MAKING THE EUROPEAN MONETARY UNION

Who knew that the run-up to the big-government, one-worldish euro was the darling of the American right wing?

Let’s unpack that, as James (History/Princeton Univ.) does: The European Central Bank was designed as a nongovernmental (though definitely with a governmental element) institution whose chief purpose was to issue money, “the kind of institution that had basically only been imagined before the 1990s by antistatist liberal economist and philosopher Friedrich Hayek and some of his wilder disciples.” Hayek, famed for Austrian austerity, had long advocated some mechanism whereby a fiscal authority could issue money without being beholden to the state; thus free from political pressures, it could respond with sensible monetary policies that addressed money, not power. The result, though, was less a nonstate bank than a network of cross-state banks, and these, like banks in the United States and elsewhere in the world, did what banks did back in the carefree days of the late 20th century—they acquired, grew and spent. The result, by James’ long account, was near-failure through exposure to various crises, such as the Asian crisis of 1998, the subprime meltdown of 2007 and the European crisis of 1992. The last was marked by wild speculation, and in reading James, it helps to be versed in monetary policy and tolerant of the language of the discipline—e.g., “On November 19 the Swedish Riksbank raised its marginal lending rate to 20 percent, but the defense was unsuccessful, the speculative attack continued, and the krona was floated and the interest rate reduced to 12.5 percent.”

Of considerable interest to the economically inclined; a thoroughgoing demonstration of how fragile are monetary unions “without some measure of fiscal union.”