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November 28, 2012
November 28, 2012

Mitterrand or Kaldor?

Author: Yiannis Varoufakis Translator: Anna Papoutsi
Source: Lifo  Category: On the crisis
This article is also available in: elespt-pt
Mitterrand or Kaldor?

The view of the economist Nicholas Kaldor that a monetary or economic union of Europe would be a mistake without the equivalent political union seems to be gaining ground every day.

The US is a result of crises. Without the debt crisis caused by the American Revolution, without the North and South confrontation for the transfer of income from the rich South to the poor North, without the bubbles bursting every almost 8 years during the 19th century (when cunning entrepreneurs convinced investors to put everything they had in railway companies), without the 1920 bubble that led to the 1929 crash and the creation of a real federal government under Roosevelt in 1932, without all these disasters the US would have never moved forward to the degree of consolidation that permitted them become a superpower.

Many of us like to believe that something similar is happening in Europe today: we are experiencing a crisis, we are making one mistake after another but eventually there will be a European Hamilton or Roosevelt to propose a series of principles that we will embrace, creating also from our side of the Atlantic our own United States of Europe.

In fact, this is how the creators of Eurozone were thinking. They did not have delusions. They knew that the common currency they were designing was based on rickety foundation. So rickety in fact that in the first crisis it would began collapsing. I have told before the story of the meeting in Brussels between Mitterrand and Delors in order for the latter one (as the President of the European Commission) to convince the French President that it was necessary to introduce Eurobonds since the beginning – to draw funds from the capital markets for development works. Eye witness to this conversation (colleague of mine and advisor of Delors at the time) described to me the following crosstalk: after listening Delors arguing for 40 minutes in favour of the Eurobonds for development, Mitterrand gave it a little thought and, after 5 silent minutes, he said: “You are absolutely right, Jacques. That is what we have to do to secure the common currency. But we will not do it. You see, Helmut (meaning the German Chancellor Kohl) and I may have the political strength to “bind” our countries monetarily but unfortunately we do not have the power to create common debt. But no worries, Jacques. When in 10 to 15 years there will be a big crisis, the politicians in our positions will face a big dilemma: to either do what we are not doing today, which is what you are suggesting, or let the Eurozone dissolve.

Mitterrand as well as Delors truly believed that the situation was like this. That, when time came, European leaders would do what was needed. Many still want to think that. They see the creation of the European Stability Mechanism (ESM), the recent moves of the ECB, the extension of the Greek loans, and they reckon that slowly but steadily Europe is mimicking the US and, through crises and mistakes, is moving towards consolidation. I wish this is the case. We must not, however, take it for granted. My reading for instance is that the exact opposite is taking place. That slowly Europe is dissolving. And that Mitterrand was after all right in saying that their successors would face a horrifying dilemma but wrong in guessing what they would decide: it is very probable that their decisions will lead to solutions not like the ones that Delors was advocating but to the dissolution of Europe and, unavoidably, of the European Ideal.

Mitterrand was definitely prophetic. He was not the only one though. Nicholas Kaldor, economics professor in Cambridge for many years and particularly pro-European, in 1971 wrote the following about the impact for Europe of the creation of a common currency without having first the tools that required a certain degree of political consolidation (tools as the ones Delors proposed to Mitterrand):

“… It is a dangerous mistake for someone to believe that a monetary and economic union can pre-exist the political union or that it would function (using Werner Report terminology) ‘as the leaven for the development of a political union without which it would not be able to function in the long run.’ Because, if the creation of a monetary union with community supervision on the national budgets is creating pressure that will bring the collapse of the whole system, then such a monetary union will impede, instead of promoting, the political consolidation.”

Who do you think was more prophetic? Personally speaking, for quite a while I have been thinking that Mitterrand would prove to be more prophetic. Now, following the farce of all the euro-summits, I lean towards Kaldor.

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