Mody 2018: EuroTragedy

European monetary union (EMU). He tries to give an account not only of the actions
of central political actors (chiefly, the German and French heads of
government) but also explain their motivations. However, he concedes defeat in
this attempt at crucial moments: He cannot fathom why Kohl pushed the EMU
against all economic reasoning and the interests/opinions of several powerful
subnational German actors.

He uses mainly secondary literature, but also quotes Kohl,
Mitterrand and influential politicians surrounding them. He focuses on the lead-up
to the Maastricht treaty, chronologically

The narrative is unambiguous: Economic reasoning was 100%
clear (against EMU), and the governments of FR and DE pushed ahead, one or the
other leading the cause at different points in time, because of vague political
reasons – which Mody does not bother to explain in detail.

### **Critique**

Mody is a wise guy: As hindsight is easier than foresight, from
his comfortable vantage point of 2018 he can easily point out how the design of
the EMU caused / exacerbated the later economic crisis. But while giving ample
space to all the critics of the EMU (duly citing voices both before and after
its construction), he omits the economic reasoning *supportive* of the
construction of the EMU.

Example: “For nearly half a century […] fixed [exchange]
rates had generated crises without providing any benefits.” Mody does not try
to comprehend why governments had persisted with fixed exchange rates. Furthermore,
Mody uses (here and elsewhere in the text) problems of fixed exchange rates as
arguments against a monetary union; but of course the two are not the same
thing. For example, French economic reasoning might have been resting on the
fact that a monetary union makes speculative attacks against member states
impossible (and these happened frequently when currencies were pegged to one
another). Thereby, countries would avoid the accompanying loss of foreign
reserves (to prop up their currencies against a speculative attack), forced
interest rate hikes (which attract foreign capital, thus prop up the currency,
but slow-down the economy) and/or currency devaluation.

Mody does not try to understand Kohl’s turn-around. For what
reasons did Kohl see the EMU as a step towards political union (so dear to
him)? Did he anticipate its failure under current policies and thought that fiscal
union would therefore soon have to be implemented? Mody is weak on fathoming
Kohl’s motivations because he does not have Kohl’s private communications at
his disposal, only his public speeches.

### **Claims**

All European government heads were irrational (FR: wanted
EMU to overcome humiliation of again and again having to devalue against
D-Mark; IT: wanted to prevent the humiliation of not being part of the club,
thus joined although its economy wasn’t ready; DE: Kohl came to see the EMU as a first step towards further political integration.)

CLAIM: Kohl’s agency was decisive. Against:

* advice from central bank
* consensus of international economists

* will of German business
* popular German sentiment

CLAIM: Kohl was a strong supporter
of European political integration (because of personal/biographical conviction
to European peace).

But in remains unclear why such commitment to European
political integration, led Kohl to eventually support (and push for) the EMU
(and even include Italy in it).

Kohl *might* have believed that EMU was important for peace. Or he *might* have accepted the French idea of monetary union as a
first step to political integration (but unclear how this French belief works / whether it’s really present).

Mody offers a partial explanation by (implicitly) suggesting that Kohl might have been reassured by French commitments to budgetary
discipline: The French (and all others) did accept clear budgetary rules, complete
with possible sanctions (while publicly claiming their fiscal sovereignty would not be compromised).

CLAIM: French agency (demanding an
EMU) was an important pre-condition. But the motivation for pushing for EMU
remains unclear: Maybe aversion to devaluation with respect to D-Mark (because
of perceived loss in national prestige).

### **Evidence**

Evidence largely limited to secondary literature:
Biographers and previous treatments of same subject.

How does Mody arrive at his conclusion? He reconstructs
intentions (and internal negotiations) of the most influential politicians
(formally deciding heads of government) through

public statements

logical analysis of
possible motivations for actions (also considering the opinions of actors whose
opinion deciders might have taken into account: public opinion, economists)

assessments of people close
to them and eyewitnesses (e.g. other politicians present at negotiations) (cross-checked?
systematic?)

and partly autobiographical
statements made retrospectively

But no systematic treatment, especially not of alternative
hypotheses (what evidence would be expected?) In other words, missing is a
systematic breakdown of which actors might have been relevant, and what actions
and statements to expect from them for alternative hypotheses before the
collection of empirical bit and pieces supporting his position.