THE EURO-BASHER

In The Rotten Heart of Europe: The Dirty War for Europe’s Money (Faber and Faber, $ 27.95, 427 pages), Bernard Connolly, a devout Thatcherite and highly regarded economist from Manchester, argues that far more is at stake in Europe’s grand federalist project than bureaucratic tedium and occasional instances of regulatory idiocy. Connolly wrote the book while he was head of monetary policy at the European Commission. In fact, its publication in Europe last year got him fired. And while the book has become something of a bible for Euroskeptics in Britain, Connolly has become persona non grata in much of continental Europe. We simply don’t want “madmen,” one Belgian official recently told a British paper, as the European Union prepared for Maastricht II, the year4ong inter-governmental conference that began at the end of March.

Connolly’s offense? A scathing attack on the Exchange-Rate Mechanism as a vehicle for reaching economic and monetary union in Europe. Pretty dull stuff, perhaps. But for Connolly, the campaign for a single European currency, first begun in 1978 by then-German chancellor Helmut Schmidt and then-French president Valery Giscard d’Estaing, represents a “massive lie” and a dangerous “confidence trick.” Connolly sees the “subversion of democracy” and a threat to peace as byproducts of the work of European federalists, which he calls “economically perverse and politically perverted.”

Connolly joined the European Commission in August 1978, not driven by any convictions about “building Europe,” he writes, but because he believed that the European Community was a useful forum for maintaining and developing cooperation and friendly relations between Europe’s democracies. Indeed, since its founding in 1957 the European Community, based on Franco-German reconciliation, has maintained this as a goal. Only later, says Connolly, after he switched in 1986 to the monetary side of the Commission, did he come to the conclusion that monetary union was really part of a larger project designed “to subvert the independence — political as well as economic” — of Europe’s countries.

Connolly sees Brussels as an insatiable, power-hungry elite readily assisting the French and German governments in an attempt to impose a federalist state on their neighbors. Connolly’s problem with European federalism is simple. You don’t need a single currency, he argues, to maintain a single market. “Capital liberalization,” he writes, “by allowing capital to flow where the return is highest, thus aiding economic development and integration, requires flexibility in nominal exchange rates.” The North American Free-Trade Agreement recognizes this. Maastricht’s monetary union does not. What’s more, “fixed exchange rates transform domestic policy questions from “low politics” (what gets done?) to “high politics” (who decides what gets done?).” Countries that try to keep their exchange rates close to the Deutschmark often have to raise their interest rates, slowing down domestic growth and making the Maastricht criteria for budget reduction more diffxcult to achieve. Thus, monetary union reduces political legitimacy and increases economic instability in each country that participates.

 

It’s a shame that a prime reason for Connolly’s success in selling books (and offending political adversaries) is also a prime reason why his book will find few converts, and why many reviewers in Europe have been able to dismiss the book so easily. Connolly’s insider story is a tale of heroes, including Margaret Thatcher and Helmut Schlesinger, the former Bundesbank president, and a long list of useful idiots and devious villains. Fair enough. But Connolly’s narrative is dense with spastic and ranting references to France’s “Vichyite monetary obeisance” and the “Vichy4ike atmosphere created by the [French] political elite”; to European officials as “missionaries, soldiers in the crusade” against “decadent Anglo-Saxon culture” and “the pagan Anglo- Saxon worship of markets.” Germany’s Eurobegeisterung, Euroenthusiasm, is mischievously mistranslated as “Eurofanaticism.” Connolly deliberately borrows Nazi vocabulary to talk of a conspiratorial attempt by today’s Germany to impose a Grosswirtschafisraum (large economic corridor) in Europe.

There’s even talk of the ideology of “Europe” replacing the ideology of ” Communism,” with a “KGB” policing dissent within the Commission. “In Stalinist Russia, dissent was regarded as evidence of lunacy,” writes Connolly. “In the present-day European Community,” he continues, “dissent does not yet warrant incarceration in brutal mental hospitals.” Entertaining, perhaps. But this kind of heavy breathing obscures a genuinely fascinating analysis and important political message — that the stubborn attempt to forge monetary union may actually drive Europeans apart rather than closer together.

