy, as the weakest big European national economy, straddled with its significant regional economic differentials, the continued and intensified stagnation of the south, and simultaneous contending strong commitments by broad and entrenched shares of the national polity, on the one hand, to social-democratic policies at home and fiscally redistributive policies across Europe, and, on the other hand, to progressive economic liberalization/libertarianism, manifests an increasingly regional divide in support for the EU, reflecting differences in regional economic performance. If the entire national polity is moving toward the left, in opposition to the retraction of social-democratic policies demanded by right wing supporters of economic integration and in support of progressive ecologism, there remain significant Eurosceptic regionalist holdovers who realize that integration implies surrendering local autonomy, first with respect to monetary policy and perhaps, in the future, on fiscal matters. The Five-Star Movement has, to a significant extent, cashed in on the sentiments of groups seeking to slow down the momentum of European integration who do not necessarily sit comfortably with more rightist nationalist parties.This multinational comparison of electoral results advances a particular set of conclusions. Notably, as suggested in my initial hypothesis, the stronger national economies that had the most to gain from the implicit currency devaluation constituted by monetary integration are the strongest supporters of the EU in its current form or with slight modifications in multinational fiscal policy coordination (not a full-blown fiscal union). The weaker national economies, on the other hand, support political perspectives further to the left (either S&D or GUO/NGL affiliates), supportive of either a robust fiscal union or, in stark contrast, greater autonomy for national and/or regional economies. Some rightist Eurosceptics, especially far-right anti-immigration partisans, emerge from these economies but they are overwhelmed, as a reaction against austerity measures, by leftist anti-austerity and anti-capitalist partisans. In this sense, we need to ask where the bulk of the rightist Eurosceptics are coming from. The answer, emphatically, seems to be from the strong non-Euro-zone outliers, notably Britain, and from the mid-range Euro-zone economies, notably France, where fear of falling among the ranks of economies ravaged by austerity measures has gripped the electorate. A regional analysis of these, large, mutli-regional economies is revealing with regard to the economic processes driving anti-EU and anti-Euro reaction.
Britain's European Parliamentary vote mirrors, in significant ways, the Jacobsean prediction that weak regional economies should (and do) have reasons to strenuously oppose economic integration, even to the extent that Britain has been spared the monetary forces attendant to joining the Euro-zone. The ultra-conservative/libertarian Eurosceptic United Kingdom Independence Party (UKIP) (EFD) took the largest share (27.5 percent) of the European Parliamentary vote across Britain, claiming 24 of 70 seats. The partisan ideology embodied by this party initially focused entirely on removing Britain from the EU and preventing closer integration with the continent (e.g. joining the Euro-zone), but it has branched out advocate a range of other pro-capitalist, libertarian positions. The party's anti-EU perspective is most noteworthy in this context. It will constitute three-fourths of the EFD group (claiming 32 seats across the EU) in the incoming European Parliament and will, thus, highlight a British anti-European forefront.
Combining seats claimed Labour (S&D) (20 seats), the Conservatives (ECR) (19 seats), the Liberal-Democratic Party (ALD) (1 seat), the Green Party (Greens/EFA) (2 seats), the Scottish National Party (SNP)(Greens/EFA) (2 seats), and Plaid Cymru/Party of Wales (Greens/EFA) (1 seat), the majority of Britain's European Parliamentary delegation will remain in pro-EU and relatively conservative, by virtue of the confluence of economic perspectives between the Conservatives and UKIP. Nonetheless, as suggested in figure 1, the election demonstrates the pointedly regional nature of opposition for the EU in Britain. If, in certain respects, UKIP has made inroads into Wales and Scotland, the continued dominance of pro-EU national parties in these national jurisdictions demonstrates that they remained at least partly successful in making the case that the long term interests of these nations remains with European integration, more so than with continued union with England. By contrast, the Midland counties, the Southwest, Yorkshire, and even the counties of the Southeast provided the strongest bases of support for UKIP. Moreover, it appears that support for UKIP in London was so weak because of the continuing strength of Labour in outlying "working class" districts, not because of strong support for either the Conservatives or the Liberal Democrats, who appear to have been the biggest losers in the election. In sum, it seems to suggest that, notwithstanding the continued commitments of certain British Labour constituencies to European unity with enhanced fiscal coordination, the majority of England outside London has not been convinced that it stands to gain from the present weaker ties of the UK to Europe, let alone more aggressive fiscal policy integration or entry into the Euro-zone. Again, by virtue of the strength of the pound sterling and the influence of both peripheral extractive economies and the London financial sector in maintaining the pound's strength in foreign exchange, most of the areas that supported UKIP have little reason to imagine that they have something to gain from greater integration with Europe when they have seen their own role within the UK economy's engagement with the rest of the world erode. The Eurosceptic right is the prime beneficiary of economic stagnation outside of the London financial sector.
