The Status of Puerto Rico as a Territory of the United States

Abstract

Ever since its annexation by the United States in 1898, the status of Puerto Rico has never proven satisfactory for either side. While Puerto Ricans have US citizenship and receive federal aid without paying federal taxes, they do not have representation in Congress and cannot vote in presidential elections. Puerto Rico therefore still meets the definition of a colony, and the mismanagement resulting from having two separate governments has allowed the island to decay into a failing state.

The status of Puerto Rico has not been the subject of much attention from the US government, as it has been preoccupied with more pressing domestic and foreign policy issues, and it can be difficult to tell which category Puerto Rico belongs in. However the US government wishes to define the relationship, Puerto Rico’s economic crisis can no longer be ignored, and the current political arrangement is no longer tenable. The time has come to prepare Puerto Rico for independence through a process that is managed, peaceful, and mutually beneficial, so that the island’s government can sort its problems out and the friendly relationship between the United States and Puerto Rico will continue well into the future.

“Our forefathers never envisioned that the United States would keep territories indefinitely, as imperial powers sought to keep colonies, thereby denying fundamental rights to some citizens.

Given the intent of the framers of the Constitution, the residents of Puerto Rico must either preserve their American citizenship with all its rights and obligations under statehood or renounce it to govern themselves separately as a nation. There is no provision in the Constitution for second-class American citizenship.”[1]

---Luis Fortuño, 10^th Governor of the Commonwealth of Puerto Rico (2009-2013)

In terms of constitutional and international law, the relationship between the Commonwealth of Puerto Rico and the United States is a controversial subject. Puerto Rico is a Spanish-speaking territory far removed from the US mainland that does not have any particular importance in terms of geostrategic location or natural resources. While the US-Puerto Rico pairing has proven fairly successful, Puerto Rico is not a good candidate for statehood and would probably be better off now as an independent nation.

The relationship between the US and Puerto Rico has never been clearly defined from a legal standpoint. Even now, the commonwealth relationship does not conform to post-colonial norms for international law.[2] The position of the US government as recently as 2005 is that, as a “property” of the United States, Washington has the sole authority to dispense with Puerto Rico without the island’s citizens or government having any say.[3]

Most residents of Puerto Rico had been content with the commonwealth status that has prevailed since the early 1950s, but the island is now in severe economic turmoil and a significant contributing factor is the political arrangement with the US. For far too long Puerto Ricans have either been unauthorized (because of their commonwealth status) or unwilling to manage their fiscal affairs responsibly, and dependence on federal welfare has only caused the island’s economy to further atrophy.

The simple fact is that Puerto Ricans are subject to laws and policies made by a government in which they have no real voice.[4] Additionally, a sizable contingent of Puerto Ricans view the dominance of the United States as a theft of their cultural identity, not just their political freedom.[5] Now frustrated with the pathetic performance of their local government in letting the fiscal crisis grow out of control, and tired of the indifference shown by the federal government, Puerto Ricans have realized that having two governments is tantamount to having none. A referendum showed majority support among Puerto Ricans for statehood for the first time in 2012 after other referenda failed to gain majority support in 1967, 1993, and 1998.[6]

From the standpoint of the US, adding a debt-bloated, non-English-speaking state in the Union would have profound negative consequences for everyone involved. On the other hand, maintaining the current status and thereby having to continuously bail out Puerto Rico is unsustainable. The Congress of the US, which has sole authority over the governance of Puerto Rico according to Article IV, Section 3 of the Constitution,[7] must now find a way to reconcile the territory’s status in a way that protects the interests of Americans on the mainland as well as the residents of Puerto Rico. The need for action is urgent.[8] The only viable solution is for the federal government to thoughtfully transition Puerto Rico toward independence in a way that prevents the island from becoming a failed state, which is what it is already bound for under the present arrangement.

HISTORY OF U.S. POLICY REGARDING PUERTO RICO’S STATUS

In 1898 the Treaty of Paris ended the Spanish-American War and made Puerto Rico and a few other territories the property of the US, which meant the United States had officially become an imperial power for the first time. This presented the US government with a constitutional challenge it was not prepared for. The Foraker Act of 1900 set up a system of limited popular government in Puerto Rico, and the Jones Act of 1917 gave all residents of Puerto Rico US citizenship,[9] but the status of the island in terms of its relationship with the United States was left unresolved. Throughout the first half of the twentieth century, waves of political violence against the colonial government in Puerto Rico plagued the island.[10] While much of this stemmed from Marxist agitators, a lot of the criticism was legitimate and Congress knew it had to make a better attempt to resolve the status issue.

