Eurocrisis? What eurocrisis? This August, the streets of Florence, Barcelona, and London were full of
Europeans on their (unimaginably long) holidays, acting with apparent disregard for the dire predictions
in the press of a European Union (EU) on the verge of bankruptcy and dissolution. Meanwhile,
financial markets backed off from their attacks on the PIGS (Portugal, Ireland, Greece, and Spain)
while those porcine countries moved forward with significant reforms, slashing their deficit and debt
levels. German growth in the last quarter has driven eurozone growth to above U.S. levels, giving
pause to euroskeptics and glee to euroboosters on both sides of the Atlantic.
And yet the EU ...view middle of the document...
The stakes are very high, and while the preliminary evidence suggests the EU is
muddling through and is far from collapse, there has been little demonstration of the political leadership
needed to creatively move the EU forward.
H I S T O R Y O F I N N OVAT I ON
The EU is one of the big success stories of international politics. It is astounding that the states of Europe,
so long used to dealing with each other with bayonets and tanks, are now tightly bound together
within a series of interlocking laws and institutions. Rather than shooting at each other, they spend
their time squabbling over the rules of long-haul truck transport and labeling of genetically modified
organisms. This degree of integration of sovereign nation-states is unprecedented in modern times
and has formed the basis of the peace and prosperity of Europe. In pursuing their political integration
through institutional and market means, rather than warfare and territorial acquisition, the EU has
created a new type of political entity in the global system, one whose tight institutional linkages and
political community will not disintegrate any time soon.
However, the EU’s political innovation bumps up against the practical economic requirements of
monetary unions and single currencies. No monetary union has ever succeeded without concurrent
political union—including fiscal consolidation. Monetary unions are a modern invention, only coming
into vogue in the latter part of the nineteenth century and spreading rapidly across countries like
Italy, the United States, and Germany. The consolidation of rival currencies has always been part of
broader state-building efforts, as a single national currency aided in prosecuting wars, building up
administrative capacity at the center of a political union, and fueling the construction of a national
identity. The few efforts at monetary unions without political union, such as the Latin Monetary Union
and Scandinavian Monetary Union, fell apart within years. Indeed, there are intuitive reasons
why political union supports monetary union. Difficult decisions around monetary issues are more