If UKIP's victory in Britain represents most prominently success in sowing doubt in the economic benefits of a unified Europe, then the victory of Front National (FN) in France most emphatically reflects the failure of cultural cosmopolitanism as a motivation for creation of a borderless Europe and the failure of mainstream French parties to convince Frenchmen and French women in cities like Lille and Toulouse and in the countrysides of Burgendy, Provence and many other rural areas that their economic fortunes were tied inseparably to those of Germans, Poles, Croatians, and Swedes. It is, likewise, a victory for the mythic unity of blood and soil that constitutes French nationalism, paraded before an electorate caught in the embrace of fear in a declining French standard of living and poisoned by Gallic chauvinism and Eurocentric racism.
The French Socialist Party of François Hollande deserves at least part of the blame for this catastrophe for failing since its 2012 electoral victory to produce any tangible, principled transformation of domestic taxation and reform of state bureaucracies in the interest restoring domestic private sector growth and reducing unemployment, particularly among younger workers. Again, however, I want to emphasize adverse monetary feedback mechanisms in the French economy as a relevant component in generating the rise of the FN's political fortunes. Economically speaking, the Paris city-regional economy has led France in European integration and globalization, more broadly. Other urban economies in France are dwarfed by Paris and, as such, the economic strength of Paris previously drove the monetary strength of the franc in foreign exchange, hindering self-sustaining development of export sectors in peripheral urban economies. This effect has in no way been reduced by monetary integration - now entrepreneurs in Toulouse, Lyon, and Rouen have to contend with the strength of a currency driven both by the economic strength of the Paris regional economy and that of German, Swedish, and Dutch city-regional economies. If we combine the adverse effects of monetary integration with other, politically pernicious effects of European unity, like the reduction of constraints on free movement of labor between EU states and perceptions about the increase of non-French citizens in French labor markets (noting that the perceptions of French citizens are a more relevant causal force than the actual statistical reality of EU and non-EU migration into France), then we have conditions under which economic stagnation can amplify the voice of racist bigots above those of the defenders of the unified European project.
Reinforcing my larger argument on regional variations in support/opposition to the European project in France, francetvinfo lists European Parliamentary results for each regional electoral jurisdiction (circonscription) as well as general electoral results for the entire country (see "Résultats européennes 2014," on francetvinfo, at: http://www.francetvinfo.fr/elections/resultats/). These results are listed in Table 3.
What we have here is the genesis of potentially self-sustaining anti-integration reactionary in one of the EU's foundational members, without which the principle of a unified Europe would be undermined entirely. To reiterate the precautionary note, we absolutely cannot reduce the production of such a reaction to monetary integration. On the other hand, we have to recognize that monetary integration has played a role in creating anti-EU sentiment in France, as in other EU member states. The pronounced victory of Front National (with its resounding "Non à Bruxelles, Oui à la France"), will make it much more difficult for the EU to enact the sorts of changes to its internal organization and to the fiscal capacity of EU-level policy makers that might begin to redress the negative, pro-cyclical effects of monetary integration on the peripheral national economies and the peripheral regions, enabling the EU to transition from a counter-productive emphasis on the same austerity measures that are promoting deflation to permanent redistribution of the gains from integration. If France keeps sliding toxically to the far right, perhaps the German Christian Democrats and Chancellor Merkel will bear the blame for not having conceded that monetary union cannot work without the willingness of the stronger economies to bear the burden of stagnation by the weaker economies. As such, it is worth briefly evaluating the alternatives and asking what might be feasible as a future for the project of European unity.
Whither European Unity?
Prior to the European Parliamentary elections, former French President Nicolas Sarkozy made the relevant suggestion that the Schengen Agreement, mandating the elimination of border controls among a range of EU and non-EU signatories, should be scrapped in favor of more restrictive policies on immigration and the larger organization of the EU should be replaced with a structure that would amplify Franco-German direction over the larger economic bloc (see Henry Samuel, "France is 'dumping' ground for EU migration and visa-free Schengen area must be scrapped, says Nicolas Sarkozy," in The Telegraph (22 May 2014), at: http://www.telegraph.co.uk/news/worldnews/nicolas-sarkozy/10848895/France-is-dumping-ground-for-EU-migration-and-visa-free-Schengen-area-must-be-scrapped-says-Nicolas-Sarkozy.html). It seems clear that Sarkozy's statements need to be read in the context of French domestic politics, concerning Sarkozy's ambitions to supplant François Hollande in the next national electoral cycle. On the other hand, it might also be read as a measured concession to the far right/Front National that immigration policies tied to the Schengen agreement have been detrimental to France. Such posturing obviously contributed, in part, to the rightward shift in French politics in the European parliamentary elections by validating polemical attacks on open borders by Front National within the framework of the French political mainstream. If the project of European unity means anything, then it must include the free movement of human beings across the political artifice of national boundaries. No mainstream politician, supportive of the European project, can seriously engage with the notion of scrapping Schengen without simultaneously supporting a much broader retraction of economic integration, including monetary integration, not to mention conceding that there is something to the racist, ethno-centric fears of nationalist extremists who categorically oppose any measure of transnational unity! In this respect, Sarkozy deserves to be called out by his political opponents in his own party and to its left for flirting with the devil.
