Yet Another for the Materialists (?)

A few months back I briefly commented on the ways in which different political science paradigms approached global issues differently, as illustrated by the TRIPs survey of academics:

IPE folks are the most convinced that at least one country will leave the euro. More than half of us. Meanwhile, only about 37% of IO folks and 30% of Europeanists think a country will exit the common currency. ... 

I find this interesting for a lot of reasons, but mostly because I think provides a pretty stark reminder that political scientists think very differently about politics. This could break down along paradigmatic lines -- the authors of the report note that constructivists tend to be comparativists, while realists tend to be in IR. I still think that a materialist conception of politics carries me farthest down the road I wish to be on, so I think it is fairly likely that a country will drop the euro if things continue to deteriorate. 

Today comes two developments that are relevant to this discussion. First, and as recently expected, Nicholas Sarkozy lost the French presidency to Francois Hollande in an election that was widely viewed as a referendum on the EU's approach to the ongoing debt crisis, and in particular the Franco-German alliance to push Euro-wide austerity. Hollande has promised a new direction that focuses on growth, rather than austerity, and an unwillingness to let French economic policy be determined by Berlin. As such, the vote appears to be a rebuke of Sarkozy's cozy relationship with German Chancellor Angela Merkel, and a reinforcement of French sovereignty over European solidarity. (Ms. Merkel's party lost another local election, indicating that her citizens aren't especially thrilled with her policy course either.) The election was also notable for the fracture in France's right-wing parties, as the far-right nationalist National Front party received nearly one-fifth of all votes.

In Greece, meanwhile, things have taken a disturbing turn:

Greek voters appeared to radically redraw the political map on Sunday, bolstering the far left and neo-Nazi right in a wave of protest against the dominant political parties they blame for the country’s economic collapse. 

The parliamentary elections were the first time that Greece’s foreign loan agreement had been put to a democratic test, and the outcome appeared clear: a rejection of the terms of the bailout and a fragmentation of the vote so severe that the front-runner is expected to have extreme difficulty in forming a government, let alone one that can either enforce or renegotiate the terms of the bailout.

The elections were seen as a pivotal test, determining both the country’s future in Europe and its prospects for economic recovery and the outcome, along with that in France, could resonate far beyond Europe, possibly leading to more upheaval in the euro zone. The early results were also a clear rebuke to European leaders that their strategy for Greece had failed.

You can see what you want to see here. If you think that materialist concerns will dominate European identity in determining the path of the European Union, then there's plenty here for that: the rise of far-right nationalist parties especially, and not just in France and Greece. On the other hand, you could view Hollande's election as a sign that the austerity regime is on the verge of being replaced by a more generous system of transfers that will reinforce European solidarity and identity.

Many Europeanists have been expecting such a transformation of identity, from a nationalist identity to a European identity, over time. This is certainly possible in the long run -- think about how we used to refer "These" United States and now refer to "The" United States -- but there are a lot of short-run pitfalls that the European project will have to overcome first. We've had many reminders of these difficulties over the last few years, and for now it appears that the materialists have the upper hand.

I would be shocked if markets didn't respond negatively to these developments, and ultimately markets (and German voters) will decide the eurozone's future whether anyone wants them to or not. Greek voters have lashed out a number of times, but each new incoming leader finds themselves operating under the same constraints. They need money, and to get it they have to do what the lenders want them to do. If German and French voters decide that they're sick of paying then it doesn't matter who runs the Greek government... they'll have no choice but to default.

That, to me, is still the most likely outcome.

Realism or Institutionalism? Wrong Question

So Henry Farrell got to this Stephen Walt piece before I could, and I agree with everything Farrell says. Especially this:

If (as Walt seems sometimes to be suggesting in this post), realism is nothing more than the claim that national interests predominate in explaining international outcomes, then realism is theoretically very nearly vacuous. Moreover, the candidate ‘rival paradigm’ explanations are, under this broad definition, actually realist too. They have quite as much to say about state interests, and perhaps more to say about power relations than Walt does. If Walt has an actual realist explanation of what is driving European states apart – one that would presumably be rooted in the security dilemma or some other systemic phenomenon – it would be very nice to know what it is. He certainly doesn’t tell us about it in the post as it stands.

