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Analysis
Monetary union and the Holy Roman Empire

Monetary union and the Holy Roman Empire

Irish election results underline Europe’s amorphousness 

by David Marsh

Mon 29 Feb 2016

Neither holy nor Roman nor an empire was Voltaire's verdict on the patchwork of several hundred semi-sovereign principalities, townships and fiefdoms spread out over Europe from medieval times up to the early 19th century. The French writer-philosopher would take a similarly dim view of economic and monetary union, which is not working economically, mixes up monetary and fiscal policy and is looking ever less like a union. But one point is clear – EMU is looking increasingly like the Holy Roman Empire.

As provisional weekend results from the Irish legislative elections on 25 February underlined, the decision-making bonds among EMU states are becoming progressively weaker, partly because no one is actually in charge. This was the third consecutive European election demonstrating dissonance and fragmentation, following similarly inconclusive outcomes and swings to smaller anti-establishment parties in Portugal in October and Spain in December.

Irish Prime Minister Enda Kenny – despite presiding over Europe’s most impressive recovery following a deep recession in the wake of the euro’s post-2010 crisis – has admitted his coalition has failed to secure a return to office. Kenny's Fine Gael party will remain the largest in parliament, but with only a narrow lead over its main rival, Fianna Fáil. The Labour party, the junior coalition partner, suffered badly, whereas nationalist Sinn Féin, smaller parties and independents all fared well.

More disarray will be on show on 10 March. The governing council of the European Central Bank meets to decide further easing of monetary policy, probably including a cut in negative interest rates. The measures will command a majority on the decision-making council. But, amid widespread recognition that Europe is running out of monetary tools to curb its political and economic ills, they will end up pleasing virtually no one throughout the 19-member bloc.

Underlining the impression of amorphous rudderlessness, Mario Draghi, the ECB boss, is one of the ‘five presidents’ who produced a report last summer proclaiming the need for more European integration. During a visit to Berlin last month, every one of my government interlocutors warned me against taking the conclusions seriously.

More cacophony is expected in Germany on 13 March in three important regional elections in federal states. Amid massive hostility to the government’s handling of immigration from conflict-torn areas of the Middle East and North Africa, the vote is expected to produce big losses for both parties in the Berlin grand coalition – Chancellor Angela Merkel’s Christian Democrats and the Social Democrats, which are formally coalition partners but moving into an opposition role ahead of the 2017 federal elections.

One of the main problems facing campaigners for the UK to leave the European Union is that they are promoting simultaneously a variety of mutually contradictory propositions. They proclaim that other EU countries are conspiring in unacceptable fashion against British interests. Yet they expect that, were Britain to leave, those same countries would summon up the will to mollify the British by allowing the departed state access to the single market and other benefits of European integration.

In a similarly incongruous vein, those arguing in favour of a British departure in the 23 June referendum maintain that the EU is on the way to forging a European superstate that would be detrimental to UK interests. However, they also delight in pointing out the evident lack of solidarity among present EU members over immigration and risk-sharing.

One point is clear – a British No vote would risk accentuating Europe’s fissiparous forces. As Otmar Issing, a former member of the ECB’s executive board, puts it in a forthcoming OMFIF article on the British EU referendum, ‘Plainly, a UK departure would have repercussions for the whole continent. The analogy with non-members Switzerland or Norway is misguided. Whether they are in or out of the EU makes little difference to the way that the rest of the continent is run. By contrast, the EU after Brexit would be significantly different.’

David Marsh is Managing Director at OMFIF.

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