By mid-century, the world was in the throes of widespread decolonization but the US wanted Puerto Rico for strategic purposes and Puerto Ricans did not want to lose their economic ties to the US even if they were not given the fairest treatment in trade deals.[11] It seemed as if most Puerto Ricans were content with their homeland being a territory of the US, and neither the US nor the people of Puerto Rico desired making it a state.[12] In July 1950 President Truman signed the Puerto Rico Federal Relations Act intended to give Puerto Ricans a greater degree of sovereignty by forming their own constitution, just as each of the states had done. Because Puerto Rico supposedly submitted to US hegemony voluntarily, and because the US attempted to allow Puerto Rico a greater degree of autonomy, the UN removed Puerto Rico from its list of non-self-governing territories even though the island is only partially self-governing at best.[13]

Nevertheless, by 1952 Puerto Rico had adopted its own constitution recognizing the US president as the head of state, and the “Commonwealth” era began. Legally speaking, Puerto Rico still very much resembles a colony,[14] but the commonwealth arrangement prevails to this day even though the public debt disaster is making it look increasingly unsustainable. Furthermore, the status dilemma has proven to be an inexhaustible font of propaganda for anti-US demagogues who, while caring not a whit for the Puerto Rican people, have ceaselessly complained about their alleged colonial exploitation for no other reason than to shame the United States.

In response to accusations made by other countries that Puerto Rico was being treated unfairly by the US government, a Joint Resolution was issued by Congress in 1979 that reaffirmed the US government’s commitment to Puerto Rican self-determination. In 1989 the issue of reconsidering Puerto Rico’s status was introduced into the US Senate.[15] During the second term of the Clinton administration, Rep. Don Young (R-AL) and Senator Larry Craig (R-ID) introduced legislation seeking an answer to the question of whether Puerto Ricans wish to continue with their commonwealth status. One month before leaving office, President Clinton issued Executive Order 13183 establishing the President’s Task Force on Puerto Rico’s Status. President Bush continued the Task Force and issued another Executive Order stating that it should meet at least once every two years. The Task Force issued reports in 2005 and 2007, but in 2009 President Obama issued Executive Order 13517 which made the work of the Task Force less about self-determination for Puerto Ricans and more about pushing the social and economic agenda of the Obama administration more deeply into Puerto Rican society. After the surprising results of the 2012 referendum, federal action on the status issue has stalled and the focus now is on trying to solve Puerto Rico’s financial crisis.

THE CURRENT CRISIS AND THE NEED FOR ACTION

Puerto Rico’s debt is at least 72 billion dollars even though it has only about 3.5 million residents. If Puerto Rico were a state, it would have a higher public debt-to-personal income ratio than any of the 50 states. Governor Alejandro García Padilla, the head of Puerto Rico’s government, recently testified before Congress that the island is effectively out of money. As neither a state nor a local jurisdiction within the US, Puerto Rico cannot declare bankruptcy but Congressional legislation has been introduced that would give the island Chapter 9 bankruptcy protection. That, however, is not a long-term solution.

Puerto Rico suffers not only from an underperforming, debt-riddled economy but the socio-economic maladies that typically accompany it. The Puerto Rican government’s lack of authority to manage the island’s borders—which resides with the US Congress—has been blamed for its failure to control the illicit drug trade and its inability to lower the extremely high rate of violent crime in Puerto Rico.[16] Mass migration to the US in recent years is indicative of the severity of the economic crisis on the island.[17]

Puerto Rico is on the brink of total collapse, and the irony is that the US government is both the enabler of, and the scapegoat for, virtually all of the island’s woes. That is not to say the federal government caused the existential problems now threatening Puerto Rico, but it did neglect the growing welfare state for far too long and then reflexively responded with bailouts that only further contributed to the runaway public debt. Congress deserves blame for not properly carrying out its supervisory role, but the fact is that Puerto Rican politicians and the people who voted for them are mostly responsible for the mess by continually increasing public spending and failing to create an attractive business climate. Gridlock reigns as each government expects the other to take the initiative in reforming Puerto Rico’s economy. If the issue of Puerto Rico’s status is not resolved soon, there really will be no limit to how bad the crisis can become.

