Similarly the redistribution of international power due to globalization will trigger convulsive phases and confrontations which, if a transitional solution cannot be found, will also lead to conflict and even violence, thereby bringing the process to a stop and sucking the world back to the dark times of autarky and exaggerated nationalism, such as occurred in the years following 1914.
Europe has the ability but also the duty to launch a process aimed at bringing globalization under control, by creating international federal institutions able to negotiate and agree the rules necessary to guarantee a smooth transition to a new world order, and also to ensure that those agreements are respected.
The EU must propose an international plan to establish common rules and practices throughout international institutions
The EU must propose an international plan to establish such common rules and practices throughout international institutions dealing with monetary, environmental, energy and agricultural issues; and also to provide the necessary tools for economic and social solidarity to go alongside the creation of an international market. This will bring WTO policies more closely in line with those of the European Community which – together with the creation of the common market – has instituted regional and social funds, and a cohesion policy.
Towards an international environmental policy?
In two of the above mentioned fields Europe has attained its set objectives: food self-sufficiency through the common agricultural policy and monetary unification via the single currency, which guarantees a single market. However, in the energy and environmental sectors the EU has achieved no more than limited and partial results. Only now it is beginning to construct the institutions necessary to fulfil its repeatedly proposed objectives. If the Delors Plan had been activated as originally planned, and in particular the introduction of a Carbon Tax – a proposal which was approved by all member states except Great Britain that blocked it by using its power of veto – the EU today would be far better prepared to contribute to the launch of a truly international environmental policy.
The EU should demand the foundation of an international “Community” for environment and energy able to concentrate research for new energy sources at an international level and endowed with some of the competences allotted to the European Coal and Steel Community (ECSC), which could be considered as a prototype supranational agency in the environmental and energy sectors. For example, the ECSC could impose taxes on the use of coal and raise loans to finance the re-conversion of the steel industry, the main consumer of this energy source.
Tackling the world food crisis
The food crisis urgently requires the establishment of a world agricultural policy in order to develop and stabilize production. A renewal of the initiatives activated by the first associative agreements with the African states (using the stabilization funds provided at the time) is an example of how to create a true international market for agricultural products that exploits the productive capabilities of the various continents, making the same products available on a worldwide scale, and thus covering the gaps left by the WTO, and giving the FAO a genuine role.
It is in the monetary sector that the redistribution of international power can give rise to the most acute convulsions. The most effective tool available to any individual state’s government is the currency manoeuvre. This enables it to bend globalisation to its own advantage, thus permitting it to avoid paying the price of the redistribution of economic power in progress internationally.
Firstly, while it would be difficult to promote explicit protectionist policies, governments can resort to competitive devaluations which can trigger a real “monetary war”. Such a “beggar my neighbour” approach could ultimately lead to the breaking up of the market and a retreat to openly autarkic policies.
However, such a strategy is possible only for economies of notable dimensions, such as that of the United States. It would not be feasible in the EU whose reason for existence is founded on international openness and its promotion at world level.
Secondly, a country whose currency has a wide international circulation, and whose relevant net debt is expressed in that currency, can manoeuvre to export the cost of the inflation created; for just as a state can impose an arcane tax on the owners of its public debt, so a country whose currency is utilised as an international currency can impose such a tax on other countries, thereby effectively reducing the value of their financial assets.
This policy finds its limit in the amount of financial activity with “real” negative earnings that the debtor is prepared to accept. The European states had to stop imposing an “inflation” tax when the opening up of the markets permitted investors to invest in the stable currencies of other countries.
What future for an international monetary war?
With the creation and success of the European monetary policy, the American dollar-monopoly hit a crisis, for the trend of the states investing in that currency then moving towards diversification in more stable currencies such as the euro became unstoppable.
