The crisis of the European monetary union has unfolded at roughly the same time as the Arab Spring, and their geneses illustrate a striking contrast in those societies’ views of government. Whereas people in the authoritarian countries of the Middle East and North Africa are insisting on governments more accountable to them, the people of Europe are agitating to reduce government sovereignty, replacing it with a commitment among governments. The juxtaposition demonstrates the extent to which nearly all European governments believe they no longer—or should no longer—have the power to act as sovereign governments. 

David Cameron made a big bet that the other EU governments are mistaken in that view. Britain refused to agree that the EU should be allowed to supervise its choices on how much money to spend. Whipped by the turbulent financial markets and the public’s outrage at bailing out other Europeans, Europe’s creditor states demanded the right to establish limits on the amount of debt a country could accrue. The EU proposal, adopted without Britain, is that national budgets would be submitted for review by all other EU countries and, failing to gain their support, states would be fined for infractions of the rules.

 EU and sovereignty  
 Illustration by Barbara Kelley

Cameron thinks that Britain is likelier to prosper by setting its own rules than allowing a collective of countries—even those with similar interests—to set the rules. He points out that the structure of Britain’s economy gives it a greater reliance on financial services industries, something the governments of France and Germany would like taxed more heavily. He doubts that his fellow European governments will serve Britain’s interests better than Britain itself. He is surely right, although the argument depends fundamentally on whether states still have the capacity to chart their destinies.

In academic and policy circles, it is fashionable to conclude that globalization has radically reduced the autonomy of states. The free flow of commerce, information, and people, which defines globalization, is thought to prevent states from exercising the control of information, levers of economy, and monopoly on violence that previously characterized the role of the state.

As a result, states subject to currency crises blame not themselves, but predatory financial institutions that operate outside the reach of governments; the materials and know-how to produce nuclear weapons are described as slipping out of government hands; and the incapacity of governments to feed their people is ascribed to global warming. These are convenient and popular excuses, but they ignore the essential fact that states continue to control the vast majority of what occurs within their borders.

Do states still have the capacity to chart their own destinies?

As economist Jagdish Baghwati has demonstrated, famines are not caused by nature. It requires governments to turn scarcity into famine. And as Thomas Sowell has argued so persuasively about the subprime mortgage crisis in the United States, economics cannot create this problem; the involvement of politics was required.

States establish and exercise control through law. Through law, states regulate who can enter their territories, whether those people can work, how they will be cared for if they do not work, what responsibilities will be exacted from them, and what rights will be extended to them. And although the speed and ease of transit of information, commerce, and people has increased dramatically in the past decades, states still set legal frameworks that bind people within countries.

The financial crisis in the Euro zone has very often been ascribed to the forces of globalization, as though governments had no control over what was happening—as though the government of Greece didn’t choose to borrow money on Germany’s credit, or German financial regulators didn’t choose to count all debt denominated in Euros to be of equal credit risk.

The European Union has attempted to extend across its member states a “pooled sovereignty,” where states keep some authorities, but give others to a supranational body of their common creation. Some countries pooled their border control, removing all restrictions on movement between participating states. Some countries pooled their money, giving up their currencies for the Euro and their ability to set monetary policy. What is now proposed is that countries pool their debt, giving up the ability to use fiscal policies to manage their economies.

The financial crisis in Europe has been attributed to globalization. But this is wrong.

It sounds sensible enough: countries that use the same currency are all affected by the spending decisions others make. But such rules are only effective when two conditions are applied: (1) there is a shared norm of compliance; and (2) a credible enforcement mechanism is established. In other words, laws are obeyed within communities both because we generally share beliefs about their merit (murder should be punished), and because they are punished.

For these reasons, “international law” is the recourse of those who consider norms inadequate. But even international law relies on enforcement—in fact, enforcement is even more important internationally because the common societal basis of norms does not provide a foundation of compliance. There is obviously not a shared norm of thriftiness among EU countries; so the creditor states are attempting to impose enforcement.

What they attempt is to replicate the norm of creditor government behavior in the debtor states. But the tools they have available are not strong enough for the task. Recall that the EU already had rules limiting the debt-to-GDP ratio for member states. This Stability Pact was insisted on by Germany, which was also the first EU country to be in violation of the rules. Germany brushed off condemnation, huffily insisting that its own circumstances (absorbing East Germany) were uniquely meritorious (as opposed to the circumstances of countries transitioning wholesale from communism or struggling out of poverty). Now that it is in a solid financial position, Germany would require stringent and immediate austerity from sinning governments as the price for their “solidarity.” 

The countries of the EU have lost the sense that they're major world powers.

What is missing in Europe, which is being shouted from rooftops in Cairo and throughout the Arab world, is the belief that governments are in control. Continental Europe has become “post-sovereign,” no longer believing an individual state can take meaningful action alone. Greece’s financial crisis of course disproves the thesis—the choice of an individual state has made a huge difference. Germany’s answer is that the European Union should take away from states the ability to make their own choices.

How the member nations of the European Union view sovereignty affects their willingness to run risks to achieve aims that benefit their individual countries. Consider the situation with Iran. The Islamic Republic spends roughly $7 billion a year on its military whereas the European Union contains at least fifteen of the world’s most powerful militaries and spends more than forty times that amount. Still, none of the Europeans can imagine their governments undertaking to destroy Iran’s nuclear program. They wouldn’t even do it collectively, much less all alone. Despite their military might, the countries of the European Union have lost the sense that they’re major world powers.

The great defense lawyer Clarence Darrow famously said, “no man was ever convicted based on testimony he did not give.” And no government will be vulnerable to a market run that does not dig itself deeply into debt. Globalization isn’t yanking authority out of the hands of sovereign governments. Rather, sovereign governments are choosing to hand it to international institutions and international businesses.

There’s a wonderful passage in Tacitus, in which he describes the conquest of the British Isles less as a military victory for Rome than a voluntary submission by the British who wanted the advantages that that great civilization had to offer. “The unsuspecting Britons spoke of such novelties as ‘civilization,’ when in fact they were only a feature of their enslavement.” David Cameron has looked at ‘civilization’ in the form of EU solidarity, and chose to take his chances with sovereignty instead.

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