Steve Randy Waldmann has a fascinating wonky proposal for resolving the European debt crisis via basically a sovereign version of a debt-for-equity swap. It’s great stuff. At one point, though, he makes an effort to claim that this is not just a smart, workable, reasonably fair proposal but also a “populist” one. Earlier, he notes that an alternative proposal “would be to redenominate the debt of European sovereigns into unredeemable fiat currencies” but that this “would represent a large setback to the European project.”
Clearly, breaking up the Eurozone would be a huge setback to the European project. But I think any talk of populism in the European context needs to start from the reality that the European Union, as currently conceived, is the most anti-populist public institution in the democratic world. You can see this in part through questions of institutional design, like how the European Central Bank is not only operationally independent in its conduct of monetary policy, but even has a charter that basically can’t be changed by democratically elected national governments. That’s very different from the Federal Reserve System, which is “independent” merely by virtue of a Federal Reserve Act that can be amended at any time and, indeed, has been amended many times over the years. But the un-populism of the European project goes deeper than that, pretty close to the core of the concept. You can analyze this in an institutional context, but it’s easier to see on a level of sentiment. Nobody in California thinks it would be a good idea to break up the U.S. Olympic team and field a separate California squad, and nobody in Germany wants to dissolve the German Olympic team and field a unified E.U. squad. By contrast, unifying the East German and West German Olympic teams was a no-brainer. Nobody wants to root for “Europe” and no sensible Dutch person feels E.U. citizens in Bulgaria are more authentically “European” than Swiss or Norwegian people. This isn’t some kind of unchangeable fact of the human landscape. Nationalisms are constructed and change over time and there’s no reason in principle that you couldn’t have a “European” nationalism and “European” populist thought. But you don’t have one in practice.
The trouble here is that while this leaves proposals for more robust European federalism (Eurobonds or something like what Waldmann is proposing) un-populist and elitist, so is the alternative.
The combination of monetary union, hard money thinking at the ECB, and refusal to engage in substantial fiscal transfers is a business class wet dream. You have asymmetrical mobility — capital, goods, and high-end professional labor are super mobile while working class labor is largely fixed. With exchange rates fixed and the central bank inflexible, the only way to respond to macroeconomic shocks is to cut wages and social welfare benefits. They’ve created an institutional setting under which not only is the nominally socialist government of Spain pursuing a hard-right agenda of austerity and low wages, but they are correct to do so not because an austerity and low wage agenda is a good thing but because the institutional environment of Europe leaves them with no alternative.
So we’re basically stuck. The story of the west for the past 150 years or so has been the parallel development of capitalist markets and democratic politics. The E.U. has constructed a setting in which not only have markets escaped the bounds of democratic politics, but also one wherein strengthening the political forces at the center itself counts as an elitist anti-populist project. This is nothing smart people on the European left aren’t aware of and thinking about, but very little headway was made before the crisis and now, again, the practical business of crisis-management is being carried out entirely as a discourse between two different elite agendas.