From Michael Cembalest at JPMorgan’s latest, a nice musing on the flaws in Europe’s creation myth:
Flaws in the Creation Myth of Europe
In the wake of the 1992 ERM collapse, why did Europe attempt another monetary union given large differences in language, labor mobility and productivity? It makes sense if seen as part of a broader effort to create a United Europe, both politically and economically. A few years ago, Swedish and Dutch politicians responsible for mobilizing support for the EU Constitution referred to “Yes” votes as necessary tribute to honor the dead from the Second World War, and more urgently, to avoid the pre-war divisions which led to it. Conflict between European empires existed for hundreds of years (1871-1914 was the only period of peace in European history until 1945), so the idea of a united Europe would have seemed appealing in 1945. However, conditions for securing a lasting peace within Western Europe were arguably already in place by 19544:
- The Soviet threat rendered any lingering grievances moot, as did the large presence of US and British troops
- Unlike reparations imposed on losers in the wake of WWI, vanquished countries received aid after WWII (Marshall Plan)
- By 1954, Germany had become a stable, liberal, democratic society, one of the most amazing transformations in history given what preceded it. Just ten years earlier, rather than surrender after Allied victories in Africa, Russia and Italy and the Normandy invasion, Germany kept on fighting, losing 1.8 mm soldiers in 1944 and another 1.6 mm in 1945
To summarize, Europe seems to be on a Quixotic quest for mechanisms to support a peace that had already been obtained by 1954, or shortly thereafter. As a result, the European creation myth of the 1990’s (“Europe must accept supranational political and economic structures to prevent future conflict”) may be flawed. Such a flaw, to the extent that Europeans no longer believe it, may explain a lot of things, from public referendums rejecting the EU constitution; to the lack of widespread support for regional transfers; and the reluctance of countries like Ireland to yield sovereignty over their fiscal affairs. Taken to its logical conclusion, the European Monetary Union may continue to struggle under both the strain of its economic inconsistencies, and the weakness of its political roots.