Economic governance is in the eye of the beholder. The French want discretion, flexibility, and effective crisis management; the Germans want rules, discipline, and effective crisis avoidance. The euro as a single currency reflects both tendencies. There are aspects of Europe’s macroeconomic framework that are flexible and responsive (like the European Central Bank) and aspects that are more rigid and formulaic (like the ‘six pack’ and ‘two pack’ of policy coordination procedures that strengthen the ‘Stability and Growth Pact’). The challenge for Europeans is to find a sustainable balance. Too much of either tendency is not only unacceptable to one side or the other in the Franco-German partnership, it is also unlikely to work in stabilizing either the euro as a single currency or the European Union as a political project.
This is the broad argument made by Markus Brunnermeier (a German economist), Harold James (an American economic historian), and Jean-Pierre Landau (a French central banker turned academic) in their prize-winning book, The Euro and the Battle of Ideas. Within that frame, they provide an intellectual and cultural history for economic thought in France and Germany, a snapshot of key moments in the crisis that has unfolded in Europe since April 2010, a survey of some of the main issues in European macroeconomic governance including how they are perceived by other Europeans (like the Italians) and on the other side of the Atlantic, and a close analysis of the role of the European Central Bank as it has evolved since 2008. The scope of the argument is impressive; so are the efforts that both the authors and the publisher have made to bring the analysis up to date prior to publication. They include a long discussion of the British referendum and its implications for Europe, for example.
As with any ambitious volume, this one has its shortcomings. The most glaring is a failure to engage with the literature on the sociology of knowledge, the role of ideas in economic policymaking, the process of decision making in times of crisis, the varieties of capitalism in Europe, the history of European monetary integration, or the role of the Franco-German partnership in the European project. If it is true that we can only understand the crisis by focusing on ‘diverging concepts of how economics works’ (p. 375), then these areas of inquiry would seem relevant. The lack of engagement with Kathleen R. McNamara’s seminal work, The Currency of Ideas, as an argument about the politics of monetary integration in Europe is particularly hard to understand given how they have framed their project.
The volume also illustrates the difficulties associated with writing about multiple countries and policy domains. Even three accomplished authors with different backgrounds and experiences cannot master everything; even 440 pages will omit important developments. Many of the assertions about Italy are inconsistent and inaccurate both as characterizations of what happened during the waning months of the Berlusconi government and as a description of events and reforms undertaken since February 2013. The repeated claim that the Greek economy grew in nominal terms during the 2000s because of excessive government borrowing as illustrated by the deficit the Greek government ran in 2010 is contradicted by the data they present in Figure 7.1 – which shows nominal GDP moving ahead of nominal public debt for much of that decade. Things change when the crisis strikes Greece in 2008 (not 2010), but that raises questions about whether the deficit is cause or effect. Finally, the history of financial market integration ignores the policy contributions made by Tomaso Padoa-Schioppa, Alberto Giovannini, Alexandre Lamfalussey, and Jacques de Larosière. Those contributions are the paving stones on Europe’s long path toward a banking union and a capital markets union. It is strange that they do not receive even passing mention in the section on financial markets.
The authors are correct that monetary integration is a battle of ideas. So is European integration more generally. They are also correct that Europe needs to achieve some kind of sustainable synthesis. They have pulled together a wide-ranging and timely analysis of the problem. The challenge, though, is far greater than even this ambitious volume suggests.
The Euro and the Battle of Ideas. By Markus K. Brunnermeier, Harold James, and Jean-Pierre Landau. Princeton: Princeton University Press, 2016. 440 pp.Follow @Erik_Jones_SAIS
This book review was originally published in the March 2017 Chatham House journal, International Affairs. This original manuscript version is published under the terms of agreement with Oxford University Press. You can access the edited and proofed version here. You will need to join Chatham House or purchase a subscription to the journal to gain access.