These taxpayers. Finally, easing the inflation target, as

These proposals, some of which are
already implemented, have their limitations.

            The
BU, however useful that may be, poses a problem of size: it opens the door to
the mutualisation of sovereign debts. In fact, if weak banks can prop up their
governments and, in turn, be rescued by the European Stability Mechanism, then
public debt is mutualized (Mackintosh 2012). This explains why, from 2012, various
ministers demanded sovereign debts not to be taken over by the BU. Another
problem relates to the supervisory role of the ECB. This role is meant to be
technical since it is based on a precise regulatory framework. It shall not
raise questions of sovereignty, legitimacy and democratic accountability
(Underhill 2012). Actually, as supervisor of the BU, the ECB bear special
responsibilities, judging alone the type of intervention, its timing,
intensity, duration, etc. to determine whether or not rescuing/closing a national
bank… these are decisions that cannot be taken without a high degree of legitimacy/democratic
control (Otero-Iglesias 2014).

            The
function of LoLR generated widespread criticism. The first, formulated by
Krugman, points to the risk of moral hazard. The action of the ECB may be
compared to an insurance mechanism: those ‘insured’ will tend to adopt
dangerous behaviors (governments have incentives to issue more debt) because of
the very fact that this insurance exists. So as to limit moral hazard, De
Grauwe and Ji advocate the separation of the function of liquidity supply from
that of surveillance. The ECB would pursue its role of LoLR while a different
independent authority would be in charge of regulating/monitoring the levels of
government debt. A further critique has to do with the fiscal implications of
this function. Through the massive and potentially unlimited purchase of public
debt of insolvent countries, the ECB exposes itself to losses in case of issuers’
default. It would then engage all Eurozone taxpayers.

            Finally,
easing the inflation target, as desirable as it is, would translate into q redistribution
of wealth which requires, once again, democratic control. In case of higher
inflation, the holder of nominal claims would incur losses to their real value
(the time value of money declines). There will be a transfer of wealth from the
money lender to the borrower, from creditors to debtors.

            Ultimately,
the crisis of the euro reveals that any currency is always, and above all else,
a social construction. It invites to go beyond a merely instrumental vision of
a currency as a medium of exchange, store of value and unit of account. Money is
not neutral. It is founded on the legitimacy of the values of the community
that use it, on the trust that economic agents place in the institutions that
issue it. Money is legitimate because it is a socially-constructed convention.

Lakomski-Laguerre and Desmedt (2015) identify three levels of monetary confidence:
methodic1, ethical2 and hierarchical
(credibility). The latter refers to the ‘subordinate’ relationship with a superior
authority responsible for setting forth the rules of money use, guaranteeing their
respect and protecting users in case of violations. It is precisely this trust
what is missing in the euro area. The neo-Chartalist current assimilates money
to a ‘creature of law’ (Knapp 1905): it becomes a legal tender enabling the
state to levy taxes. A political representation, territorial and centralized,
is strictly related to this conception. In modern history, it is the state the (sovereign)
authority issuing money (Otero-Iglesias 2014). Ingham (2004) says that money exists
as a method to (create and) settle debts, starting from the debt of paying
taxes. The establishment of a new monetary space is an element of sovereignty
that is only possible in conjunction with a fiscal circuit. The lack of
political sovereignty condemns any currency area to failure. This thesis is
defended by Otero-Iglesias who considers the solutions proposed by Krugman as
ineffective insofar as a sovereign supranational state and the associated
European fiscal system are lacking. This absence makes the EMU a fragile
edifice, especially in times of crisis. The BU ultimately implies a fiscal
union. The function of LoLR necessitates a sovereign state at the European
level having direct redistributive capacities. The number of complaints filed at
Germany’s Constitutional Court to judge the legality of OMT, QE, etc. signal the
urgent need of said sovereignty. In this sense, Draghi (2012) acknowledges that
‘the ultimate goal is political union, a stable and integrated Europe with a
common destiny’.

Conclusion

‘The euro is one of the greatest
catastrophes of economic history’: it is via the comparison of the eurocrisis
with past historical experiences3 that Krugman (2014) comes
to this conclusion. It is true that the crisis emerged in an already impaired
context, to some (De Grauwe 2013) doomed from the start – thereby explaining the
ineffectiveness of non-standard measures deployed by the Eurosystem since 2012.

Far from realizing real convergence4,
the region does not qualify as an OCA, lacking essential dimensions5.

There is no fiscal union to stand alongside monetary union. And, most importantly,
there are no executive capacities of a full-blown political union. Krugman’s solutions are undoubtedly
necessary, but not sufficient. As suggested, the real solution is to be found
in the political field, not in the monetary or economic ones. The EMU is
destined to stay on the verge of collapse as long as the region is devoid of a
centralized legitimate political authority, one capable of taxing citizens at
the EU level. Should the Eurozone move towards a sui generis ‘gouvernment
économique’? The euro is a currency without a country: is the creation of a
European country needed for its sustainability? Are Europeans willing to create
it? The current state of affairs does not augur well: the handling of the
crisis undermined the legitimacy of the EU which is threatened to succumb to
nationalisms. Brexit is only one example of these trends toward national
retrenchment. There may be bad times ahead. Still, the word ‘crisis’ in Chinese
is composed of two characters signifying ‘danger’ and ‘opportunity’. So, if
every cloud has a silver lightning, this crisis might be the good chance to
relaunch European integration. Will integration proceed through crisis? Only
the future will tell.

 

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1 It is based on the
orderly functioning of monetary practices (rooted into day-to-day monetary
relationships).

2 It involves a time
dimension, referring to the continuous embodiment of the convention within a
system – which normally includes a central bank (the action of monetary
authorities must conform to a certain vision of the common good, identified as
such within a given society).

3 Gold Standard and
Sterling area 1929-1938, Japan 1992-2001

4 Convergence of underlying productivity levels, unit labor costs,
synchronized economic cycles, etc.

5 E.g. low labor
mobility both between and within MS, low wage flexibility, limited fiscal
integration, i.e. no supranational system of fiscal transfer / risk-sharing.