Indeed, an institutionalism without interests makes no sense. Why else create institutions?

But Farrell missed one strand I'd like to emphasize. If Walt really wants to use the EU as a test of rival paradigms, he's going to lose. In fact, he's already lost. Realists (generally) claim that institutions are merely extensions of state power, and thus do not constrain the behavior of (powerful) states in any significant way.* And yet it's clear that membership in the EU has caused states to behave differently than they otherwise would. Rather than devalue and/or default, Greece and Ireland are engaged in austerity. Rather than let them devalue and/or default, Germany and France are bailing them out in the short-run, and are considering a range of Euro-wide fiscal policies that would bring policy convergence on a number of issues. None of these actions would be taken if the EU didn't exist. So the institution is something more than an extension of Franco-German power, even if Franco-German power is reflected in the institution. Saying that the EU will not do anything that France and Germany don't want it to do is not the same as saying that France and Germany would behave the same way if the EU did not exist.

Note that at least some of the old-school institutionalists that Walt seems to be referring to wouldn't like an argument like the previous sentence. But I don't know of anybody who still hews to a that functionalist of a line. Certainly not Keohane. So I'm not sure who Walt sees as his foil. As Farrell notes, he references Andrew Moravcsik and Barry Eichengreen but neither is really an institutionalist the way Walt seems to be describing.

(Moravcsik's book on the EU has "State Power" in the title, and in this paper and this paper Moravcsik attacks neofunctionalist approaches to the EU. Moravcsik is definitely a liberal, but not the sort Walt seems to be referring to.)

But all of this ignores the real problem, which is that neither dogmatic realism nor dogmatic institutionalism helps us understand what's going on. Of course power and national interests are important, and of course the institution is important too. The maintenance of the institution itself is of national interest to member states. Neither is it a question of whether deeper integration will occur; it already has occurred. Never before had anything like the EFSF -- fiscal transfers from some EU states to others -- existed. Never before had the ECB intervened in bond auctions. The question now is whether this new integration becomes legally codified, or whether the cost of it becomes unbearable, and it is abandoned. Neither realism nor institutionalism helps us understand which is more likely.

So it's not just that Walt has the wrong answer, although he does, it's also that he's asking the wrong question.

*It's probably better to say that realists generally think of institutions as intervening variables, but not important independent variables. Like much else in realism this begs a question -- why would rational states waste time creating institutions if that's all the were -- but there it is.

A New EU Governance Structure?

The FT has abandoned it's "no cutting articles" policy, so I can link to their stuff again. And here's a piece about potential revisions to the EU economic government structure:

France and Germany are close to agreement on important elements of their plan for closer “economic government” in the eurozone, but they expect several weeks of negotiation with other European Union members to flesh out the details, according to high-level sources in Berlin.

The idea – termed a “pact for competitiveness” – amounts to a big concession by Angela Merkel, the German chancellor, to what was originally a French concept to beef up the policy co-ordination of the 17 eurozone members, rather than all 27 members of the EU.

However, Berlin government sources insist that the eventual proposal will have a strong emphasis on growth and competitiveness, as well as budget discipline, giving the plan a bias towards German policy content.

More details at the link. To me, this is how it looks these conversations are going:

Sarkozy: We need more policy coordination.

Merkel: Okay, then you all need to converge on our preferred policies.

Sarkozy: No no no. You don't understand.

Merkel: No, you don't understand. We've got the money. We've got the credibility. We've got outside options. We're not letting you all free ride. Take it or leave it.

