The Rotten Heart of Europe, by Bernard Connolly

The Rotten Heart of Europe

Author: Bernard Connolly

ISBN-13: 978-0571301744

Publisher: Faber and Faber

Guideline Price: €18.99

A decade ago Europe was, as it is now, deeply divided. The cause then was not money, as now, but war. About half of the EU's member countries opposed the invasion of Iraq; the rest supported it. The split poisoned relations in the bloc.

The invasion was globally controversial, but the acrimony it caused among Europe’s states was unique. In other regions, neighbouring countries took different positions on the ousting of Saddam without consequence for their relations with each other. Europe was unique because there was an expectation among EU countries that, after decades of attempting to leverage their collective clout in the world by coming to common stances on major global issues, they would present a united front on the big international questions of the day. They failed abjectly to do so on Iraq.

Among the many lessons of the invasion for Europe was that overloading structures designed to foster co-operation among sovereign states – and the EU is by far the most ambitious such mechanism ever created – will result in conflicts that would otherwise not have taken place. Put another way, trying to co-operate when fundamental national interests are incompatible will lead not only to failure but also to the undermining of international relations.

A far more serious example of this phenomenon is Europe’s failing currency union. It has been in crisis for more than three years, and there is a frighteningly high probability that it will end in continent-wide financial collapse and depression.

Nobody was more against the creation of the euro than Bernard Connolly, a senior European Commission official when the single currency’s foundations were being laid. He saw such danger in abolishing national currencies that he wrote a book warning against doing so in 1995. He has now republished the book (which cost him his job) with a new introductory essay.

It is a timely contribution from someone who can lay more claim than most to foreseeing the long-unfolding crisis. Back in 1995 he wrote: “Trying to lock countries like France and Germany together via their currencies turns domestic monetary questions into international political conflicts. It damages the economic and political well-being of every country involved.” This now appears remarkably prescient.

Connolly’s argument was based on two pillars. The first was that Europe’s elites had become so obsessed with integration that they ignored all the risks and dangers of currency union in order to further their project. To this political argument he added an economic one: that the euro would not work because any and all attempts by governments to interfere in how markets determine exchange rates are economically and politically damaging.

There was (and is) much more to his first argument than his second.

Connolly dismisses as a “propaganda slogan” the claim that the EU has prevented war in Europe and describes those who talk of “building Europe” as being akin to Bolsheviks in their ideological single-mindedness.

These points would carry a lot more weight if Connolly were not just as ideological as those who believe “more Europe” is the answer to every question of governance across the continent. The Englishman is a thoroughgoing believer in unfettered state sovereignty and considers anyone who takes the opposite position to be an enemy of democracy, a traitor to their country or too dim to understand fully the issues at stake.

The second (economic) pillar of his argument is both highly ideological and plain wrong about its most important points. Connolly’s view that any attempt to limit fluctuations in currencies is always damaging is patently incorrect: the post-second World War growth miracle in Europe, North America and parts of Asia, for example, took place when governments strictly controlled the movement of currencies.

His (new) claim that Ireland’s woes, and those of other peripheral countries in the euro, are the result of the ultimate fixed- exchange-rate regime – currency union – is equally wide of the mark. The notion that foreign banks pumped money into Ireland during the bubble only because of membership of the single currency, as Connolly claims, is nonsense.

Relative to the size of their economies, much bigger flows of capital went to diverse noneuro countries, such as Iceland, Latvia and Romania, among many others. All three of those countries were bailed out soon after the crisis of finance erupted in 2008 despite having the option of currency devaluation that Connolly believes to be a panacea.

The euro has proved the perfect transmission mechanism for the crisis, but the root cause of the economic mess was a failure of the financiers in whom Connolly maintains so much faith despite all that has happened in the post-Lehman Brothers world.

The wider truth is that exchange-rate regimes are like marriages: none is perfect and all have downsides.

In his new introductory essay Connolly seems perplexed about why his views were not given more credence in the 1990s. The answer lies less in the quality of his analysis and more in the shrillness of tone and the impugning of the motives of all those who take a different position on Europe.

Time has not mellowed the former eurocrat. The book’s new introduction, written 17 years after the first edition was published, is as extreme in its views as it is in its tone. The EU is crankishly referred to throughout by the acronym NSU – New Soviet Union – whose dual ambition is “the elimination of sovereignty, law and political legitimacy in Europe” and the reversal of the outcome of the second World War in which the “Anglo-Saxon model of the relations among the economy, the state and the individual” was victorious.

To suggest that advocates of European integration are closet totalitarians is absurd. If Connolly had resisted the temptation to go as far over the top as he has done, he might be listened to on EU matters much more than he is.

Dan O’Brien is economics editor. His book Ireland, Europe and the World: Writings on a New Century was published by Gill and Macmillan