The problem with EU monetary union, with the Euro, is the lack of a fiscal union, not some failure to commune with the unwritten spirit of the law as it has evolved over history in the different European nations.
Another follow up to the post of 1st June, where I criticise a post that attempts to analyse the current Euro, and European Union, crisis through a sloganistic understanding of Hayek, and such uses of Hayek in general.
The over rapid resort to, and understanding of, Hayek which I am discussing, looks at the current Euro crisis as a failure to follow a way of thinking about law in Hayek. That is Hayek’s emphasis on the autonomous and evolutionary nature of law, when working as it should. There are two stages of criticism I am presenting. The first is that Hayek’s theory of law does not have much to say about monetary policy, except at a level of generalisation and comparison which lacks content. The second is that Hayek’s theory of law is open to criticism. The second stage is the less relevant at this point, though of great interest to me, so I’ll move through it now before returning to the issues of the moment.
The Hayekian view of law is that properly speaking it is based on generally shared beliefs about the basic rules of a society, which should be enforced by the state. Stare made law encodes generally shared assumptions, and when it goes beyond those assumptions, as it increasingly has since the late 19th century, then we are talking more about arbitrary state made and enforced rule rather than law proper. The kind of comments I am discussing, on the European Union, are suggesting that the laws which instituted the Euro currency are those arbitrary rules. That kind of critique must apply to national currencies, to the laws behind those currencies, and legal codes in general, of all states in the world. So where is the specific critique of the Euro? If we take what Hayek says seriously, we must be engaged in a systematic scrutiny and criticism of all modern state systems, relating to currencies, state issued bonds, financial markets, and so on. One thing that enthusiasts for Hayek’s view of law never seem to notice is that Hayek was drawing on Carl Schmitt, a political and legal philosopher who moved from constitutional conservatism to Naziism, and then back to a more constitutional conservatism. Hayek mentions Schmitt occasionally, but significantly, sometimes to criticise him as a totalitarian, but also more favourably for his distinction between law properly speaking and positivist law (laws created by the political sovereign).
Moving onto the moment. The Euro has yet to collapse, and the moment of Eurosceptical triumphalism has passed. There is no guarantee that the Euro will survive, and maybe the Euosceptics will have another moment of triumph. However, at present even Eurosceptics are beginning to grudgingly accommodate themselves to the idea that the Euro might survive on the basis of a fiscal union. A fiscal union means that the European Union as a whole is responsible for debts incurred by national governments which have joined the Euros. The total weight of European Union resources behind the debt of those countries in debt crisis, makes the crisis much more manageable. Though even fiscal union might have difficulty coping with Italian and Spanish collapse with regard to the value of national debt in financial markets. Bit by bit, the European Union is edging towards a fiscal union, where richer countries, particularly Germany will be responsible for debts, and there is some kind of Eurobond, in which investors can purchase debt in the equivalent of bonds issued by national governments.
Why is there is a Euro crisis? Because the European Union failed to follow a legal philosophy which is not followed anywhere in the world? Or because the European Union failed to design rules and institutions as well as it should. The answer is clearly the second. The first answer tends to com in a package with the economic argument that European national economies are too divergent. However, extreme difference in economic conditions (along with cultural, linguistic, religious and political conditions) does not stop India form having a single currency for 1.22 billion people, about double the population of the European Union. The criticisms of the EU overlook the aim of the Euro project with regard to fiscal and economic discipline. The aim was to get the countries with the less efficient economies and less fiscal responsibility, to introduce structural economic reforms and fiscal restraint, by preventing competitive devaluation and inflation as short term solutions. Differences between European economies was a stimulus to the Euro project, not something mysteriously overlooked by its architects. Clearly there should had been a fiscal union. Clearly the architects failed to see how far şt would be difficult to get political leaders to enforce the discipline against short term political advantage. They also failed to foresee a systematic crisis of public and private debt, which was partly created in the Eurozone, bıt not only there. The problem was it was too difficult politically to get a better design, but crisis (as possibly some of the architects hoped) has opened up the possibility of better design.
The interest in design of institutions and rules is not foreign to a Hayekian perspective. Hayek was not an anarcho-capitalist, or a monarchist who thought the state just enforces law and order, together with defining national boundaries. He thought that the state is in the business of creating social and economic conditions for liberty and prosperity, with the most simple means possible, but with the means of public policy. That is an aspect of the Hayek influenced Friburg School of Ordoliberalismus (Order liberalism) in Germany,as discussed by Michel Foucault in The Birth of Biopolitics. A very interesting text on Hayek style liberalism, which I am working on in a book project.
There is an aspect of Hayek which leans towards what I regard as a mystified (in large degree) theory of law, and of the desired communion of judges with all the judges of the past, in a triumph of Law itself over the legislation created by mere elected representatives. There is an aspect of Hayek which is more positive about the political process, democratic culture, and the design of public policy to further public goods. I prefer the latter for various reasons, one being its much greater applicability to real state activity. As such it provides a better guide to laws, policies, and institution design than the mystique of Law.