Monday, September 1, 2014
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The Truth About Sovereignty

CAMBRIDGE – In the French parliament’s recent debate on Europe’s new fiscal treaty, the country’s Socialist government vehemently denied that ratification of the treaty would undermine French sovereignty. It places “not one constraint on the level of public spending,” Jean-Marc Ayrault, the prime minister, asserted. “Budget sovereignty remains in the parliament of the French Republic.”

As Ayrault was trying to reassure his skeptical colleagues, including many members of his own party, European Commissioner for Competition Joaquin Almunia was delivering a similar message to his fellow social democrats in Brussels. To succeed, he argued, Europe must prove wrong those who believe there is a conflict between globalization and sovereignty.

Nobody likes to give up national sovereignty, least of all, it seems, politicians on the left. Yet, by denying the obvious fact that the eurozone’s viability depends on substantial restraints on sovereignty, Europe’s leaders are misleading their voters, delaying the Europeanization of democratic politics, and raising the political and economic costs of the ultimate reckoning.

The eurozone aspires to full economic integration, which entails the elimination of transaction costs that impede cross-border commerce and finance. Obviously, it requires that governments renounce direct restrictions on trade and capital flows. But it also requires that they harmonize their domestic rules and regulations – such as product-safety standards and bank regulations – with those of other member states in order to ensure they do not act as indirect trade barriers. And governments must forswear changes in these policies, lest the uncertainty itself act as a transaction cost.

This was all implicit in the European Union’s single-market initiative. The eurozone went one step further, aiming through monetary unification to eradicate fully the transaction costs associated with national currencies and exchange-rate risk.

Simply put, the European integration project has hinged on restrictions on national sovereignty. If its future is now in doubt, it is because sovereignty stands in the way once again. In a true economic union, underpinned by union-wide political institutions, the financial problems of Greece, Spain, and the others would not have blown up to their current proportions, threatening the existence of the union itself.

Consider the United States. No one even keeps track of, say, Florida’s current-account deficit with the rest of the country, although we can safely guess that it is huge (since the state is home to many retirees living off benefits that come from elsewhere).

When Florida’s state government goes bankrupt, Florida’s banks continue to operate normally, because they are under federal rather than state jurisdiction. When Florida’s banks go belly-up, state finances are insulated, because the banks are ultimately the responsibility of federal institutions.

When Florida’s workers become unemployed, they get unemployment checks from Washington, DC. And when Florida’s voters are disenchanted about the economy, they do not riot outside the state capital; they put pressure on their representatives in Congress to push for changes in federal policies. Nobody would argue that US states have an abundance of sovereignty.

The relationship between sovereignty and democracy is also misunderstood. Not all restrictions on the exercise of sovereign power are undemocratic. Political scientists talk about “democratic delegation” – the idea that a sovereign might want to tie its hands (through international commitments or delegation to autonomous agencies) in order to achieve better outcomes. The delegation of monetary policy to an independent central bank is the archetypal example: in the service of price stability, daily management of monetary policy is insulated from politics.

Even if selective limitations on sovereignty may enhance democratic performance, there is no guarantee that all limitations implied by market integration would do so. In domestic politics, delegation is carefully calibrated and restricted to a few areas where the issues tend to be highly technical and partisan differences are not large.

A truly democracy-enhancing globalization would respect these boundaries. It would impose only those limits that are consistent with democratic delegation, possibly along with a limited number of procedural norms (such as transparency, accountability, representativeness, use of scientific evidence, etc.) that enhance democratic deliberation at home.

As the American example illustrates, it is possible to give up on sovereignty – as Florida, Texas, California, and the other US states have done – without giving up on democracy. But combining market integration with democracy requires the creation of supranational political institutions that are representative and accountable.

The conflict between democracy and globalization becomes acute when globalization restricts the domestic articulation of policy preferences without a compensating expansion of democratic space at the regional/global level. Europe is already on the wrong side of this boundary, as the political unrest in Spain and Greece indicates.

That is where my political trilemma begins to bite: We cannot have globalization, democracy, and national sovereignty simultaneously. We must choose two among the three.

If European leaders want to maintain democracy, they must make a choice between political union and economic disintegration. They must either explicitly renounce economic sovereignty or actively put it to use for the benefit of their citizens. The first would entail coming clean with their own electorates and building democratic space above the level of the nation-state. The second would mean giving up on monetary union in order to be able to deploy national monetary and fiscal policies in the service of longer-term recovery.

The longer this choice is postponed, the greater the economic and political cost that ultimately will have to be paid.

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  1. CommentedJorge Simao

    It is naive, not to say misguiding, to compare US states and gov. power/responsibility relations with that of EU and member states. It is somewhat acceptable only because there is not much else to compare. The historical, political, and cultural context are totally unrelated, even if economically some (superficial) comparison can be made. The EU lives in a paradox, because it can not be at the same time democratic and have efficacy: full efficacy requires politicians with strong gov. power that affects all member states -- but this is can not be done democratically without direct election --- and yet no politician can address the concerns of 50% of the total population (e.g. to start with, he/her would had to express him/her self in many languages). This means that, in practice, a continued "conversation" between member states representatives will have to be done to take measures piece-wise. This is basically the way it always has been done until the "austerity rule" become ideology. Austerity in countries where the state spends to much is a most to make economies thrive, but the way is being done -- wrongly perceived to be an external imposition -- is breaking the trust between countries and peoples that was so hard to rebuild since 60's and WW2. The EU project is probably "too big" in concept for the intellectual and political skills of current home-grow politician -- which are always subject and guided to the "rule" of local electorate.

