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.