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In mid May, 2010, European Union leaders approved a rescue package worth 750 billion euros (nearly $1 trillion) to buttress weaker states such as Greece, Portugal and Spain.  The funds were contributed by state governments on account of resistence to the EU itself raising the money through direct taxation in the states using the euro as their currency. In early 2011, Sarcozy and Merkel proposed greater EU coordination of fiscal policies in states using the euro. The proposal was shot down by Belgium's prime minister as a threat to the social agreement in his state. Whereas such resistence to giving the EU more governmental sovereignty is typically highlighted in news reports, I contend that simply having a common currency inexorably exercises a subtle though gradual force in the direction of further integration manifesting in more governmental sovereignty being transferred from the state governments to that of the EU. It is not always easy to see the changing contours of a forest when one is used to studying leaves.

According to David Marsh, the euro was intended to complete the European program of liberalized cross-border trade, promote the old dream of political unity, rival the dollar as an international reserve currency and — the most complicated objective — prevent an enlarged Germany’s domination of Europe by bringing its currency under European control.”  Before the euro went into effect, Chancellor Kohl of the state of Germany noted that a monetary union without a corresponding political union would be “a castle in the air.” His remark echoed the concerns of the Bundesbank, his state’s statutorily independent central bank, that unless there were greater political and economic anti-inflationary discipline and solidarity among weaker and stronger states, the monetary union would be doomed. I contend that this pressure for greater solidarity or coordination via EU governmental institutions is a pressure that is inherent in the monetary union, whose gravity pulls the EU toward further integration until the equilibrium point (with the monetary union) is reached.

To be sure, the EU was at a precarious place in 2010 amid the debt crisis and the attempt by the EU collectively to come to the rescue. Even though EU institutions had acquired a significant amount of governmental sovereignty, it was less than what was being required in responding to a common currency in trouble. A currency in any federal system requires some degree of fiscal consistency among the governments subject to the currency.  In the want of adequate means, the government representing the system as a whole can over-react out of sheer frustration. Beyond the emergency fund, for example, the EU Commission wanted the state governments to submit their budgets for approval before appropriating funds. This would have represented more political consolidation than is the case in the US. Euroskeptics would have hit the ceiling.

To the Europeans who deny the political or governmental aspects at the EU level (i.e., the ECJ, the EU Parliament, and the EU’s various political offices), fiscal coordination represents an infringement on the “national sovereignty” of the “member states.”  Even so, the need for greater fiscal coordination or consistency for the euro inexorably backs the even the Euroskeptics the uncomfortable position of agreeing to more sovereignty being transferred from the states to the union. The invisible integrative forces in monetary union do not bend to denial; instead, they bend it. So while the skeptics might get the headlines today, the extend of union even in 2010 presaged ever closer union even if the pattern involves fits and starts rather than a linear trajectory. In other words, it is best to have a long-term perspective in evaluating the implications of newsworthy events on the EU.

Source: http://www.nytimes.com/2010/05/18/opinion/18marsh.html?hp