WORLD NEWS – LONDON — So, let’s say you have mastered the euro zone concept of “financial contagion.” Maybe you even know a thing or two about the euro “doom loop,” in which sickly banks and indebted governments threaten to drag each other down a death spiral. WNT now to learn a new buzzword, one that captures the anxieties of those seeking long-term stability for the euro currency union: “trilemma.” The term, coined a dozen years ago by a Harvard University economist writing about the global economy, has come to encapsulate the awkward political options confronting the 17 euro zone countries.
To make the currency union work for the long haul, euro countries’ heads of state have generally concluded that they must more fully integrate their economies. But within their own countries, the political leaders have only shallow support for that idea, if not outright resistance, from voters.
According to the trilemma theory, drawn in part from studies of the economic crises of 1930s and 1940s, it is possible to have two of three things: deep economic integration, democratic politics and autonomous nation-states.
But under the theory, it is not possible to have all three.
“To remain in the euro zone under current conditions, countries like Greece, Italy and Spain are increasingly being forced to give up decision-making authority to rules imposed by Germany,” said Dani Rodrik, the father of the trilemma theory.
“This is creating democratic stresses at home,” he said. “Ultimately, externally imposed austerity becomes incompatible with democracy at home.”
Mr. Rodrik, professor of international political economy at the John F. Kennedy School of Government at Harvard, first wrote about the trilemma idea in 2000, well before the euro zone debt crisis began. But he said the euro problems presented a perfect illustration of his theory.
It is much more than an obscure academic debate. Almost everyone now accepts that much closer economic integration is needed to save the euro.
But that raises the prospect of a reduced role for each nation-state within the currency bloc, and the creation of something closer to a federal structure for Europe, of the type that many of the original architects of the euro always expected to evolve.
A group of 10 European foreign ministers, with Guido Westerwelle of Germany as chairman, issued an interim report last month that argued for just such an approach.
The measures, the ministers wrote, could include a directly elected president of the European Union’s executive body, the European Commission, a post now filled by a candidate nominated by the European Council and approved by a majority vote of the European Parliament.
The report also proposed a pan-European minister of finance and a two-chamber parliament for Europe. Such a parliament might be able to initiate legislation — something the current European Parliament cannot do — and it would have a new, second chamber. How those second-chamber representatives would be selected was not specified.
The democracy question also surfaced late last month, when four of the European Union’s most senior officials published their blueprint on deeper monetary union.
“Integration and legitimacy have to advance in parallel,” said the paper by Herman Van Rompuy, president of the European Council; José Manuel Barroso, president of the European Commission; Mario Draghi, president of the European Central Bank; and Jean-Claude Juncker, the head of the euro zone finance ministers.
But they ducked the question of how such a parallel advance might be achieved.
One preliminary suggestion, which was to create a new parliamentary body for the euro zone, made up of members of the European Parliament and of national lawmakers from the 17 nations that use the currency, proved too controversial to be included in final draft of the four presidents’ blueprint.
Even so, in European capitals, the ideas dominating debate tend to center on the creation of a new euro zone parliament or on drawing national parliaments more closely into European decision-making — or some combination of the two.