  2. CommentedPaul de La Motte

    Again this is the wrong debate. I have seen too many times this sort of exposition of the sovereignty vs. globalisation dilemma in the case of the EU crisis, especially in Anglo-Saxon journals such as TE (UK) or publications of the CFR (US). This represents a deep misunderstanding of the concept of the EU and the roots of the current crisis. Comparing regional trading blocs –because that is what the EU is initially- with the US federalism is to miss the point. These two identities represent almost two conflicting ideals with their respective mechanisms of power and regulations. As such the globalisation vs. sovereignty debate through the US federalism vs. EU example is a flawed paradigm. It is a shame that instead of focusing solely on state interests, external actors such as the financial sector, the hard industry and the public sphere are not included in a comprehensive framework which would provide a more accurate picture of the current EU crisis.

      Commentedde Lafayette

      {As such the globalisation vs. sovereignty debate through the US federalism vs. EU example is a flawed paradigm. }

      That's not so sure.

      There are many parallels between US federalism and the EU, though many Europeans will not like to admit it. After all, national sovereignty today is really no different than state governorship in the US. Let’s not forget that the American constitution recognizes state rights which underpin state sovereignty in certain matters.
      But the matter at hand today in the EU is pan-national in at least the EuroZone. It is somewhat ridiculous to assume that a country can maintain Budget Sovereignty when it employs a common currency with 17 other nations. The key to any money is the concept of a Lender of Last Resort (a Central Bank), which can only exist when that bank has the purview to oversee and correct abuse amongst national banks, including the national Central Banks.

      The reason for this is simple – the Lender of Last Resort must have the ability to manipulate the money supply in order to fulfill its role. Meaning it is an independent body in charge of monetary policy. This is the stumbling block to allowing the ECB to assume the role as Lender of Last Resort. Because national sovereignty simply will not allow it to happen in Europe at present.

      Some Europeans seem to think that they can create a European Union that functions like the US but is not constituted like the US. That, I submit, is the “flawed paradigm”.

  3. CommentedHugo Delgado

    The agenda is evident. Enpoverishment of southern europe, to use as a very low labour coast countries, under the demands of the rich countries of the north tha have theyr debts, has an instrument of domination.
    The Sovereign is on, but is just an instrument as austerity.

  4. CommentedAndré Rebentisch

    Sovereign is the wrong phrase. But the sovereign is generally considered to be the legal person entitled to suspend the order. Florida, Texas and Califonia cannot leave the Union. Technically they cannot declare war against each other. There is no Texanian nation but a population. Sovereign nations can accept whatever unfavourable conditions of international treaties and they could even surrender to another power.

  5. CommentedJosé Luiz Sarmento Ferreira

    "Florida, Texas, California, and the other US states" have given up on sovereignty by transferring it to the Sovereign People of the United States of America. Individuals have lost none of their sovereign status: instead of being Sovereign Texans or whatever, they are Sovereign Americans.

    It is very different here in Europe. What is being demanded from us is that we transfer our sovereignty, not to the Sovereign People of the European Union - there's not even a recognized entity that can be named thus - but to a collection of unelected, faceless bureaucracies.

    Democracy is not an option for us outside the boundaries of our states. We cannot Europeanize democratic politics unless we simultaneously democratize European politics - and it seems to many of us this is the last thing our political and financial elites want.

  6. CommentedZsolt Hermann

    This is a very good wake-up article showing us clear choices.
    Those choices could become easier if we examined whether we actually have any freedom of sovereignty even now.
    If we take seriously and understand all the lessons coming out of the global crisis we can see that all of humanity has evolved into such an intermingled and interdependent network, that there is no individual or nation that could stand on their own, or truly remain sovereign.
    Most of life's major decision are made at the supra-national level even now, local or even national governance only caters for very small issues related to the street level control of life.
    We are so interdependent on energy sources, markets, workforce, components to any machinery, gadgets, cars or whatever product we build and use, even a cup of coffee we drink in the morning depends on thousands of people and multiple countries to reach our breakfast table.
    We can use hundreds of examples on the individual and national level from the iPhone craze sweeping the globe, to crucial gas pipelines, oil distribution channels crossing continents, from most popular sports teams having owners, coaches and player from different countries, cultures, wearing multinational company logos on their shirts, to the total global integration through social media on the Internet.
    We can also see how certain countries, like Iran right now, or North Korea can be cut off from the general circulation going downhill despite seemingly having everything in their hand.
    In fact common people could not care less about deeper integration as long as their lives are secure and they have their necessities, they can still keep their regional traditions, culture, colors, only politicians, parties with their self serving agendas incite nationalistic hatred and separation, playing old tunes to cover their inabilities.
    We are already living in a supra-national global system whether we like it or not, the connections are here and they are here to stay.
    The only question is if we start to use these connections in a positive, mutual manner to secure the existence and well-being of this single, united human system, as today no individual or nation can survive on their own if the whole system does not function optimally and they do not receive the necessary support.
    The future democracy will most probably have several layers from direct local level to supreme supra-national level to ensure the proper governance of this multi coloured, but deeply connected human network.

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