Stephen M. Walt

Can IR theory predict the future of the euro?

Can IR theory predict the future of the euro?

It’s not as though the world came to a halt while the Egyptian drama was keeping us glued to our laptops, and at least one interesting development is worth watching closely for a number of reasons. You all know that the EU has been facing a major crisis over the past several years, triggered by deep economic problems in Greece, and to a slightly lesser extent in Spain and Portugal. These troubles forced the eurozone countries to authorize a major financial rescue package last year and led some observers to question whether the euro itself might be at risk.

Over the past few months, however, German Chancellor Angela Merkel and French President Nicolas Sarkozy have been negotiating a joint proposal for deepening economic coordination within the EU (and especially the eurozone) in an attempt to solve some of the problems that produced the crisis in the first place. (The basic issue is that the eurozone countries share a currency, but do not have fully integrated tax systems, labor markets, or fiscal systems, thereby making it much harder for them to adjust when one economy gets into trouble). 

Not only does this question have obvious implications for politics and economics in Europe itself, but it also raises some fundamental questions about IR theory and might even be a revealing test of "realist" vs. "liberal" perspectives on international relations more generally. Realists, most notably Sebastian Rosato of Notre Dame, have been bearish about the EU and the euro since the financial crisis, arguing that European member states were more likely to pursue their individual national interests and to begin to step back from some of the integrative measures that the EU had adopted in recent years. 

By contrast, institutionalists, and EU-philes more generally, have suggested that the only way forward was to deepen political integration within Europe. The basic idea here is that economic integration is central to European economic health and one of the keys to continued amity within Europe. Equally important, any attempt to leave the eurozone or to dismantle the euro itself would cause an immediate collapse of the currency (and plunge several European states into even deeper crisis). In this view, there’s no going back; Europe can only plunge ahead toward closer integration.   

As you’d expect, I’ve tended to be among the bears, in part because I don’t think greater "policy coordination" between the member states can eliminate occasional fiscal crises and because I think nationalism remains a powerful social force in Europe. European publics won’t be willing to keep bailing out insolvent members of the eurozone, and the integrative measures that have been proposed won’t be sufficient to eliminate the need. The original Merkel-Sarkozy proposals got a pretty hostile reception when they were rolled out, and Merkel’s hopes of pushing them through probably declined when her designated choice to head the European Central Bank (Axel Weber) withdrew from consideration. So it remains to be seen how much of their program will actually get adopted.

But the EU has surprised doomsayers before, and I can’t quite convince myself that a collapse of the eurozone is inevitable. So what we have here is a nice test of two rival paradigms, and students of international politics should pay close attention to how this all plays out. But remember: Like all social science theories, no general theory of international politics or foreign policy is right 100 percent of the time. Accordingly, the future evolution of the EU/eurozone won’t provide a decisive test that will validate one approach completely and render the other view totally irrelevant and obsolete. Proponents of each perspective will probably try to claim total victory if events turn their way, but that’s not really the way that social science operates.