Can IR theory predict the future of the euro?

Posted By Stephen M. Walt Tuesday, February 15, 2011 - 12:30 PM Share

It's not as though the world came to a halt while the Egyptian drama was keeping us glued to our laptops, and at least one interesting development is worth watching closely for a number of reasons. You all know that the EU has been facing a major crisis over the past several years, triggered by deep economic problems in Greece, and to a slightly lesser extent in Spain and Portugal. These troubles forced the eurozone countries to authorize a major financial rescue package last year and led some observers to question whether the euro itself might be at risk.

Over the past few months, however, German Chancellor Angela Merkel and French President Nicolas Sarkozy have been negotiating a joint proposal for deepening economic coordination within the EU (and especially the eurozone) in an attempt to solve some of the problems that produced the crisis in the first place. (The basic issue is that the eurozone countries share a currency, but do not have fully integrated tax systems, labor markets, or fiscal systems, thereby making it much harder for them to adjust when one economy gets into trouble).

Not only does this question have obvious implications for politics and economics in Europe itself, but it also raises some fundamental questions about IR theory and might even be a revealing test of "realist" vs. "liberal" perspectives on international relations more generally. Realists, most notably Sebastian Rosato of Notre Dame, have been bearish about the EU and the euro since the financial crisis, arguing that European member states were more likely to pursue their individual national interests and to begin to step back from some of the integrative measures that the EU had adopted in recent years.

By contrast, institutionalists, and EU-philes more generally, have suggested that the only way forward was to deepen political integration within Europe. The basic idea here is that economic integration is central to European economic health and one of the keys to continued amity within Europe. Equally important, any attempt to leave the eurozone or to dismantle the euro itself would cause an immediate collapse of the currency (and plunge several European states into even deeper crisis). In this view, there's no going back; Europe can only plunge ahead toward closer integration.

As you'd expect, I've tended to be among the bears, in part because I don't think greater "policy coordination" between the member states can eliminate occasional fiscal crises and because I think nationalism remains a powerful social force in Europe. European publics won't be willing to keep bailing out insolvent members of the eurozone, and the integrative measures that have been proposed won't be sufficient to eliminate the need. The original Merkel-Sarkozy proposals got a pretty hostile reception when they were rolled out, and Merkel's hopes of pushing them through probably declined when her designated choice to head the European Central Bank (Axel Weber) withdrew from consideration. So it remains to be seen how much of their program will actually get adopted.

But the EU has surprised doomsayers before, and I can't quite convince myself that a collapse of the eurozone is inevitable. So what we have here is a nice test of two rival paradigms, and students of international politics should pay close attention to how this all plays out. But remember: Like all social science theories, no general theory of international politics or foreign policy is right 100 percent of the time. Accordingly, the future evolution of the EU/eurozone won't provide a decisive test that will validate one approach completely and render the other view totally irrelevant and obsolete. Proponents of each perspective will probably try to claim total victory if events turn their way, but that's not really the way that social science operates.

ERIC FEFERBERG/AFP/Getty Images

EXPLORE:ACADEMIA, AREA STUDIES, EUROPE, DIPLOMACY, ECONOMICS, FINANCIAL CRISIS, FRANCE, GERMANY, INTERNATIONAL ORGANIZATIONS, INTERNATIONAL RELATIONS

(4)

HIDE COMMENTS LOGIN OR REGISTER REPORT ABUSE

SCOTTINDALLAS

9:08 PM ET

February 15, 2011

I share your doubts on the Euro

But, I wonder if there is a way to have national currencies that feed into a EU basket of currencies. I'm not smart enough to suss out all the details, but if Greece, Ireland and Spain could devalue their currencies, if Germany could grow theirs, relative to the balance of EU currencies, they might be able to operate independently, making the EU basket more valuable than it is today. These adjustments could well be made or brought to a meeting of currency chiefs, and perhaps even subject to vote. Even the US isn't free to unilaterally move its currency in a substantial way without first checking into the the G2, 8 and WTO--so, for the EU members to surrender some autonomy while preserving independent currencies might make them the most responsive, atomized central banking system in the world. That could really change our own banking, if their example works, its conceivable we might offer more tools to our Federal Reserve regional banks.

KALERGI85

11:39 AM ET

February 17, 2011

When it comes to the EU,

When it comes to the EU, there are some US academics, like Andrew Moravcsik, who get it. Others, like Steve Walt, who dont. The former get it because they have spent years studying the intricate ways in which different theories explain different parts of the story, weaving a complex and sometimes contradictory historical narrative which requires, above all, an ecumenical attitude to explanatory paradigms.

Geopolitical or ideological considerations rarely play a role in EU negotiations. What matters is the Putnamian two-level game that executives play with their European Council counterparts and national legislatures. By buttressing the euro, Germany is defending its core national interest of not returning to a time where its hard fought competitiveness is eroded by periodic currency devaluation on the part of its partners.

In fact, what Walt crudely describes as "realism" is, aside from the predictive outcome, very much the states-driven cooperation theory that Andrew Moravcsik named "neoliberal institutionalism". And what Walt names "institutionalism" is the neofunctionalist narrative that Moravcsik has spent a lifetime trying to disprove!

SCOTTINDALLAS

4:00 PM ET

February 17, 2011

all of that is tangential

And, in fact supports Steven's argument. The loss of national banks means that the individual states don't have many tools to adjust/address monetary policy. Just as with all the minutia you'd like to detail, each state is affected by a range of it's own concerns.

Will Germany continue to fund other broken countries? Will the poorer countries people allow them austerity measures that are being demanded? Steven is saying that these forces will become untenable and will rupture the union.

MARKOB

4:43 AM ET

February 24, 2011

Good to see a realist beachead on Europe

Whatever we might say about the realist approach to the EU that Walt draws upon I think it is a good thing that realism is addressing processes of European integration, having left this to the constructivists for too long. It takes about 5 seconds to see that constructivism is wrong. If there is a "European" identity then why is multiculturalism in Europe under attack everywhere? If IR were physics then constructivism would be aristotelian. We can argue about the state of IR before the 1990s, but what has happened since then is nothing less than an intellectual regression. One is forced to read the work of historians for proper political analysis nowadays. In much that is IR today if a country is ever mentioned its done probably in error.