The Euro Is Safe Because It Serves a Successful Customs Union

Dr Ivanovitch - MSI Global
Dr. Michael Ivanovitch

The outgoing German Chancellor Angela Merkel is a lucky lady. Despite presiding, during her 16 years in office, over the sinking fortunes of two European unions, she remains a media darling and a revered leader for most of her EU colleagues.

The center-right union of German CDU/CSU parties she led lost the election with a popular vote of 24.1% on September 26, 2021 -- a huge decline from 38.5% when she took office in 2005.

For the party of Germany’s legendary Chancellor Konrad Adenauer that was also the worst election score in the post-WWII history.

Largely as a result of France’s waning European influence, Merkel was also recognized as a de facto – or by default – the EU leader. That was a remarkable turn of events for the still living French political elite who remembered the days when they made special efforts to bring a chastised, divided and occupied Germany back into the European community of nations.

And unlike her predecessor, Chancellor Helmut Kohl, who reunited Germany and ushered in the European Monetary Union and the single currency, Merkel did nothing for the advancement of the key European project – an economic and political union.

Merkel was no great European

In fact, Merkel’s disastrous imposition of fiscal austerity on sinking euro area economies during the last financial crisis caused soaring poverty and unemployment, miles long Caritas soup kitchens and a deep resentment in heavily indebted countries. But, in her own words, she wanted to “teach a lesson to fiscal miscreants and to those who could not control their banks.”

Merkel’s plan to throw Greece out of the monetary union -- rejected, in extremis, by a French effort -- was a mortal danger for the euro and for the EU itself, to say nothing of what a demise of that country would have meant for all the military infrastructure controlling European security and allied Middle East operations.

And then there was Merkel’s open-ended invitation to the Middle-East and North-African migrants in 2015, and her attempt to impose migrants’ resettlement quotas on the rest of the EU when German states refused to accept those new residents. That prompted an outcry from Hungary’s Prime Minister Viktor Orban: “Merkel will not be deciding who will live in Hungary.”

The most interesting part of Merkel’s EU policies has been a prompt and systematic refusal of French proposals to initiate an EU fiscal union and other measures of an economic and political integration. But those ideas were good enough to get the French President Emmanuel Macron a Charlemagne Prize on May 10, 2018 for his “vision of a new Europe.”

This long philippic has nothing personal; it was just a necessary review of the state of the German and European union after Merkel’s 16 years at the helm of indivisible national and continental economic, social and security policies.

The euro serves well the trade block

And the state of both unions is not good. The German CDU/CSU has lost its political bearings, and the last Friday’s European Council (a meeting of the EU heads of state and government) showed again an unbridgeable disagreement between those advocating “an ever closer union,” as stated in the EU’s founding Treaty of Rome (1957), and sovereignists holding on to the free-trading union (i.e., a customs union) of nation states.

A veritable casus belli to unionists was declared by Poland a few weeks ago, when that country’s constitutional court ruled that European laws and regulations must be ignored whenever they clashed with the Polish basic law.

Poland cannot be expelled from the EU. But failing further political negotiations, Warsaw will be sued at the European Court of Justice for violating the EU laws and values -- democracy, independent system of justice and the principle of the rule of law. Hungary, also classified as an “illiberal democracy” by the EU Commission, supports Poland and insists on the primacy of its own political and legislative authorities.

Both countries are now threatened by the withholding of EU recovery funds -- €23 billion for Poland and €7.2 billion for Hungary. Warsaw and Budapest have denounced that as a “blackmail.” They are ready to sue because they believe they are owed the payments that are financed with bonds jointly guaranteed by member country governments.

All this means that further integration moves have ground to a halt. Poland and Hungary have posed questions challenging the EU’s legal foundations.

From now on, one can expect an EU erosion process whose speed and amplitude will crucially depend on the outcome of French elections in April of next year.

Germany, for its part, can live with any future developments – as long as the rules of the trade block, single market and the monetary union are fully upheld. All other euro area members, and those aspiring to join the monetary union, share the same view.

And they all know that the euro is the key to the viability of those institutions, because the single market within the trade block cannot exist without the common legal tender.