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February 7, 2011

Mises Daily

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[2]Hazlitt and Keynes: Opposite Callings
_by Llewellyn H. Rockwell Jr._

[3]Subjective Value and Market Prices
_by Robert P. Murphy_

[4]Two Visions for Europe
_by Philipp Bagus_ on February 7, 2011

[Excerpted from [5]Tragedy of the Euro (2010)]

There has been a fight between the advocates of two different ideals from
the beginning of the European Union. Which stance it should adopt: the
classical-liberal vision, or the socialist vision of Europe? The
introduction of the euro has played a key role in the strategies of these
two visions.[1] In order to understand the tragedy of the euro and its
history, it is important to be familiar with these two diverging and
underlying visions and tensions that have come to the fore in the face of a
single currency.

The Classical-Liberal Vision

The founding fathers of the EU, [6]Maurice Schuman (France [born in
Luxembourg]), [7]Konrad Adenauer (Germany), and [8]Alcide de Gasperi
(Italy), all German-speaking Catholics, were followers of the
classical-liberal vision of Europe.[2] They were also Christian democrats.
The classical-liberal vision regards individual liberty as the most
important cultural value of Europeans and Christianity. In this vision,
sovereign European states defend private-property rights and a free-market
economy in a Europe of open borders, thus enabling the free exchange of
goods, services, and ideas.

The Treaty of Rome in 1957 was the main achievement toward the
classical-liberal vision for Europe. The treaty delivered four basic
liberties: free circulation of goods, free offering of services, free
movement of financial capital, and free migration. The treaty restored
rights that had been essential for Europe during the classical-liberal time
in the 19th century, but had been abandoned in the age of nationalism and
socialism. The treaty was a turning away from the age of socialism that had
lead to conflicts between European nations, culminating in two world wars.

The classical-liberal vision aims at a restoration of 19th-century freedoms.
Free competition without entry barriers should prevail in a common European
market. In this vision, no one could prohibit a German hairdresser from
cutting hair in Spain, and no one could tax an Englishman for transferring
money from a German to a French bank, or for investing in the Italian stock
market. No one could prevent, through regulations, a French brewer from
selling beer in Germany. No government could give subsidies distorting
competition. No one could prevent a Dane from running away from his welfare
state and extreme high tax rates and migrating to a state with a lower tax
burden, such as Ireland.

In order to accomplish this ideal of peaceful cooperation and flourishing
exchanges, nothing more than freedom would be necessary. In this vision
there would be no need to create a European superstate. In fact, the
classical-liberal vision is highly skeptical of a central European state; it
is considered detrimental to individual liberty. Philosophically speaking,
many defenders of this vision are inspired by Catholicism, and borders of
the European community are defined by Christianity.

In line with Catholic social teaching, a principle of _subsidiarity_ should
prevail: problems should be solved at the lowest and least concentrated
level possible. The only centralized European institution acceptable would
be a European Court of Justice, its activities restricted to supervising
conflicts between member states, and guaranteeing the four basic liberties.

From the classical-liberal point of view, there should be many competing
political systems, as has been the case in Europe of centuries. In the
Middle Ages and until the 19th century, there existed very different
political systems, such as the independent cities of Flanders, Germany, and
Northern Italy. There were kingdoms such as Bavaria or Saxony, and there
were republics such as Venice. Political diversity was demonstrated most
clearly in the strongly decentralized Germany. Under a culture of diversity
and pluralism, science and industry flourished.[3]

Competition on all levels is essential to the classical-liberal vision. It
leads to coherence, as product standards, factor prices, and especially wage
rates tend to converge. Capital moves where wages are low, bidding them up;
workers, on the other hand, move where wage rates are high, bidding them
down. Markets offer decentralized solutions for environmental problems based
on private property. Political competition ensures the most important
European value: liberty.

Tax competition fosters lower tax rates and fiscal responsibility. People
vote by foot, evading excessive tax rates, as do companies. Different
national tax sovereignties are seen as the best protection against tyranny.
Competition also prevails in the field of money. Different monetary
authorities compete in offering currencies of high quality. Authorities
offering more stable currencies exert pressure on other authorities to
follow suit.

The Socialist Vision

In direct opposition to the classical-liberal vision is the socialist or
empire vision of Europe, defended by politicians such as [9]Jacques Delors
or [10]François Mitterand. A coalition of statist interests of the
nationalist, socialist, and conservative ilk does what it can do to advance
its agenda. It wants to see the European Union as an empire or a fortress:
protectionist to the outside and interventionist on the inside. These
statists dream of a centralized state with efficient technocrats — as the
ruling technocrat statists imagine themselves to be — managing it.

