Democracy and the Eurozone

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In his article Democracy in Europe requires Eurozone breakup, Bill Mitchell criticises (many on) the Left for failing to see that the European Union in its present shape is undemocratic:

For example, one of their key observations is that within the European Union there is a “wide and growing gap between national control over budgets that people have voted for and the post-national governance imposed on them”. Which would suggest that the solution requires that there is an aligning of the fiscal responsibility and control at the level of the currency-issuing unit. However, there is no hint of that in their ‘Plan’. They talk about an “Enhanced respect for the fiscal sovereignty of Greece” but fail to articulate how that can occur within the common currency when the Greek government has no currency-issuing capacity. Of course, if we want to increase the fiscal sovereignty of any Eurozone nation, then the only sustainable way of doing that is for that nation to re-establish its own currency and exit the monetary union. However, this would appear contrary to their “pan-European” sentiments, which dominate their overall vision. In short, once again the bogey person of the pan-European appears to be taken as a given and then specific matters that might appear inconsistent with that old ‘social democratic’ obsession in Europe are glossed over.

The source. Emphasis added, IGTU.

What he is saying is that membership governments are not in a position to carry out their electoral mandate of fostering the public purpose, especially the stewardship of the economy, unless fiscal sovereignty is restored, which requires the return to a national currency and hence the exit from the EU.

It is, indeed, striking that social democrats, whose central article of faith is the governments duty and assumed competence to steer the economy, prove impervious to the fact that the EU is thoroughly undermining this pivotal governmental function by taken away from the national members (a) currency sovereignty, thereby (b) the instrument of monetary policy as well as (c) seriously emaciating the instrument of national fiscal policy (d) without providing for an alternative EU-wide fiscal capability.

Bill Mitchell goes on to explain:

The current design of the Eurozone determines that the Member State governments are not ‘sovereign’ in the sense that they are forced to use a foreign currency and must issue debt to private bond markets in that foreign currency to fund any fiscal deficits.

Their fiscal positions must then take the full brunt of any economic downturn because there is no ‘federal’ counter stabilisation function. I disregard the small European-level transfers and bailout-type funds here. The former are too small and non-cyclical and the latter are so pernicious that they have the opposite effects to what is required.

The EMU is a federation without the most important component.

The Member State governments thus can run out of money and become insolvent if the bond markets decline to purchase their debt.

Among other things, this means the elected governments cannot guarantee the solvency of the banks that operate within their borders.

It is a basic characteristic of any monetary system that government can only create risk free liabilities if they are denominated in its own currency.

The fact that the political leaders chose this design was astounding given it stood no chance of withstanding a major event such as the GFC. The design of the Eurozone ensured it was a disaster waiting to happen.

Mitchell makes it clear: 

... any notion of democracy has to correctly align[ed - sic, IGTU] the policy-making responsibilities with the currency-issuing capacity and those responsible for both should be elected through universal suffrage and accountable as such.

I suppose, this is the essence of what is meant by "social-democratic" - the social use of democratically elected governmental power - here in the form of monetary and especially fiscal capabilities.

See also The Common Weal - Fuzziness in the Vocabulary of the Social Sciences and Transitioning - Floods and Money, where I draw attention to the problems that still lurk in the face of an improved capability for fiscal intervention.