The beginning of a currency war by the American Federal Reserve is a one-way street with no exit
The beginning of a currency war by the American Federal Reserve is a one-way street with no exit. A monetary war can only temporarily stem the crisis, and in so doing would only make the problem worse. But Europe, having now established full “federal” unity on a monetary basis, now has the responsibility and duty – and indeed is prompted by its own self-interest – to propose a solution to the United States which would enable the management of the transition towards a new distribution of power throughout the world.
Important sectors of European public opinion, of which the main voice is that of France and its President, are requesting the adoption of an analogous reduction of interest rates in reply to the FED policy. But this is wrong. It would not solve the problem and could only cause the importation into Europe of inflation created in America.
It is sufficient to consider that, given that the objective of the exercise is to maintain the cost of the dollar at a low rate in order to export inflation, if the ECB were to follow the FED in reducing interest rates then the FED would lower its rates once again. America would thus no longer need to fear that dollar investors would move into euros for by re-establishing the supremacy of their own currency internationally the USA would be able to continue to finance their deficit “without tears”.
If, therefore, the ECB is correct in not participating in this monetary war (in which it would be the inevitable loser) then Europe must at least address the problem of exchange rates. It is in the general interest that Europe and the Asian countries continue to develop commercial exchanges, but this “common market” cannot be undermined by monetary policies. Europe may accept overtures from Asia but, in exchange, the Asian countries must stabilise their own currencies in relation to the euro.
Countries that are net holders of international financial assets (such as some in Asia, or the Arabian oil producing countries) would then have an interest in having a stable currency as a reference point in order to guarantee the value of their investments.
The reorganization of the international monetary system
The conditions already exist to proceed towards a profound reorganization of the international monetary system to guarantee the balanced development of globalisation.
The list of countries interested in creating a new international system is long, but only Europe – with the euro – is in a position to take the initiative. However, Europe’s objective is not to propose substituting the euro for the dollar, but to put the stability of the euro at the disposal of the international community and to construct democratic monetary institutions.
The time has come to reverse the choice of a hegemonic currency made at Bretton Woods and to rediscover the Keynesian “bancor” plan. This was the way followed in Europe during the process of monetary unification. German political leaders such as Schmidt and Kohl, did not choose the hegemony of the D-Mark, but rather decided to put the stability of the D-Mark at the service of all Europeans.
As regards exchange rates, the European treaties from Maastricht to Lisbon indicate that the European position propounded in the competent institutions and international conferences is decided by the European Council, based on proposals made by the European Commission in accordance with the ECB. In this regard only those states that have adopted the euro can vote. Council members therefore – that is, the participating EU member states’ governments – do not need to ask the ECB to give up their solid currency but, on the contrary, to take the initiative – in accordance with the Treaty provisions – to provide the world with a solid currency.
European citizens must ask the EU’s political leaders and in particular the President of the European Commission to assume the political initiative. To this end the Union should promote a monetary conference aimed at creating the basis for a new and profoundly renovated international monetary system.
European citizens must ask the EU’s political leaders and in particular the President of the European Commission to assume the political initiative
The conference this time should not be held at Bretton Woods, but in Europe, thus taking a first step towards putting into action the statutory provision of the International Monetary Fund which states that the venue should be where there is the highest quota of participation!
If the Union were able both to promote and itself take the first steps on the road to a solid international currency, this would be the clearest demonstration that, if Europeans unite, they can make an enormous contribution to the creation of a more peaceful world. Once this is attained, it would not then be difficult to propose a unification of forces also in the areas of foreign and security policy.
Proposals such as Security Council reform and the bestowal of a seat on the EU, the creation of a Parliamentary Assembly to democratize the UN, with projects to initiate nuclear disarmament to be set up and run under UN control, and the creation of world civil and military “peace-keeping” and “state-building” forces, would then be far more credible.
Europeans have not united their strength in order to create a new army to fight other terrible and bloody wars but, as in the case of the single currency, to create common international institutions capable of attaining the state of “perpetual peace” once foreseen by Kant.
This article was originally published in the June 2008 edition of The Federalist Debate www.federalist-debate.org, Papers for Federalists in Europe and the World.
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