Okay, okay, that's a bit of an exaggeration. But it seems clear that Germany is going to require a much stricter version of the Stability and Growth Pact before it agrees to any further integration. The article says that not only will public borrowing be restricted, but also higher retirement ages (sacrebleu!), harmonization of corporate tax rates (mon Dieu!), and other policies affecting competitiveness.

In other words, Germany is demanding the Germanification of Europe. We'll see whether those terms are acceptable.

Germany's Growing European Hegemony

Once you get past the silly Merkel/Sarkozy pop psychology (basically the first page), this article on the EU is pretty strong. Here's the conclusion:

With Germany ascendant and looking both inward and eastward, Britain staying out of the euro zone and France carrying less weight, the question of German leadership is now at the fore. Germany has traditionally avoided trying to lead Europe from the front; memories from World War II, though faded, have not yet gone away in the rest of the continent. Even now, anti-German feeling is rising among Greeks, Portuguese and Spaniards, who feel abandoned, even betrayed, by Berlin.

Still, Merkel is going to have to exercise more leadership if the euro is going to be saved, even if she still hides to some degree behind France. And active German leadership of the E.U. means a clearer understanding that politically difficult compromises are going to have to be made and that money will have to be spent and promised — all in the face of growing German discontent.

John Kornblum, the former American ambassador in Berlin and still a resident there, sees a model for Germany in the United States and the way it helped keep Europe together after the war, mediating disputes and finding compromises. “The Germans don’t see it yet,” he says. “But they will have to take on the role of the United States in Europe, and have the same kind of balancing role we had for such a long time.” At that point, Germany’s marriage with France won’t matter so much anymore.

The First 100 Days

Looks likely to be an "interesting" summer in France. Hope no one has plans to visit any of the government-run tourist attractions...According to the International Herald Tribune:

"Before the summer is over, [freshly-elected Nicolas] Sarkozy wants to loosen the 35-hour workweek, cut taxes and curb the power of France's labor unions. "I will not act fast, I will act very fast," he vowed last week."

But in France, the street can matter almost as much as the Parliament, and unions have already pledged to defend their privileges.

Sarkozy's team has pledged not to be cowed by protests.

"We need a strong hand with the CGT in order to send a clear signal to our electorate," Fillon, the former social affairs minister and architect of a pension reform in 2003, told the weekly magazine l'Express on Monday, referring to one of France's two biggest labor unions. The CGT was one of the main organizers of two months of street demonstrations against a youth employment law that was eventually abandoned by Chirac."

Bon chance, Nicolas

The Euro, the ECB, and French Elections

The European Central Bank is one of the most politically independent central banks in the world. In designing this institution, governments sought to insulate it from political pressure. Yet, the ECB has become an issue in the French presidential election.

French presidential candidate Nicolas Sarkozy said "he wants a ``real conversation'' with the European Central Bank on monetary policy, seeking a weaker euro currency to increase competitiveness. ``If we have created the euro, it's to use it,'' Sarkozy told reporters today at a briefing today. ``I will act within the eurogroup to give us an economic policy and to avoid economic shocks, get rid of the legal confusion regarding the exchange rate policy, and organize a real conversation between the eurogroup and the ECB.''

This should resonate with those of you who have read the last section of chapter 13 of my textbook (Independent Central Banks and Exchange Rates): "Because monetary and exchange-rate policies are two sides of the same coin, government control of exchange-rate policy can be used to force the central bank to pursue the monetary policies that the government and its supporters desire." This seems to be what Sarkozy is up to--using exchange rate policy to press the ECB into a looser monetary policy.

Segolene Royal has also criticized the ECB. "While Royal has criticized ECB President Jean-Claude Trichet -- pushed by French President Jacques Chirac for the post -- Socialists focused their attacks today on Sarkozy. `I will not defend Mr. Trichet here and I will not defend the ECB,'' said Socialist Party leader Francois Hollande today. ``But who appointed Mr. Trichet? We should find the person responsible for that.''

Such political dynamics is precisely why governments created an independent central bank at the center of euroland.