Noting Sarkozy's politically motivated Eurosceptic moment, it seems clear that, at least within France, the enthusiasm of mainstream politicians for the European project is degenerating as the electorate in peripheral regions linger, failing to see any tangible benefit and perceiving abject economic and cultural costs from economic integration. The most direct way to address such a degeneration of support for European unity would involve the construction of fiscally redistributive institutions within the EU, counteracting the procyclical influence of monetary forces. Such redistributions might also tend to counteract deflation, driven, in large part, by austerity measures in the peripheral national economies. On the other hand, it seems unlikely that a capacity for fiscal redistribution is going to arise at the level of the EU. Rather, given the current alignment of political forces in the European Parliament and the desire of multiple EU member states to reduce the authority of the European Commission, it would seem more likely that the central governing apparatus of the EU is bound for five years of political deadlock as defenders of the European project in the European Parliament struggle to keep the EU from disintegrating altogther.
The overriding problem presented by European unity is the fact that severe disproportionalities exist in the performance of diverse regions, both within individual member national economies and in relation to other regions of other states. The continued absence of correcting fiscal mechanisms to repair such disproportionalities constructs doubts regarding the potential benefits of economic integration. As I have argued in this post, procyclical monetary feedbacks introduced by monetary integration are making this situation worse. In my view, the defenders a unified Europe need to seriously consider the consequences of taking a step back, even if it is a step backward in stages to reduce the frictions inherent in reintroducing national currencies if such a step would reduce the procyclical stress for weak regional economies in the EU. My central argument is, thus, that the Euro has caused more problems for European unity than it solved. The European Union, as a customs union, a continuous, borderless political geography, and an organizational entity capable of framing and harmonizing policies among member states to deal with, among other things, a shared response to ecological transformations, does not need a single currency to cement the interdependence of its member regional economies, and, at present, the existence of such a common currency is contributing to the political forces that risk the destruction of the EU, per se.
The reintroduction of national currencies, at this point, might not be entirely impossible. It seemed likely, at the height of the sovereign debt crisis in 2012, that such a fate would ultimately arise for Greece if it could not come to terms with a deal for relief from the EU, ECB, and IMF. Such a withdrawal from the common currency zone would have, invariably, been messy, painful, and uncertain, especially for investors in Greek debt. If a slow drawing down of the Euro was effected with the mutual consent of all Eurozone member economies, to replace the single currency with multiple currencies, then, perhaps, an orderly transition might be exercised within international financial markets, with negotiation of the terms of Euro-denominated securities to ensure that investors do not bear an excessive burden from the end of the common currency. On the other hand, I do not think a return to national currencies might necessarily provide an adequate solution to the larger problem, because they would not maximize the communication of appropriate monetary feedbacks to regional economies, particularly in the larger EU national economies.
Rather, the introduction of multiple regional or interregional currencies, linked, perhaps, discontinuously through networks of comparable and complementary regional economies in multiple EU states, might promote the sort of positive monetary feedbacks across the network to generate, sustain, or transform existing geographically extensive supply chains, linking multiple city-regional and rural supply regions under a common currency. The point of linking together such interregional networks would be to, as ideally as possible, ensure that monetary fluctuations within a currency union would have a countercyclical effect. In a Jacobsean logic, a depreciation of currency values would, thus, make imports more expensive, encouraging import replacement with local equivalents where possible. Appreciations, generated by robust demand for exports generated within the network would, by contrast, make imports cheaper, providing materials to feed future import replacement and the transformation of export sector specializations over time. In this manner, the particular interdependencies of members to given transnational networks of regions might cut through the parochial appeals of nationalist political movements to demonstrate to economic stakeholders (entrepreneurs and workers alike) the benefits to particular forms of monetary integration, even if the constellation of regions in a network remains open transformations over time, reflecting the ever evolving geographical logic of economic development, pulling regions together and flinging them apart.
This image of network currencies appears, in my view, to most closely reflect the resolution to the monetary feedback problem introduced by Jacobs that I find so useful in analyzing the problems faced by the EU and, in particular, the Eurozone economies. It raises a range of questions regarding the needs for positive monetary policy and the need for complementary fiscal policy regimes within network economic systems under a common currency. That said, while it is tempting to posit network currencies as a possible resolution for the economic ills facing the EU, I am also quite certain that the fate of EU and Euro will not so quintessentially reflect the pristine logic of theory. We can only hope that whatever emerges from Europe over the next decade will continue to embody the aspirations of those thinkers that constructed the European Economic Community as the economic counterweight against rampant, ethno-centric nationalism and armed conflict.
No comments:
Post a Comment