Britain is better off outside the euro
If a country is to join the eurozone, its people must be willing to cope with the consequences forever,
however unpleasant they may sometimes be.
Martin Wolf, Financial Times, May 29 2008
Sverige bör, liksom England, hålla sig utanför euron så länge som möjligt.
Det säger Martin Wolf, biträdande chefredaktör på Financial Times
Ekonominyheterna 4/12 2006
Emu’s second 10 years may be tougher
Martin Wolf, FT May 27 2008
Do current account deficits matter inside a monetary union?
Martin Wolf, FT 28/3 2007
Picking on the
wrong target (Ireland)
Martin Wolf i Financial Times, February 14,
Europe's constitutional dilemma
From Martin Wolf, FT, July 4, 2000
Picking on the wrong target
Martin Wolf i Financial Times, February 14, 2001
A frightened teacher confronts an unruly class. He trembles before
his most troublesome pupils. They are intimidatingly big. But suddenly he spies
the brilliant, but weedy, new boy. Happily, he vents his spleen on this
friendless victim. Thus, he hopes, is his authority established.
This is how the European Commission has behaved towards the
euro-zones star performer. Over the 1990s, Irelands growth was
second only to Chinas at close to 8 per cent a year. Its unemployment
rate is 3.6 per cent, down from 14.1 per cent in 1994. Its current account is
in modest surplus. Its general government fiscal surplus is forecast by the
finance ministry at an impressive 4.3 per cent of gross domestic product in
2001. The ratio of general government gross debt to GDP will reach 27 per cent
at the end of 2001, from 94 per cent in 1993.
Yet it is this stunningly successful country that the European
Commission and the European Unions member states have chosen to
reprimand. When Charlie McCreevy, the Irish finance minister, complained over
the questionable substance of the rebuke and the public manner in which
this debate has been conducted, one could only sympathise.
This episode raises two questions: the first is whether the
critics are right about Irelands policies;
the second is whether, even if they are right, they are justified
in delivering so stinging a reprimand.
The answer to the first is: up to a point. The answer to the
second is: no.
Two things must now happen. First, wages and the cost of other
domestic inputs need to rise quite quickly, to bring costs into line with those
of competitors. Today, Irish wages are probably 10 per cent too low. Second, as
long as productivity growth in tradeable goods and services continues to be
higher than in partner countries, wages must also continue to rise faster, so
keeping unit labour costs in line. But since productivity growth in
non-tradeable goods and services is slower than in tradeables, inflation will
end up higher than in Irelands partners. On plausible assumptions, the
annual differential should be between one and one and a half percentage points.
Given all this, inflation of 4.6 per cent in the year to December, on the
harmonised measure, is no disaster.
Was the Irish government wrong to make a cyclically adjusted
fiscal loosening of about 0.7 per cent of GDP in its most recent Budget? Its
argument is that its measures will help lower inflation, by increasing labour
force participation and private savings and by relieving supply bottlenecks.
The Central Bank of Ireland disagrees, saying the measures will impart a
substantial pro-cyclical stimulus to the economy.
The Bank is probably correct: the Budget will increase demand, in
the short run, by more than it will raise supply. But this analysis ignores the
desirability - indeed inevitability - of the rise in Irish costs and overall
price level. As important, both the Central Bank and the European Commission
exaggerate the potency of fiscal policies. With so huge a surplus, taxpayers
are bound to conclude that any fiscal loosening which does not arrive today
will come, with interest, tomorrow. It would take a far more contractionary
fiscal policy than anything now contemplated to curb demand. Given this, the
EUs suggestion that the underlying fiscal surplus should be at least as
big this year as last year is neither here nor there.
Turn then to my second question. Even if one accepts that fiscal
policy should be more contractionary, it is far from evident that the
Commission and the other members of the EU should make such a fuss over it.
An obvious point is that this takes the euro-zone away from the
question of fiscal sustainability into short-term fiscal fine-tuning.
A more powerful point is that even if one believes in the case for
greater short-term co-ordination of fiscal and monetary policies in the
euro-zone, it does not matter what Ireland does in that context. Germany,
France, Italy and Spain are 80 per cent of the euro-zone economy. Since Ireland
generates about 1 per cent of euro-zone output, a fiscal deficit that is 1 per
cent of GDP shifts the overall euro-zone fiscal outcome by 0.01 per cent of
GDP. De minimis non curat lex (the law is not concerned over trifles) is
also a good motto for the EU.
To the response that this indifference to what Ireland may do
seems unfair, the answer is: no it is not. Since Ireland does not enjoy a
monetary policy influenced by its domestic conditions, unlike, say, Germany, it
should be allowed to choose its own fiscal policy. It is precisely because
Germany, France and Italy do influence euro-zone monetary conditions that it is
reasonable to expect them to pay more attention to the spillover effects.
The EU is doubly wrong to pick so publicly on Ireland. It is wrong
because Irelands policies are defensible. It is wrong also because those
policies do not matter to the rest of the EU. True, Irelands inflation is
higher than the average. But so it ought to be, while no plausible fiscal
policy would make much of a difference. Worse, picking on one of the smallest
member countries - and much the most successful - provides no credible
precedent for confronting the class bullies. This was an unjustified action and
a wretched precedent. Teacher should think again.
Anders Ehnmark betonade framför allt Geijers republikanism och hans likheter med Marx.
Liberalen Alexis de Tocqueville behandlade han i en annan bok på liknande sätt.
”Tocqueville är naturligtvis mycket lik Marx.”
Svante Nycander DN 9 september 2010
Europe's constitutional dilemma
From Martin Wolf,
FT, July 4, 2000
Outsiders are often the most acute observers. That great French
liberal, Alexis de Tocqueville, produced the most penetrating analysis of
democracy in America. Now Larry Siedentop - an American expert on French
thought who teaches at Oxford - has attempted a similar task for Europe
(Democracy in Europe, Penguin Books, 2000).
