Disintegrative Effects of European Monetary Integration
Faculty of Humanities AGH University of Science & Technology Kraków, Poland
The two most ambitious projects of the European Union during the last decade - the introduction of the common currency and the enlargement to the East - seemed a great success. The common currency seemed to eliminate competitive devaluations and to shield off the European economy from volatile international currency markets.
Unfortunately, things worked out differently. What was played down initially as an "American crisis" had dramatic effects on the European economies, on the Euro-zone and its Eastern neighbours. Basically, as will be shown, it laid open the institutional deficiencies which undermined a balanced monetary and economic policy in the Euro zone from the very beginning. Internally, EMU did not prevent beggar-thy-neighbour type of policies of a different kind. Especially Germany constantly devaluated its real exchange rate in terms of labour cost, while expecting other countries to absorb its surplus production. Manoeuvres of this type were made possible by the, in fact, unique construction of EMU which combines a supranational monetary regime with nationally decentralized fiscal, tax and labour market policies. Over the course of time this produced considerable tensions and divergencies inside EMU (according a set of indicators).
The global financial crisis, as I will argue, exacerbated the institutional shortcomings of the euro-system (its "under-institutionalisation") and exposed the flaws of its monetarist ideology. Restricted to monetary targeting, the ECB can neither play a constructive role in a common economic policy nor function as a supervisory body or a lender of last resort. The straight jacket of the Stability and Growth Pacts precludes common fiscal stimuli. Left to the member states, these policy domains experienced a new wave of economic nationalism. Solidarity in short supply, post-communist members or neighbours are directed to the IMF.
All this demonstrates, as the paper will conclude, that the EMU regime did not foster a "common economic policy of the union" and is not up to the declared aim of the EU to "deepen the solidarity between their peoples". A re-evaluation of EMU has to identify persistent strategic interest inside EMU which so far blocked "deeper integrated" economic policies.