Of course, everyone’s up to something different, says Connolly, whether the Irish, the Dutch, or the Portuguese. The Italians, for instance, have always sought Europe as a solution to their internal problems, which is why many favor being ruled from Brussels rather than from Rome. Seventy-six percent of Italians say they favor giving up the lira for a European currency. But it’s the French and Germans who lead the campaign for a federal Europe, and it’s these two countries, with their conflicting motives, that worry Connolly most.

The French, ever cognizant of German power and believing that money is politics, seek “capture of the Bundesbank” through monetary union, according to Connolly. It’s a grotesquely naive proposition, in his view, presumably to entail careful maneuvering by clever French technocrats at a future European Central Bank. Nevertheless, to help execute the plan, the late president Franois Mitterrand saw to it that the French people were subjected to a ” relentless” stream of propaganda. On the eve of the French referendum on Maastricht, for instance, the French government staged an elaborately rigged telethon, which included a live appearance by Kohl (in Bonn) pleading for a ” yes” vote and a debate between Mitterrand and Philippe Sguin, the leading “no” campaigner. The Mitterrand-Sguin debate was scheduled immediately after Kohl’s message and following nearly two hours of interviews with Mitterrand interspersed with various pro-Maastricht commentaries.

Like Mitterrand, Jacques Delors, president of the European Commission until 1994, saw Europe’s federalist project as a necessary evil. Ceding sovereignty in favor of European unity was a way to extend French influence, to tame German power, and to confront the Americans and Japanese. Connolly rips French leaders for their delusional and “blinding arrogance,” while wondering simultaneously how “murdering” the economy can ever find popular support on ” geopolitical” grounds. He has a point. In fact, when Helmut Kohl visited his French counterpart this past fall, he gave the Gaullist leader a stern talking to about deficit reduction and France’s struggle to meet the convergence criteria for monetary union (scheduled for January 1999). President Jacques Chirac did a complete turnabout on national television the very next day. Deficit reduction, not job creation, would henceforth be the French government’s priority. Collaborationist Vichy it’s not, but Chirac’s sudden change of heart is a vivid illustration of Connolly’s con cern about national sovereignty.

What do the Germans want out of all of this? Connolly carefully documents how the Bundesbank has been torn between the fear of “importing vice” from its neighbors and the temptations of (greater) hegemony in Europe. The hegemonists have the support of Germany’s export-dependent industrialist community. Meanwhile, two-thirds of the German population remains firmly opposed to giving up the cherished Deutschmark, a symbol of stability and affluence for more than four decades. Unlike in France, and to the relief of Germany’s political leaders, Maastricht need not be put to the test in a popular referendum.

But economic issues are the tip of the iceberg. “Europe is first and foremost a political program, not an economic program,” says Wolfgang Schiuble, chairman of Kohl’s Christian Democratic Union. From monetary union to a European ministry of economics is a short step. And from there it’s not difficult to see how one then arrives at political union. About this, Germany’s political leadership has been remarkably candid. And this is what scares Connolly most.

Connolly’s observations about Maastricht’s democracy deficit are important, and he’s right to attack Kohl for suggesting that failure of the federalist project means nationalism and war. Nation states and nationalism are not the same thing. And the democratic Europe of 1996 bears little resemblance to the Europe of 1926. Yes, if it happens, monetary and political union will mean protection for the French and German welfare states, continued statism on the Continent, and a European Union that will serve more than ever as cover for German interests. There are questions and problems everywhere you look. Nevertheless, insinuations about war and Maastricht as the “most dangerous folly in Europe since Munich” are where Connolly’s evidence runs out. It’s also where his overblown rhetoric matches the ridiculous posturing of his opponents, whose house of cards, had he been a bit more clever, Connolly could have more effectively blown down.

By Jeffrey Gedmin Jeffrey Gedmin is research fellow at the American Enterpriuse Institutte and editor of the forthcomming book, European Integration and American Interest.