The Euro As a Case of Incomplete Political Development

The Eurozone crisis has shone a bright light on the design flaws of Europe’s monetary union, particularly the lack of a fiscal union to support the single currency.  But economists and others who criticize this failure overlook an important point: the political development of the euro has occurred in startlingly different ways from all other successful currency unions.  The euro is historically unique because it has occurred without the usual deep political integration and statebuilding of which a single currency is only one part. My paper demonstrates that single currencies have most commonly been created in times of war, as a way to consolidate the fiscal power of the state, rather than as a purely monetary exercise.  I argue that the European Union’s historically unique brand of political development, a peace-time, voluntary one that leaves the prior form of political organization (the nation-state) intact, has not created the political conditions necessary to move to a robust fiscal authority at the European level. Whether the current eurozone debt crisis will provoke the political will and coalitional support to create fiscal federalism at the EU remains an open question. Nonetheless, evaluating the political economy of the euro through the lens of comparative political development can take us a long way in understanding the currency crisis and its potential for resolution.