A student of de Tocqueville's work, he is well qualified for this task. The
result reveals both the magnitude of the constitutional challenge to Europe and
the failure to find answers. Both are encapsulated in his book's closing
"federalism is the right goal for Europe. But Europe is
not yet ready for federalism".
Mr Siedentop believes federalism is desirable, but difficult. I
would be inclined to put the point in a gloomier way: federalism is necessary,
In the debates that surround the current inter-governmental
conference, the principal concern appears to be mere efficiency. Efficiency
does matter. The prospect of doubling the EU's membership is on its own a
potentially fatal challenge to the current way of doing business. As Joschka
Fischer, Germany's foreign minister, asked in an already famous speech, "from
confederacy to federation", delivered in May, "what would a European Council
with 30 heads of state and government be like? How long will Council meetings
last? Days, maybe even weeks? How, with the system of institutions that exists
today, are 30 states supposed to balance interests, take decisions and then
These questions are compelling. Yet efficiency is very far from
the only challenge. On the contrary, attempts to address it - notably through
greater reliance on qualified majority voting - will aggravate the difficulties
Europe now faces.
Mr Fischer points to popular disenchantment with a process of
European integration "viewed as a bureaucratic affair run by a faceless,
soulless Eurocracy in Brussels - at best boring, at worst dangerous". His
analysis is not wrong, but it is incomplete.
The underlying issue is, as Mr Siedentop notes, that of consent.
Attempts to increase "efficiency", by making it easier to overturn the
opposition of elected governments, undermines consent, thereby threatening the
legitimacy of the European enterprise.
Mr Siedentop ascribes the dangers to the success of France on the
European stage. "If Europe is created on the model of the older, unreformed
French model of the state - so that a 'federal' Europe becomes the facade for a
political class and a political culture shaped by bureaucracy - then the danger
for Europe is that its history will come to resemble that of France since 1815.
The tutorship of a bureaucratic state will be rejected from time to time by
Europeans angry at being treated like children, but unused to the disciplines
Within Europe, such rebellions would not be contained by loyalty
to a nation state. They could become rebellions against Europe itself, possibly
in the name of nation states.
The view that Europe is being created on the old French model is a
gross over-simplification. Yet what the European structure shares with the old
French state is its lack of accountability: an unelected Commission with a
monopoly of legislative initiative; the world's most independent central bank;
a supreme court that takes promotion of further integration as its raison
d'être; a remote, polyglot parliament; and a Council of Ministers
acting sometimes as the legislature and sometimes as the executive, but always
If the founding fathers of the US had surveyed this scene, they
would have reacted with horror. This is no basis for an active democracy, but
an attempt by a political elite to escape its constraints.
There exists then an even bigger challenge than making the
enlarged Europe workable: it is to make it constitutionally legitimate. It is
greatly to Mr Fischer's credit that he identifies this need. He is also right
that the classic response is federalism, by which one means a constitutional
framework to achieve three objectives: allocation of powers between levels of
government; division of powers at the centre; and definition of the fundamental
rights of citizens.
Yet federalism is surely impossible. De Tocqueville identified
four informal conditions that made the US constitution workable:
the habit of local self-government;
a common language;
an open political class dominated by lawyers; and
shared moral beliefs.
Of these, the second and third are entirely lacking in Europe. As
important, none of the states of the US had enjoyed sovereignty before
independence. But Europe contains, in France and the UK, the two states that
have, historically, defined what a sovereign nation state is.
Political discussion and identity is - and will remain for the
foreseeable future - national. Only there does one find - if to varying extents
- the political engagement that makes democracy alive. Here then is a profound
dilemma. To make the existing union - and still more the prospective integrated
Europe of 30 states and more than 500m people - both workable and tolerable, it
needs a legitimate federal structure.
Yet a true federation is cloud cuckoo land. The integration
process then risks undermining the legitimacy of existing states, without
putting anything better in their place. To the dilemma there have been three
distinctive responses - the German, the French and the British. The first is to
combine maximum integration with some kind of federalism; the second is to
combine maximum integration with control by governments; and the third is to
combine minimum integration with control by governments.
The French and Germans agree on what Europe should do, while the
French and British agree on how it should be run.
Yet none of the approaches can work: the German, because the
federal ideal is unworkable; the French because bureaucratic
inter-governmentalism is intolerable; and the British because minimal
integration is unavailable. The likely outcome, however, is the French, the
worst of both worlds. France wants "more Europe", but, as its president,
Jacques Chirac, said last week, it will not accept a superstate that replaces
the role of nation states on the world stage.
Is there a solution? No, there can only be choices. Mine is to
accept that Europe will not have democratic legitimacy of its own and so try to
limit what states do together to the minimum essential to secure peace and
prosperity across Europe, with all else left to members individually.
Like many Americans, Mr Siedentop is frustrated by what he sees as
the constitutional illiteracy of the mother country. But even he recognises the
validity of such "British" concerns. "Building democracy in Europe is a matter
of decades rather than years - indeed it is probably a matter of generations."
In the meantime, there can only be one sane way to proceed:
More about Siedentop's book
I can understand the arguments for streamlining decision-making. But I do not understand why a constitution should be a priority.
Nothing is going to turn the EU into a United States of Europe.
In the end, the EU will remain a structure for co-operation and competition among states embedded in a shared institutional framework.
Martin Wolf, Financial Times 14/3 2007
German handicap, Martin Wolf, Financial Times,
March 31, 1999:
Few have realised the
most dangerous feature of Emu:
it has locked Germany into a seriously
uncompetitive real exchange rate
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