THE U.S. MAINLAND’S POSITION ON THE STATUS ISSUE

Not surprisingly, the US government spends little time on issues concerning Puerto Ricans because their political representation in the US is hardly satisfactory. Puerto Ricans cannot vote for president (although, oddly enough, they can vote in presidential primaries) and they have no representation in the Congress except for a non-voting official known as the Resident Commissioner. The US government is therefore constantly preoccupied with more pressing domestic and foreign policy issues than Puerto Rico’s status and it is difficult to tell which of those categories this issue belongs in, despite the US government’s assertion that Puerto Rico’s status is an “internal matter”, not an international one.[18]

On those rare occasions when the tribulations of Puerto Rico are the subject of any Congressional attention at all, it comes almost exclusively from the Senate Committee on Energy and Natural Resources and the House Committee on Natural Resources, particularly the Subcommittees on Federal Lands; and Indian, Insular & Alaska Native Affairs. The western-state politicians who usually comprise these Committees might have good intentions but are far removed from Puerto Rico, and those with strong ties to the island are typically liberal Democrats who offer destructive political solutions such as more spending on Puerto Rican welfare or making it a state. US presidents rarely speak on Puerto Rican issues, and although the Obama administration has made the usual overtures toward self-determination, it had to back away after the 2012 referendum produced results it was not prepared for.

As for the US citizenry, much hay has been made of the most recent status referendum in Puerto Rico, but the opinion of the mainland population is just as important. The status of Puerto Rico is not a pressing issue for most citizens or pollsters in the US, and the scant polling that has been done reveals no helpful information. In 1998, a Gallup poll showed a nearly three-way tie: 28% for independence, 30% for statehood, and 26% for the status quo.[19]                

PUERTO RICO’S POSITION ON THE STATUS ISSUE

The status question dominates Puerto Rican politics. It is the central issue of the two major political parties—one is pro-statehood and the other pro-commonwealth—and their respective solutions to the status dilemma do not neatly coincide with the Democrat and Republican platforms. As a consequence, it is difficult to get a read on how Puerto Ricans feel about the Democrat/Republican divide or the statehood debate by looking at election results alone. The ouster of a pro-statehood Republican governor on literally the same day statehood was a big winner on the status referendum epitomizes the confusion.  

Right now, both mainstream political parties in Puerto Rico are headed by liberal Democrats. The governor, Alejandro García Padilla, represents the pro-commonwealth Popular Democratic Party (PPD), and the Resident Commissioner is the fiercely pro-statehood Pedro Pierluisi, the titular head of the pro-statehood New Progressive Party (PNP). Rep. Pierluisi is a serious threat to the body politic of the United States, having used his position to introduce legislation intended to make Puerto Rico a state under ambiguous names such as the Puerto Rico Democracy Act (H.R. 2499) in 2010 and the Puerto Rico Status Resolution Act (H.R. 2000) in 2013 before finally introducing the boldly titled Puerto Rico Statehood Admission Process Act (H.R. 727) in 2015.        

The statehood threat is bipartisan. The previous governor Luis Fortuño has demonstrated an excellent understanding of the impossibility of maintaining Puerto Rico’s commonwealth status, but he is also a staunch advocate for statehood. Having achieved a modicum of fiscal success while governor of Puerto Rico, Fortuño was able to use his position as a Latino Republican leader—a rare specimen widely coveted by GOP elites—to spread pro-statehood propaganda to unsuspecting conservatives in the US.

Because the pro-independence side had chosen to boycott previous status referenda,[20] gauging the true opinions of Puerto Ricans toward independence becomes even more difficult. Wise Puerto Ricans have long been skeptical of the independence movement, correctly identifying it as a guise for a socialist takeover. The Puerto Rican Independence Party (PIP) is the largest among a handful of tiny socialist-independence parties that are faithful to the tradition of the independence movement’s inability to get out of its own way. These parties still rely on dated Marxist slogans and anti-US platitudes instead of building constructive political platforms and, not surprisingly, they have virtually no representation in Puerto Rico’s government at any level.

Another problem is that the two-tiered question format on the status referendum causes a lot of confusion about what Puerto Ricans truly want. The first question asks if the voter wishes to continue with the status quo, and if the answer is ‘no’, a second question asks the voter to choose independence, statehood, or something called a “free associated state”. Of the voters who answered ‘no’ to the first question, that last option was chosen by about one-third, statehood by 61% and independence by only 5.5% of those who bothered to choose one of three options; more than a quarter of ‘no’ voters simply left the second question blank. This means there are only two serious proposals coming from the Puerto Rican side right now, both of them unhelpful: continual bailouts, or statehood (which is a form of perpetual bailout, as will be demonstrated later).

