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Tuesday, May 11, 2010

Europe's "Political Trilemma"

Dani Rodrik uses his idea of a political trilemma (e.g. see this from 2007), i.e. that "economic globalization, political democracy, and the nation-state are mutually irreconcilable," to analyze recent events in Europe:

Greek Lessons for the World Economy, by Dani Rodrik, Commentary, Project Syndicate: The $140 billion support package that the Greek government has finally received from its European Union partners and the International Monetary Fund gives it the breathing space needed to undertake the difficult job of putting its finances in order. The package may or may not prevent Spain and Portugal from becoming undone in a similar fashion, or indeed even head off an eventual Greek default. Whatever the outcome, it is clear that the Greek debacle has given the EU a black eye.
Deep down, the crisis is yet another manifestation of what I call “the political trilemma of the world economy”: economic globalization, political democracy, and the nation-state are mutually irreconcilable. We can have at most two at one time. Democracy is compatible with national sovereignty only if we restrict globalization. If we push for globalization while retaining the nation-state, we must jettison democracy. And if we want democracy along with globalization, we must shove the nation-state aside and strive for greater international governance.
The history of the world economy shows the trilemma at work. ...[gives examples]...
[One way around] the trilemma is to do away with national sovereignty altogether. In this case, economic integration can be married with democracy through political union among states. ... Think of this as a global version of federalism. The United States, for example, created a unified national market once its federal government wrested sufficient political control from individual states. ...
The crisis has revealed how demanding globalization’s political prerequisites are. It shows how much European institutions must still evolve to underpin a healthy single market. The choice that the EU faces is the same in other parts of the world: either integrate politically, or ease up on economic unification.
Before the crisis, Europe looked like the most likely candidate to make a successful transition to the first equilibrium – greater political unification. Now its economic project lies in tatters while the leadership needed to rekindle political integration is nowhere to be seen.
The best that can be said is that Europe will no longer be able to delay making the choice that the Greek affair has laid bare. If you are an optimist, you might even conclude that Europe will therefore ultimately emerge stronger.

    Posted by on Tuesday, May 11, 2010 at 04:50 PM in Economics, International Trade, Politics | Permalink  Comments (26)



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