Is the euro weakening democracy in Europe?
After tense and bitter negotiations, Greece and the other euro zone countries (countries that share the common currency of the euro) have concluded a tentative deal on yet another bailout. Greece will get money — but only in return for harsh conditions and intensive supervision of its economic affairs, which is in many ways worse than the deal that Greece already rejected in a national referendum.
Many describe the deal as anti-democratic, saying that the European Union is ignoring the decision of the Greek people. Others argue that the democratic preferences of voters in the European countries that will have to pay for a bailout should be respected. These preferences would suggest that either the Greeks get money on very harsh terms, or they get no money at all.
All euro zone states are facing rigid rules on spending. Greece’s are just the most extreme.
The current controversy reflects past decisions over how democratic states would create a common currency.
When the euro was created, Germany succeeded in ensuring that the new currency would reflect German preferences for economic stability (read: low inflation) over efforts to promote economic growth. Germany also pushed for strong rules (which it then went on to break) intended to ensure that states within the common currency would not run big budget deficits. However, as Rutgers political scientist Daniel Kelemen notes, these rules were incomplete, failing for example to specify how to supervise banks and support them in economic crises, or how to use fiscal spending to balance out shocks that hit one part of the euro zone harder than others.
In the wake of the economic crisis, Germany, together with other European member states and the European Commission (the bureaucratic agenda setter of the European Union) have pushed for rules in some of these areas but not others. For instance, there is still no system for making fiscal transfers from parts of the European Union that are doing well to parts of the European Union that are doing poorly. In fact, that level of fiscal union is ruled out.
What’s particularly noteworthy is that they have pushed through much stronger rules dictating the economic policy of countries using the euro, and monitoring and reporting of states’ budgetary policy. These rules are intended to collectively limit the ability of euro zone states to spend more money than the euro zone wants–even when these countries’ voters would like them to.
Greece has already had to deal with harsher rules and oversight than most other euro zone countries, thanks to its bailouts. It now faces a far harsher set of rules again. It is being obliged to change its national policies in extremely detailed ways in order to get money, down to having to change the rules governing store opening hours. Its day-to-day decision-making also will be subject to direct supervision by foreign officials.
The euro zone is weakening democracy throughout Europe, both within and among nations
These rules weaken democratic choice at the national level, by limiting the choices open to democratically elected politicians. However, they are not subject to much democratic supervision at the European level. Originally, the euro zone and the “ever closer” integration of the European Union were supposed to strengthen European democracy. There is good reason to believe that they are weakening it instead.
Individual countries now have much less power to make their own economic decisions, which are increasingly dictated by European institutions. However, these institutions are not themselves particularly democratic. The European Commission is not subject to direct democratic control. The European Central Bank was designed to be insulated from politics, but has been making highly political decisions without any democratic mandate. The European Parliament has little direct role in the new arrangements, and does not in any event get much democratic respect from ordinary voters. Some, such as the late political scientist Peter Mair, believe that this anti-democratic bias was designed into the European Union from the beginning.
The economist Dani Rodrik has argued that countries trying to figure out how to deal with the global economy face a stark choice. They can have any two of the following — democratic decision-making, national sovereignty, and economic integration — but not all three. He describes the Greek crisis as one in which different sovereign countries have created a zone of economic integration, and are now facing off over whose democratic choices should prevail when there is serious disagreement: the choice of the Greek people (who explicitly rejected the austerity deal) or the choice of other euro zone countries (whose citizens probably do not want to pay for a Greek bailout, and would surely want harsh conditions for such a bailout).
However, this fight is not itself taking place on democratic terms. It is happening through a brutal combat-via-negotiation among self-interested sovereign states, a battle which Greece has effectively lost, and its creditor states have won.
There’s no obvious path to euro-zone democracy
Nearly everyone recognizes that the euro zone needs more democracy. Wolfgang Schäuble, Germany’s hardnosed finance minister, wanted to kick Greece out of the euro zone. However, he also believes that deeper economic integration can’t be sustained without greater democratic oversight, and has advocated a permanent administration and euro-zone parliament. This would move democracy up from the level of the nation state to the level where economic decisions are actually being made. Thomas Piketty, one of Germany’s harshest critics, says very similar things about the need to democratize the euro zone.
It was already hard to see how the euro zone can get there. The brutal punishment of Greece makes it harder again. The nominal goal of the reforms being pressed on Greece is to straighten out its economy so that it can start to grow again. However, it’s uncertain, at the very best, that they will work as advertised. In contrast, it is nearly certain that they will be resented and seen as illegitimate by Greek citizens who voted for a very different deal.
The likely result of the euro-zone conditions are not a strengthening of the Greek economy and Greek democracy, but instead an enduring situation of weak economic growth, paper democracy in which elected Greek politicians have little real power, and profound resentment of perceived interference from outside. The effective subjugation of one of its members will make it very hard to portray the euro zone as a democracy in the making.
Read more about Greece and the euro at the Monkey Cage:
Mark Copelovitch, Greece votes no. Is this the end for the Eurozone?
Nicholas Sambanis, Why the Greeks rejected Europe’s bailout
Stathis Kalyvas: Why the Greek referendum is the referendum from hell
Amber Curtis, Joseph Jupille and David Leblang: Greece isn’t the first country to have a debt referendum. Does Iceland provide useful lessons?