The EMU(Economic and Monetary Union) was implemented in 1999 in 12 EU countries.(Greece later signed up as well)
At first it innvolved locking the exchange rates between the countries different countries’ currencies. Subsequently, in 2002, all the currencies were substituted for one single currency. This obviously entails loosing the right to determining the (central bank determined)interest rate for ones country. However, even if the Maastricht Treaty have a few (not too rigid) rules-which have been breached by a coupkle of countries- about budget deficits and governemnt debt, countries are largely free to determinig tax levels, what to use money on, labour market regulations and so on. Still a lot of people claim that EMU entails handing over the
the control of ones economy. Is there something to this claim? Could someone with a keener insight into economics than me explain why this might be so?
Economics is the one area of scholarship that I am the weakest in, so I will not essay a response on that basis.
But I am posting to make one political-science rather than economics observation: The handing over to another entity of any degree of sovereignty as regards national policy is seen by some as the beginning of a slippery slope to the loss of all sovereignty. If the EMU has the power to make any rules governing its member states, no matter how few or how loosely worded or enforced, it has infringed on national sovereignty, including the ability to control the national economy, to that extent.
Beyond that observation, which is not necessarily a “tinfoil hat” concern, I need to hand you over to someone more versed in macroeconomics.
Except that most EU national banks, including the Bundesbank and the Bank of England latterly, are independent of government. Thus turning control of interest rates to the ECB isn’t eroding sovereignty per se, it’s ceding control, which isn’t exactly the same thing.
Isn’t the question in the OP a bit like asking whether having an elected leader is ceding the right to self-determination? I don’t think there’s a conflict, so long as the 12 countries in the EMU are perfectly free to withdraw from it, which I assume they are.
An MU is not inherently incompatible with democracy. After all, Spain is an MU (and a political union) in and of itself, a union of Castile, Aragon, etc. The problem I see with the EMU is that it comes from an inherently undemocratic organization, the EU. Unfortunately, the proposed “constitution” for the EU did not provide for much in the way of elected representation at the EU level.
There are different opinions on the desired role of a central bank. A bit oversimplifed monetarists believe that a CB’s job is keeping inflation low and stable (plus administrative duties.) The CB should be independent from the gorvernment for practical purposes and only subject to their own “moral code” of stability.
On the other hand there are proponents of active fiscal policy who say that successful economic policy requires efforts of the CB synchronized with the government. e.g. There can be situations where increasing the money supply (“printing new money”, in reality it is done by lowering interest rates deliberately) is considered beneficial, although this is likely to raise inflation.
There is debate on which of these positions is more valid, favouring the monetarists since ca. the 80s, but differing from country to country. In any case the single member states effectively gave up the possibility to return to a 70s-style fiscal policy. To a certain degree similar effects could be achieved on a european level but the ECB is not bound to any directions.
Thanks for all replies so far! The heading of the thread was probably wrong though. It should have been: “Is EMU incompatible with retaining national democracy?” Handing over national sovereignty to larger entity -if that is what EMU entails- does not prevent that larger entity beeing governed by democratic procedures.
I welcome further elaborations and/or different viewponits/approaches
Let me put it this way: in theory it is possible to withdraw. In practice, it ain’t gonna happen. Ever.
I think this has more to do with sovereignty than democracy. It involves a transfer of the power to control monetary policy from the national authorities to a supranational authority. That’s clearly an issue to do with sovereignty.
It’s less clearly an issue to do with democracy. While arrangements will have varied between the member states, there was an increasing trend for nationaly monetary authorities to be somewhat removed from day-to-day democratic control - to be given fixed statutory objectives and a substantial degree of independence to acheive them. It’s conceivable that the supranational authority might be more subject to democratic control than at least some of the national authorities were.
You may as well ask whether, if each of the states of the US were free to issue its own currency and set its own monetary policy, would there be more democracy as a result? Not necessarily.
Monetary policy can be more or less subject to democtratic control, but that seems to be to be a question which is not particularly connected to the issue of whether monetary policy is decided at a national or a supranational level.
Regarding the question whether member states could withdraw from the EMU, it is my understanding that legally speaking you can’t. There is some discussion possible, though.
The EMU is part and parcel of the EC-Treaty as modified at Maastricht (see articles 116-124, link). All countries who fulfilled the requirements at the moment specified in article 121(3) were ushered into the EMU according to the provisions of article 123. The UK and Denmark were only exempt because of protocols to the Maastricht Treaty (URL=http://europa.eu.int/eur-lex/en/treaties/selected/livre340.html]link1 and link2).
So member states could only withdraw either with the consent of all other states (which would require a modification of the treaty), or by withdrawing from the European Union altogether. This latter recourse is legally speaking problematic since the EC-Treaty does not provide for member states withdrawing unilaterally.
The matter woul be governed by the Vienna convention on the law of treaties (which is later than the original EC-treaty, but since the EC-treaty was completely modified later on, and an EU-treaty accepted as well, I will for simplicity’s sake assume it applies) of which article 42(2) and 54 stipulate that a party can only withdraw from a specific treaty according to the provisions of the treaty itself, or with consent of all parties. Since the EC-Treaty does not provide for withdrawing, a member state could only withdraw by violating the Vienna convention, which would be illegal according to international law. (There is an exception in article 56 of the Vienna Treaty, though, according to which withdrawal is possbile if it is clear that parties originally intended this possibility. I do not think this applies, but it is debatable).
Of course, you could also say that according to international law a member state could first withdraw from the Vienna convention. I’m not sure whether this is legally possible. Furthermore it is debatable whether a party could sign away its right to withdraw from treaties. Since international law is not a matter of hard and fast rules, this is open for discussion.