EVALUATION OF FAILED PROPOSALS TO RESOLVE THE STATUS ISSUE

It has been proposed that Puerto Ricans should be able to choose their destiny through a self-executing referendum, but this is not sound policy. The mistake was allowing Puerto Rico to even consider the possibility of statehood as a status option on the four referenda taken in 1967, 1993, 1998, and 2012. Each subsequent referendum showed progressively increased support for statehood, but it was not until 2012 that it finally got a majority. At least the last three presidential administrations have tried to respect international law principles of self-determination by initiating a path to a self-executing referendum on Puerto Rico’s status, but that would be skirting US constitutional law. Puerto Rico’s status is ultimately left up to the US Congress according to Article IV, Section 3 of the Constitution, which supersedes any form of international law. Admitting Puerto Rico as a state would require the permission of the Puerto Rican legislature—not the voters—in addition to Congressional approval. A binding referendum is inadvisable, but if it is to be done, it must be only one question with only two choices: either giving the US total authority over local governance in Puerto Rico, or independence with no caveats.   

The federal government and the Puerto Rican people have been flirting with statehood for many years, but it seems both sides focus only on the benefits of such an arrangement without considering the drawbacks. Puerto Ricans would have to completely submit to the repugnant policies from Washington and pay federal income taxes. Neither side is going to be happy about the language issue: Either Puerto Ricans will need to learn English, or the entire nation will have to recognize Spanish as an official language of government.[21] (Consider what this would mean for Puerto Rican representatives in Congress.) In addition to the language barrier, Puerto Rico is virtually guaranteed to elect several liberal Democrat US Representatives and add two US Senators of undoubtedly the same political leanings. Puerto Rican statehood would mean fundamentally altering American institutions such as the flag, the national anthem, and symmetrical Senatorial representation. It would also mean adding another deeply liberal state in massive financial trouble to a nation already buckling under a crushing public debt crisis.

             The Government Accountability Office issued a report in 2014 that estimated federal spending on Puerto Rico would have been higher if it had been a state, and in some cases the increase would be monumental; according to the GAO, the 24 million dollars the federal government contributed to the disability fund in 2011 would have been up to 7,400% more if Puerto Rico was a state.[22] Since residents of Puerto Rico do not pay federal income taxes, it would seem logical that they would not be eligible for federal benefits, but there are multitudes of social safety net programs in Puerto Rico equivalent to Medicare, Medicaid, SNAP (food stamps), SSI (disability), and these receive a sizable federal contribution from taxpayers in the US. Not only that, but Puerto Rico is far more dependent on government welfare than any state of the Union is. A third of the island’s residents are on food stamps and the rate of Puerto Ricans receiving disability income is twice as high as that of the US. With an unemployment rate still over 12 percent—about 2.5 times higher than the US rate—and a dismal Labor Force Participation rate that hovers in the 40% range, Puerto Rico’s economy more closely resembles what one might expect to find in a developing country, not the United States. The likelihood of Puerto Rico’s taxpayer base being able to pull its own weight in federal benefits is very low.

RECONCILING CONSTITUTIONAL AND INTERNATIONAL LAW

The conflict with constitutional and international law is what made the current commonwealth status untenable in the first place, and the debt crisis is nothing more than the logical conclusion of what was guaranteed to be a flawed political arrangement from the very start. The unnatural relationship between the US and Puerto Rico is out of step with normative international law and it is not clear that the US Constitution even allows such a relationship to continue indefinitely.[23] It has also been argued that since the UN Charter is a treaty agreed upon by the US and therefore has the force of the US Constitution, the federal government has a responsibility to continually pursue self-government for Puerto Rico according to Article 73 of the UN Charter.[24] It appears that Puerto Rico retains the right under international law to declare itself unconditionally independent,[25] but no matter how strongly the people of Puerto Rico want to join the Union, they would still need to obtain Congressional approval. Puerto Rico’s right to self-determination under international law does not extend so far as to mean that Puerto Rico can determine itself to be a state of the Union. Statehood naturally has strong support, as leftist politicians in the US are salivating over adding another reliable Democrat voter base that is heavily dependent on government benefits; and a considerable part of Puerto Rico’s leadership and citizenry mistakenly believe statehood is a panacea that will make all of their fiscal troubles disappear. Some statehood activists are even thinking of attempting to emulate the “Tennessee Plan”: pretending to be a state by electing two “US Senators”—even though they are obviously not legitimate—and then daring the federal government to refuse giving them seats in the Senate.[26] This ploy made Tennessee a state, and the threat that it could do the same for Puerto Rico is real.    

