05-15-2010, 11:44 AM
The $140 billion support package that the Greek government has finally received from its EU partners and the IMF gives it the breathing space needed to undertake the difficult job of putting its finances in order. The package may or may not prevent Spain and Portugal from becoming undone in a similar fashion, or indeed even head off an eventual Greek default. Whatever the outcome, it is clear that the Greek debacle has given the EU a black eye.
Deep down, the crisis is yet another manifestation of what I call the political trilemma of the world economy: economic globalisation, political democracy, and the nation-state are mutually irreconcilable. We can have at most two at one time. Democracy is compatible with national sovereignty only if we restrict globalisation. If we push for globalisation while retaining the nation-state, we must jettison democracy. And if we want democracy along with globalisation, we must shove the nation-state aside and strive for greater international governance.
The history of the world economy shows the trilemma at work. The first era of globalisation, which lasted until 1914, was a success as long as economic and monetary policies remained insulated from domestic political pressures. These policies could then be entirely subjugated to the demands of the gold standard and free capital mobility. But once the political franchise was enlarged, the working class got organised, and mass politics became the norm, domestic and economic objectives began to compete with external rules and constraints.
The next path identified by the trilemma is to do away with national sovereignty altogether. In this case, economic integration can be married with democracy through political union among states. The loss in national sovereignty is then compensated by the “internationalisation” of democratic politics. Think of this as a global version of federalism.
The EU’s difficulties stem from the fact that the global financial crisis caught Europe midway through a similar process. European leaders always understood that economic union needs to have a political leg to stand on. Even though some, such as the British, wished to give the Union as little power as possible, the force of the argument was with those who pressed for political integration alongside economic integration. Still, the European political project fell far short of the economic one.
Deep down, the crisis is yet another manifestation of what I call the political trilemma of the world economy: economic globalisation, political democracy, and the nation-state are mutually irreconcilable. We can have at most two at one time. Democracy is compatible with national sovereignty only if we restrict globalisation. If we push for globalisation while retaining the nation-state, we must jettison democracy. And if we want democracy along with globalisation, we must shove the nation-state aside and strive for greater international governance.
The history of the world economy shows the trilemma at work. The first era of globalisation, which lasted until 1914, was a success as long as economic and monetary policies remained insulated from domestic political pressures. These policies could then be entirely subjugated to the demands of the gold standard and free capital mobility. But once the political franchise was enlarged, the working class got organised, and mass politics became the norm, domestic and economic objectives began to compete with external rules and constraints.
The next path identified by the trilemma is to do away with national sovereignty altogether. In this case, economic integration can be married with democracy through political union among states. The loss in national sovereignty is then compensated by the “internationalisation” of democratic politics. Think of this as a global version of federalism.
The EU’s difficulties stem from the fact that the global financial crisis caught Europe midway through a similar process. European leaders always understood that economic union needs to have a political leg to stand on. Even though some, such as the British, wished to give the Union as little power as possible, the force of the argument was with those who pressed for political integration alongside economic integration. Still, the European political project fell far short of the economic one.