In this ideal, the center of the Empire would rule over the periphery. There
would be common and centralized legislation. The defenders of the socialist
vision of Europe want to erect a European megastate, reproducing the
nation-states on the European level. They want a European welfare state that
would provide for redistribution, regulation, and harmonization of
legislation within Europe. The harmonization of taxes and social regulations
would be carried out at the highest level. If the [11]value-added tax is
between 25 and 15 percent in the European Union, socialists would harmonize
it to 25 percent in all countries. Such harmonization of social regulation
is in the interest of the most protected, the richest, and the most
productive workers, who can "afford" such regulation — while their peers
cannot. If German social regulations would be applied to the Poles, for
instance, the latter would have problems competing with the former.

The agenda of the socialist vision is to grant ever-more power to the
central state, i.e., to Brussels. The socialist vision for Europe is the
ideal of the political class, the bureaucrats, the interest groups, the
privileged, and the subsidized sectors who want to create a powerful central
state for their own enrichment. Adherents to this view present a European
state as a necessity, and consider it only a question of time.

Along the socialist path, the European central state would one day become so
powerful that the sovereign states would become subservient to them. (We can
already see first indicators of such subservience in the case of Greece.
Greece behaves like a protectorate of Brussels, which tells its government
how to handle its deficit.)

The socialist vision provides no obvious geographical limits for the
European state — in contrast to the Catholic-inspired classical-liberal
vision. Political competition is seen as an obstacle to the central state,
which removes itself from public control. In this sense the central state in
the socialist vision becomes less and less democratic as power is shifted to
bureaucrats and technocrats. (An example is provided by the European
Commission, the executive body of the European Union. The commissioners are
not elected but appointed by the member-state governments.)

Historically, precedents for this old socialist plan of founding a
controlling central state in Europe were established by Charlemagne,
Napoleon, Stalin, and Hitler. The difference is, however, that this time no
direct military means would be necessary. But state-power coercion is used
in the push for a central European state.

[12]$15 $12

From a tactical perspective, crisis situations in particular would be used
by the adherents of the socialist vision to create new institutions (such as
the European Central Bank (ECB) or possibly, in the future, a European
Ministry of Finance), as well as to extend the powers of existing
institutions as the European Commission or the ECB.[4]


The classical-liberal and the socialist visions of Europe are, consequently,
irreconcilable. In fact, the increase in power of a central state as
proposed by the socialist vision implies a reduction of the four basic
liberties, and most certainly less individual liberty.

Philipp Bagus is an associate professor at Universidad Rey Juan Carlos. He
is the author of [13]The Tragedy of the Euro. See his [14]website. Send him
[15]mail. See Philipp Bagus's [16]article archives.

This article is excerpted from [17]Tragedy of the Euro (Ludwig von Mises
Institute, 2010).

[18]Comment on the blog.

You can subscribe to future articles by Philipp Bagus via this [19]RSS feed.


[1] See Jesús Huerta de Soto, "Por una Europa libre," in _Nuevos Estudios de
Economía Política_ (2005), pp. 214-216. See Hans Albin Larsson, "National
Policy in Disguise: A Historical Interpretation of the EMU," in _The Price
of the Euro_, ed. Jonas Ljundberg (New York: Palgrace MacMillan, 2004), pp.
143–70, on the two alternatives for Europe.

[2] A theoretical foundation for this vision is spelled out in Hans
Sennholz, _How can Europe Survive_ (New York: D. Van Nostrand Company,
1955). Sennholz criticizes the plans for government cooperation brought
forward by different politicians and shows that only freedom eliminates the
cause of conflicts in Europe.

[3] Roland Vaubel, "The Role of Competition in the Rise of Baroque and
Renaissance Music," _Journal of Cultural Economics_ 25 (2005): pp. 277–97,
argues that the rise of Baroque and Renaissance music in Germany and Italy
resulted from the decentralization of these countries and the resulting

[4] Along these lines, French President Nicolas Sarkozy tried to introduce a
European rescue fund during the crisis of 2008 (see Patrick Hosking, "France
Seeks €300 bn. Rescue Fund for Europe." _Timesonline_. October 2, 2008, German chancellor Angela Merkel
resisted, however, and became known as "Madame Non." The recent crisis was
also used to establish the European Financial Stability Facility (EFSF),
with which the ECB extended its operations and balance sheet. Additional
institutions, such as the European Systemic Risk Board or the European
Financial Stability Facility, were established during the crisis. On the
tendency of states to expand their power in emergency situations see Robert
Higgs, _Crisis and Leviathan: Critical Episodes in the Growth of American
Government_ (Oxford: Oxford University Press, 1987).
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