The US cannot continue to keep bailing out Puerto Rico, and making it a state would only make the bailouts bigger. At the other extreme, clearing out Puerto Rico’s dysfunctional but democratic government and reinstating a US puppet regime to carry out the needed austerity measures would outrage Puerto Ricans and the international community. The US government is hardly less dysfunctional right now than Puerto Rico’s, anyway, and it is mystifying that the two are wooing each other so thoughtlessly.

POLICY PROPOSAL

The only viable solution for both sides is for Puerto Rico to be let loose, which does not necessarily connote a total severance of the US-Puerto Rico relationship. In the current political environment in both Puerto Rico and the United States, it does not appear likely that transitioning Puerto Rico to independence will have widespread support. For more than a century, Marxism has been so thoroughly intertwined with the independence movement that the two are virtually synonymous. Hundreds of attacks have been carried out by terrorists claiming to be fighting for the liberation of Puerto Rico, namely the FALN (Army of National Liberation) and the EPB (Puerto Rican Popular Army, also known as the Macheteros). There is substantial evidence that Cuba has been deeply involved in organizing and giving direct support to terrorists in Puerto Rico.[27] The fear that an independent Puerto Rico will inevitably be ‘Cubanized’ is legitimate, thanks to decades of communist penetration by Castro’s clandestine operations.

There can be no doubt that the reluctance shown by most Puerto Rican people to entertain any idea of independence is largely a result of the unarguably destructive and outdated Marxist ideas that have been part and parcel of the independence movement since its inception. Once Puerto Ricans are forced to stop daydreaming about statehood, however, they will have to confront the reality that their problems will not be resolved under the current commonwealth arrangement. The socialist independence movement can then be supplanted by a legitimate one and the possibility of forming a successful independent government in Puerto Rico should start to seem more plausible.

The process must be gradual and predictable, with sufficient time to establish an effective representative government but not prolonged the to the point where the Puerto Rican people lose a sense of urgency. Once established, the new government can maintain its closeness with the US with an Article II treaty,[28] or join other international trade and security agreements if it wishes to. No matter what, the US government must respect the new nation’s sovereignty, even if it turns away from the United States.

Certain reasonable stipulations can be made, of course. The US government can establish accommodative rules for citizenship so that no Puerto Rican alive at the time of independence will have to choose allegiance to either the US or the new nation. Some privileges—such as travel within the states or the resolution of legal cases already begun—may have to be grandfathered to Puerto Ricans for a while, but the new Puerto Rican government will get to decide on how it wants to handle relations with the Puerto Rican diaspora in the US and non-Puerto Rican US citizens. One stipulation must be made clear from the start: Any disruption of republican government (such as if elections are suspended or martial law is imposed) in an independent Puerto Rico is grounds for the US government to re-assert its authority and remove the repressive government; the Monroe Doctrine may also be applicable here. This caveat is necessary to prevent the embarrassment of Puerto Rico being overtaken by a dictatorship or a foreign country, which are probable outcomes without this protection. Finally, the model for the transition should be Hong Kong, which was taken off the UN’s list of non-self-governing territories in 1972 due to a change in status and was ultimately relinquished to China, but it maintained much of its autonomy and prosperity throughout every stage. Puerto Rico will be vulnerable without the United States, but it should eventually become a stable Caribbean nation. The US will still have to be involved until the training wheels are ready to come off, and the currency arrangement might need to be severed in order to protect the dollar, but if the process is well-managed the prospects are good for future friendly, prosperous, and mutually-beneficial relations between the US and Puerto Rico.

Bibliography

“A Tennessee Plan for Puerto Rico?.” PR51st.com, [n.d.]. Accessed December 17, 2015: http://www.pr51st.com/a-tennessee-plan-for-puerto-rico/.

Colón-Ríos, Joel & Martín Hevia. “The Legal Status of Puerto Rico and the Institutional Requirements of Republicanism.” Texas Hispanic Journal of Law & Policy 17, no. 1 (Spring 2011): 1-25.

