Barry Eichengreen on the Euro

You’ve started with Tony Judt’s Postwar, this amazing 800-page history of Europe over the last 60 years.

I thought the book was important for our conversation because, in order to understand the euro, one really has to understand Europe. In particular, one has to understand the priority that European leaders and the intellectual elite attach to political reconciliation and integration. The book is not about the European economy or the euro per se – although the author understands economics, and monetary economics specifically, quite well. What the book does is give one a sense of origins of the European project and of the political commitment to deeper integration, of which the euro is part.

You mean the dire human and economic cost of World War II that he describes so vividly?

And the enduring legacy of the first half of the 20th century.

Tell me how David Marsh’s book, The Euro: The Politics of the New Global Currency, fits in.

Marsh’s approach, like Judt’s, is historical. Marsh argues that one can’t understand how the euro came about in 1999 – and I think he would argue, similarly, that one can’t anticipate what will happen next – without recalling Europe’s efforts to restore and maintain monetary stability, and without placing recent developments in that context. What I like about Marsh’s book is that, in telling this tale, he reminds us of the importance of human agency. He reminds us that actual individuals with actual lives took actual decisions to create the euro. In the absence of those individuals, things might have turned out very differently.

In telling his tale, Marsh emphasises two national traditions – the British and the German. He understands the UK, and he understands Germany. He tells the story by contrasting the attitudes of leaders in these two countries. This strength of his book is also its limitation, however. France features less prominently than it might. And lots of other smaller European countries that had a say in the development of the euro don’t get the attention they deserve.  Marsh’s is a very heavily Anglo-German-accented account.

Who are the big personalities?

Helmut Kohl is important, François Mitterrand is important, as is Jacques Delors – so there are some French politicians after all!

Now most of these personalities are no longer on the scene, is that a cause for concern for the future of the euro?

It’s often said that with the rise of a new generation of German leaders who didn’t live through World War II and don’t share the priorities of their predecessors, completing the European house will become more difficult. That’s why the Judt and Marsh books are important. Judt gives you a sense of the deeper historical forces at work, Marsh of how those historical legacies are passed on from generation to generation. All this renders me sceptical that the attitudes of future European leaders will really differ from those of their predecessors.

And where do you stand?

I’d say that each time that Europe has reached a crisis and had to decide whether to go forward or go back, it goes forward toward deeper integration. Angela Merkel’s personal preferences notwithstanding, I think there will be strong pressure on her to do likewise. Jean Monnet, the father of European integration, once said something to this effect: ‘Europe will be forged in crises.’

Where does that pressure to move forward come from?

As Judt describes, Europe endured a century of conflict. The idea that European integration is a mechanism for delivering peace and harmony is now deeply ingrained. It’s been taught to generations of schoolchildren, and Europe is better off for it.

The next book you’ve chosen is by Peter Hall and David Soskice, Varieties of Capitalism. You mentioned in your email that if we’re going to understand the euro, we need to understand the viability of the European economy.

Right. Americans, especially, are inclined to be critical of Europe’s long holidays, inflexible labour markets, and so on. The Hall and Soskice book is an articulate statement of the view that there are different ways of cracking the same nut. There are different ways of organising market economies – different constellations of social and economic institutions that, in combination, can be equally efficient. Europe has very significant strengths in precision manufacturing. It has apprenticeship training programs and employment stability that facilitate the acquisition of skills on the job. It has patient banks to fund the operations of firms investing in their workers. It’s not obvious that this constellation of institutions is inferior, from the point of view of growth and competitiveness, to that of the United States. Ten years ago, the so-called experts would have been unanimous that the US had a leg-up on Germany in terms of innovation and export competitiveness. Now, to put an understated gloss on the point, this is no longer obvious.

So when it talks about Varieties of Capital it’s not comparing different economies within Europe, it’s comparing Europe to the US.

Different people distinguish different models. For some, the important distinction is between the Northern European model, which is thriving, and the Southern European model, which is in crisis. But it was mainly the contrast between Europe and the US I, myself, had in mind when suggesting the book.

It’s not often you hear arguments about Europe’s economic strength in the US. People mostly seem to think it’s just a bunch of socialists over there.

I published a book in 2007 that, to avoid being too self-referential, I didn’t include on this list. In that book, The European Economy since 1945, I forced myself to ask ‘What should I say now in 2007 about the competitiveness and growth prospects of the European economy that will still sound right ten or 20 years from now?’ When you think about which set of economic institutions is superior from the point of view of building social cohesion, investing in skills and competing globally over the next 20 years, the answer is far from obvious.