The Eurozone has proven itself to be one of the most powerful and important political and economic regions in the world. However, in doing this it has exposed its own inconsistencies and contradictions. These contradictions demonstrate the systemic vulnerability of the Zone unless change occurs.
1: Autonomy vs. Accountability
The Eurozone is principally governed by the European Central Bank (ECB or Bank). The member nations ceded a great deal of sovereign power, including monetary governance and oversight, to the ECB. In an attempt to make itself European (as opposed to patriotic to any one nation's needs) the Bank was given not only independence but also detachment.
This detachment translates into the ECB being unaccountable to, and its mandate being unchangeable by, any democratically elected official. The ECB directors can decline to answer questions, hiding behind the anonymity of the fact that all votes remain unpublished, with no economic justification necessary for decision-making. Compounding this is the fact that there is no power of veto by the European Parliament over the Governors, the ECB’s governing body. This means that all the Governors are entirely unaccountable to any higher authority.
Domestically, Governors are protected from being questioned for their economic decisions and never have to consider the real ramifications of their actions. The foundational treaty of the Eurozone, the Maastricht Treaty, states there is to be no consultation with community groups or states, effectively allowing all Governors perfect isolation from consequence. All of this is able to happen because the Bank breaks from Europe’s democratic façade, claiming that economic objectivity dictates its accountability, and that democratic transparency would merely make the Eurozone more driven by domestic politics rather than economic logic.
2: Integration vs. Competition
The Eurozone was created as a demonstration of unity and strength, an attempt to create a united currency that could one day rival the Greenback. This strength was premised on the fact that the Eurozone nations could integrate their economies and synchronise their business cycles enough to create a holistic economy. This process, rather than being active and involving fervent oversights, has been passive. The ECB has been hoping that with the introduction of a uniform currency, member economies would naturally trade with one another more and that labour would move where it was needed most.
However this passive approach forgot the social climate of Europe, with political and economic gains to be had by utilising the Euro to advantage individual nations. Socially, Europeans migrate for work much less than average, compounded by the fact that language barriers and social safety nets vary from nation to nation. Without flexible wages and labour, inflation across the Eurozone has been hard to control in lieu of a nominal exchange rate mechanism.
Economically, each economy in Europe is different, with nations such as Germany being much more export-orientated, this meant that it was in their interest to suppress labour and have a weakened Euro in order to find new export markets for their goods. Nations such as Greece however have a more inward facing economy, relying on either the European market or domestic consumption to fuel their economy making them vulnerable to overextension of credit.
The Eurozone achieved integration on a monetary level, however it forgot that it required foundations in social and economic integration in order to support this new structure. Without this, member nations were free to fight it out on the field of domestic policy in order to make them more competitive at the expense of a competitive Euro.
3: Re-embed vs. Reform
The Eurozone was created with a singular economy in mind however it merely stood to reinvigorate traditional political powers, institutionalising larger nations interests. Nations such as Germany have used the creation of the Eurozone as a way to macro-scale their ideology across Europe, forcing a focus on inflation rates and entrepreneurship.
This mentality has served to strengthen Germany at the expense of Europe. The dominance of this rigid ideology at inception of the Eurozone has meant that rather than using the existing institutional tools, like the ECB, to combat and contain the Sovereign Debt Crisis (SDC) early on, new institutions had to be founded, such as the European Financial Stability Facility, (now known as the European Stability Mechanism).
These new institutions have not reformed from the errors of their predecessors, instead fixating on re-embedding the interests of a core set of nations. This fixation has lead to haphazard responses to the SDC where individual nations responded faster but less effectively than the collective could. These new institutions have left no room for Europe to unify and reform, instead playing a blame game of North vs. South, Big vs. Small economy.
From this standpoint Europe is destined to face strife again. As a financially dynamic region a crisis will come again, and the Eurozone has failed to prove to the world it can reform and serve the whole, rather than just the tyranny of big nations that hold the big money.
Annie Rennie has completed a Bachelors of International and Global Studies at the University of Sydney and is now a Tutor of Political Economy at the University of Sydney.
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Image credit: MPD01605 (Flickr: Creative Commons).