CAMBRIDGE – In
the French parliament’s recent debate on Europe’s new
fiscal treaty, the country’s Socialist government vehemently denied that
ratification of the treaty would undermine French sovereignty. It places “not
one constraint on the level of public spending,” Jean-Marc Ayrault, the prime
minister, asserted. “Budget sovereignty remains in the parliament of the French
Republic.”
As Ayrault was trying to reassure his skeptical colleagues, including many
members of his own party, European Commissioner for Competition Joaquin Almunia
was delivering a similar message to his fellow social democrats in Brussels.
To succeed, he argued, Europe must prove wrong those who
believe there is a conflict between globalization and sovereignty.
Nobody likes to give up national
sovereignty, least of all, it seems, politicians on the left. Yet, by denying
the obvious fact that the eurozone’s viability depends on substantial
restraints on sovereignty, Europe’s leaders are
misleading their voters, delaying the Europeanization of democratic politics,
and raising the political and economic costs of the ultimate reckoning.
The eurozone aspires to full economic
integration, which entails the elimination of transaction costs that impede
cross-border commerce and finance.
Obviously, it requires that governments
renounce direct restrictions on trade and capital flows. But it also requires that
they harmonize their domestic rules and regulations – such as
product-safety standards and bank regulations – with those of other member
states in order to ensure they do not act as indirect trade barriers. And
governments must forswear changes in these policies, lest the uncertainty
itself act as a transaction cost.
This was all implicit in the European
Union’s single-market initiative. The eurozone went one step further, aiming
through monetary unification to eradicate fully the transaction costs
associated with national currencies and exchange-rate risk.
Simply put, the European integration
project has hinged on restrictions on national sovereignty. If its future is
now in doubt, it is because sovereignty stands in the way once again. In a true
economic union, underpinned by union-wide political institutions, the financial
problems of Greece,
Spain, and the
others would not have blown up to their current proportions, threatening the
existence of the union itself.
Consider the United
States. No one even keeps track of, say, Florida’s
current-account deficit with the rest of the country, although we can safely
guess that it is huge (since the state is home to many retirees living off
benefits that come from elsewhere).
When Florida’s
state government goes bankrupt, Florida’s
banks continue to operate normally, because they are under federal rather than
state jurisdiction. When Florida’s
banks go belly-up, state finances are insulated, because the banks are ultimately
the responsibility of federal institutions.
When Florida’s
workers become unemployed, they get unemployment checks from Washington,
DC. And when Florida’s
voters are disenchanted about the economy, they do not riot outside the state
capital; they put pressure on their representatives in Congress to push for
changes in federal policies. Nobody would argue that US states have an
abundance of sovereignty.
The relationship between sovereignty
and democracy is also misunderstood. Not all restrictions on the exercise of
sovereign power are undemocratic. Political scientists talk about “democratic
delegation” – the idea that a sovereign might want to tie its hands
(through international commitments or delegation to autonomous agencies) in order
to achieve better outcomes. The delegation of monetary policy to an independent
central bank is the archetypal example: in the service of price stability,
daily management of monetary policy is insulated from politics.
Even if selective limitations on
sovereignty may enhance democratic performance, there is no guarantee that all
limitations implied by market integration would do so. In domestic politics,
delegation is carefully calibrated and restricted to a few areas where the
issues tend to be highly technical and partisan differences are not large.
A truly democracy-enhancing
globalization would respect these boundaries. It would impose only those limits
that are consistent with democratic delegation, possibly along with a limited
number of procedural norms (such as transparency, accountability,
representativeness, use of scientific evidence, etc.) that enhance democratic
deliberation at home.
As the American example illustrates,
it is possible to give up on sovereignty – as Florida,
Texas, California,
and the other US
states have done – without giving up on democracy. But combining market
integration with democracy requires the creation of supranational political
institutions that are representative and accountable.
The conflict between democracy and
globalization becomes acute when globalization restricts the domestic
articulation of policy preferences without a compensating expansion of
democratic space at the regional/global level. Europe is
already on the wrong side of this boundary, as the political unrest in Spain
and Greece
indicates.
That is where my political trilemma begins
to bite: We cannot have globalization, democracy, and national sovereignty
simultaneously. We must choose two among the three.
If European leaders want to maintain
democracy, they must make a choice between political union and economic
disintegration. They must either explicitly renounce economic sovereignty or
actively put it to use for the benefit of their citizens. The first would
entail coming clean with their own electorates and building democratic space
above the level of the nation-state. The second would mean giving up on
monetary union in order to be able to deploy national monetary and fiscal
policies in the service of longer-term recovery.
The longer this choice is postponed,
the greater the economic and political cost that ultimately will have to be
paid.