Continental drift on monetary union

European Economic Integration
October 24, 1997

Economic integration," Jovanovic tells his readers, "is a highly-charged political process which requires caution, gradualism and, more than anything else, the political will which political theory may not predict." But Jovanovic (who, the blurb declares, is associate economic affairs officer at the Geneva-based United Nations Commission for Europe) is an economist by training, and he cannot help but be exercised about the way in which mucky old political considerations keep messing up what would otherwise be a purist economic analysis. This tension, between liberal economic theory (replete with assorted graphs with the usual shaded areas showing how much political interference costs) and the recognition of political imperatives, runs through the book like the silver thread through a Euro bank- note. Politics just will not keep its hands off economics.

At one level, Jovanovic has written a very handy guide to European economic integration. There are separate chapters devoted to monetary policy, fiscal policy and the budget, the Common Agricultural Policy, competition policy, industrial policy, trade policy, regional policy, capital mobility, labour mobility, social policy, environment policy and transport policy. Each is a factually dense and analytically tight account. Both economists and non-economists will value the book as a reference work. Since the analytical chapters predominate, and since the paperback is fairly priced at Pounds 20, it should do reasonably well on the undergraduate course circuit.

However, Jovanovic's eye keeps straying away from the pure fastnesses of liberal economic theory towards the more unpredictable realm of politics. At this level, the analyses are frustrating, since Jovanovic the political economist is reluctant to venture very far. The top-and-tailing chapters are disappointing in this regard, with the author content to skim lightly over very deep waters. Just how deep these are the author never entirely admits, but the simple truth is that European integration has always been primarily a political project. Shaded areas in graphs and the inefficiencies these represent pale in significance in comparison with the prize of lasting Franco-German reconciliation.

Successive British governments throughout the 1980s seemed unable to grasp this basic truth. Realisation of the internal market was, of course, a highly attractive project in its own right which would, through classic economies of scale and the benefits of free movement, both favour an increasingly lean British economy and help Europe as a whole to fend off the commercial dominance of the United States. But the contemporaneous introduction of qualified majority voting to the council was of greater long-term political significance. Through the 1986 Single European Act, member state governments, including those of France, Germany and Mrs Thatcher's UK, agreed explicitly that they could be outvoted and that they would abide by the result. Lost in the fusty rhetoric of doing away with non-tariff barriers to trade were some truly revolutionary constitutional developments. Similarly, the Major government's triumphant brandishing of the "opt-out" from the economic and monetary union provisions of the Maastricht Treaty seemed to suggest that Emu was seen as an optional extra rather than as the central pillar of the treaty and of Europe's constitutional development, which Delors, Mitterrand and Kohl had always believed it to be.

Such reflections go well beyond Jovanovic's brief. Nevertheless, it is a shame he was unable to engage more fully in the political side of his analyses. Some of his throw-away statements left this reader eager and impatient for more in-depth discussion. For example, he points out that "As far as unification of the market is concerned, there is a burning question: is the EU aiming at an almost totally homogenised market, with similar tastes and lifestyles, such as the US exhibits?" Lauding Europe's cultural diversity, he thinks the answer lies in Europe's ballot boxes. I wonder. Economic freedoms and technological advances are great levellers, as a visit to a supermarket in any major European city demonstrates. When, at Maastricht, the heads of state introduced a new title on culture into the treaty, it was in recognition of the need to maintain and encourage cultural diversity. Sadly, unanimity requirements, Emu-induced austerity, and the German Lander's jealous protection of their prerogatives have since undermined the member states' resolve, and the cultural programmes adopted to date have been hamstrung by small budgets. The erosion of cultural diversity is a slow and stealthy process. Jovanovic is right to raise the question, but few would agree that the ballot box alone can reverse the trend.

In another example of a thought-provoking throw-away line, Jovanovic states that: "Consideration of the theory of monetary integration points to the fact that the Maastricht criteria for monetary integration are arbitrary and even a hindrance to integration in this field." Stick that in your pipe and smoke it, Jacques and Helmut! To be fair, the statement comes after a lengthy technical analysis of the Emu project, but once again Jovanovic is unable to don his political economist's hat for long. Were economic and monetary union simply a matter of economics, then Jovanovic's case might be strong, but his analysis leaves out the political considerations which have always underpinned the Emu grail, both with the Werner Plan of the early 1970s and the Delors Plan of the late 1980s. As the experience of German unification and the political decision to opt for a 1:1 exchange rate between the Deutschmark and the Ostmark showed, political will can overcome all sorts of theoretical obstacles.

European Economic Integration was written during the 1996-97 Intergovernmental Conference, and consequently the analysis seems slightly dated in some respects. The text also needed a little more editing. But these are quibbles. Jovanovic set out to write an accessible reference work on complex issues, and although there are occasional daunting equations, in this he has largely succeeded.

Martin Westlake is head of the unit for inter-institutional relations, European Commission, and associate member, Centre for Legislative Studies, University of Hull.

European Economic Integration: Limits and Prospects

Author - Miroslav N. Jovanovic
ISBN - 0 415 09548 4 and 09549 2
Publisher - Routledge
Price - £65.00 and £19.99
Pages - 389

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