The Origins of EU and EMU: Towards a Post-Westphalian Paradigm

In the monetary field, this concept of Statehood implies that currencies must be backed by States. The State is the sovereign behind the currency. States have the prerogative of raising taxes within their territories; they have 'deep pockets' and are therefore able to support their currency whenever needed. Debts owed by States are described by the markets as 'sovereign debts'. In this approach, a currency without a State is doomed to fail.

The present model emerged after the 1648 Peace of Westphalia, which brought an end to the Eighty Years War between Spain and the Netherlands and the Thirty Years War in Germany. During the preceding Middle Ages, sovereignty was blurred and cities introduced their own coins and currencies. Against that background, authors such as Jean Bodin stressed the need for clarity in the public domain. States were to become the dominating entities in the organisation of Europe and the world at large.

In this paradigm, sovereignty has an internal and an external aspect. States are free to enact their own laws; they don't have to recognise a higher authority, be it Pope or Pontiff. Sovereign States are also free to choose their own form of government. In the 19th and 20th century, European States increasingly developed into democracies and subjects became citizens, protected by the rule of law. As a result of this progression, it was assumed that the concepts of democracy and the rule of law could only thrive within the boundaries of a national State. In foreign affairs, States dealt with each other on equal footing. They had to refrain from interfering in each other's affairs and had to respect the integrity of each other's territories. While the relations between States belonged to the domain of diplomacy, war was regarded as an acceptable means of conflict solution. Actually, the conduct of war forms an integral part of the Westphalian system of international relations. This state of affairs was highlighted by the Prussian general Von Clausewitz, who argued in his book On War (1832) that war is the continuation of diplomacy by other means.

The process of European integration, which was initiated after the two World Wars of the twentieth century, may be regarded as a combined effort to overcome the deficiencies of the traditional system. Sixty years onwards, European States and citizens are still trying to come to terms with both the intended and the unforeseen consequences of their common endeavour.

Obviously, the initial goal has been achieved. The Nobel Prize for Peace was awarded to the EU in 2012, but it could also have been granted to the ECSC in the 1950's. By sharing the exercise of sovereignty over coal and steel, the member-States of the first European Community succeeded in establishing lasting peace amongst themselves. By deviating from the classical model of international relations the founding States of the EU demonstrated that they had ceased to regard war as an acceptable means of resolving conflicts. In line with the suggestions of the German philosopher Immanuel Kant (Towards Perpetual Peace, 1796) war was replaced with the rule of law.

In his writings, Kant also formulated the thesis that States, wishing to co-operate in order to avoid war, have either to form a confederation of States or merge into one federal State. Consequently, a debate between the proponents of a federal Europe and the protagonists of an 'Europe des Patries' has been raging on for half a century. After the rejection of the ill-fated Constitution for Europe, however, it became clear that the EU was neither to be a federal State nor to remain a confederation of nation-States. Consequently, the EU finds itself in a theoretical impasse. This existential dilemma is aggravated by the financial and sovereign debt crisis, which threatens to undermine the very existence of the single currency the euro. The domino theory, floated by critical commentators, holds that if the euro will fall the EU is to collapse as well. Eurosceptic politicians and influential newspapers, notably the Financial Times, are advocating a return to the traditional template.

From a theoretical perspective, these combined crises are leading to an increasing awareness that the EU can no longer be explained in terms of the Westphalian system of international relations. The experiment with the joint exercise of sovereignty is resulting in the emergence of an unprecedented polity of States and citizens. Within the limits of the prevailing paradigm, it is impossible for such a polity to exist. However, taking into account that it has been the very intention of the founding fathers to overcome that outdated system, time is ripe to develop a new paradigm capable of clarifying the EU and the EMU in a coherent manner. In doing so, it should be acknowledged that the EU is applying principles of democracy and the rule of law to an international organisation. In the old approach, it is theoretically impossible for international organisations to function in a democratic manner. The breakthrough achieved by the EU is that it has effectively removed this philosophical obstacle. This conclusion paves the way for the submission of an entirely new hypothesis. The proposition submitted here is that, if democratic states decide to share the exercise of sovereignty in order to achieve common objectives, the Union, which they establish for this purpose, should be democratic too. The 2009 Lisbon Treaty warrants the conclusion that the EU does not only consist of democratic States, but also aspires to function as a democracy in its own right. The kind of democracy, which the EU constitutes, may be described with a new term as a 'common democracy'. In the classical system, a common democracy is an anomaly. In the new approach, however, the term is meant to characterise the EU as a polity of States, wherein the citizens can participate both in the national democracies of their countries and in the common democracy of the Union.

In the same vein, this approach sheds fresh light on the functioning of the common currency of the Union. Whereas the euro is characterised by advocates of the old model in negative terms as a currency without a State, the new perspective allows for the common currency to be described as a currency beyond the State. The euro is not a currency in want of a State, because the EU and the member-States of the EMU may be regarded as the Joint Sovereign behind the euro (Hoeksma & Schoenmaker 2011).¹ At this stage, the conclusion may be drawn that a common currency is not a contrariety but rather needs a Joint Sovereign to support it.

As a currency without a State, the euro has been on the brink of collapse during the sovereign debt crisis. The measures taken by the member-States and the European institutions, including the European Commission, the European Central Bank and the European Parliament, to defend the euro, demonstrate their commitment to their common currency. A result of the financial and sovereign debt crisis, that challenged the very existence of the common currency, may well be that the euro has evolved from a currency without a State to a currency beyond the State.²

Sixty years after the start of the process of European integration, the contours of a new paradigm in international relations are gradually appearing. The essence of the new model is that it is possible for States to share the exercise of sovereignty without losing statehood. Similarly, States may adopt a common currency without having to merge into a federal State. In the long run, however, the European Union will only succeed if the citizens participate both in the national democracies of their countries and in the common democracy of the Union.

1 Hoeksma, J.A. and D. Schoenmaker, The Sovereign behind the Euro, Nijmegen, 2011.

2 As suggested by Ad van Riet, The Future of the Euro at 15; Rounding the Corners of the Holy Trinity?, Tilburg University and European Central Bank, draft manuscript, 2014.