Falcón, Angelo. "The Diaspora Factor: Stateside Boricuas and the Future of Puerto Rico." NACLA Report on the Americas 40, no. 6 (November 2007): 28-31.

Font-Guzmán, Jacqueline N. "Confronting a Colonial Legacy: Asserting Puerto Rican Identity by Legally Renouncing U.S. Citizenship." Centro Journal 25, no. 1 (Spring 2013): 22-49.

Gerow, Andrew E. "Shooting for the Stars (and Stripes): How Decades of Failed Corporate Tax Policy Contributed to Puerto Rico's Historic Vote in Favor of Statehood." Tulane Law Review 88, no. 3 (February 2014): 627-650.

Hudson, R. A. "Castro's America Department: Systemizing Insurgencies in Latin America." Terrorism 9, no. 2 (February 1987): 125-167.

Lawson, Gary & Robert D. Sloane. "The Constitutionality of Decolonization by Associated Statehood: Puerto Rico’s Legal Status Reconsidered." Boston College Law Review 50, no. 4 (September 2009): 1123-1193.

Meléndez, Edgardo. "Citizenship and the Alien Exclusion in the Insular Cases: Puerto Ricans in the Periphery of American Empire." Centro Journal 25, no. 1 (Spring 2013): 106-145.

Orellana, Manuel Rodríquez. "Puerto Rico and the U.S Congress: The Road Ahead." Texas Hispanic Journal of Law & Policy 21, (Spring 2015): 31-61.

Pastor, Robert. “The International Debate on Puerto Rico: The Costs of Being an Agenda-Taker.” International Organization 38, no. 3 (Summer 1984): 575-595.

Rezvani, David A. "The Basis of Puerto Rico's Constitutional Status: Colony, Compact, or ‘Federacy’?." Political Science Quarterly (Academy Of Political Science) 122, no. 1 (Spring 2007): 115-140.

Rubinstein, Alvin Z. "The Case against Puerto Rican Statehood." Orbis 45, no. 3 (Summer 2001): 415.

Saad, Lydia. “Americans Divided Over Status of Puerto Rico.” Gallup.com, March 13, 1998. Accessed December 17, 2015: http://www.gallup.com/poll/4243/Americans-Divided-Over-Status-Puerto-Rico.aspx.

Susler, Jan. "National Lawyers Guild International Committee Presentation to the United Nations Decolonization Committee Hearings on Puerto Rico, June 20, 2011." National Lawyers Guild Review 68, no. 1 (Spring 2011): 32-41.

U.S. Government Accountability Office. “Puerto Rico: Information on How Statehood Would Potentially Affect Selected Federal Programs and Revenue Sources.” GAO.gov, March 4, 2014. Accessed December 7, 2015: http://www.gao.gov/products/GAO-14-31.

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[1] Luis Fortuño, “Luis Fortuño: Doing What is Right for Puerto Rico and the Nation,” Latino.FOXnews.com, February 20, 2013. Accessed December 15, 2015:  http://latino.foxnews.com/latino/opinion/2013/02/20/luis-fortuno-doing-what-is-right-for-puerto-rico-and-nation/.

[2] Gary Lawson & Robert D. Sloane, "The Constitutionality of Decolonization by Associated Statehood: Puerto Rico’s Legal Status Reconsidered," Boston College Law Review 50, no. 4 (September 2009), 1125-1126.

[3] Edgardo Meléndez, "Citizenship and the Alien Exclusion in the Insular Cases: Puerto Ricans in the Periphery of American Empire," Centro Journal 25, no. 1 (Spring 2013), 134.

[4] Jacqueline N. Font-Guzmán, "Confronting a Colonial Legacy: Asserting Puerto Rican Identity by Legally Renouncing U.S. Citizenship," Centro Journal 25, no. 1 (Spring 2013), 23.

[5] Ibid., 22.

[6] Andrew E. Gerow, "Shooting for the Stars (and Stripes): How Decades of Failed Corporate Tax Policy Contributed to Puerto Rico's Historic Vote in Favor of Statehood," Tulane Law Review 88, no. 3 (February 2014), 627-628.

[7] David A. Rezvani, "The Basis of Puerto Rico's Constitutional Status: Colony, Compact, or ‘Federacy’?," Political Science Quarterly (Academy Of Political Science) 122, no. 1 (Spring 2007), 118-119.

[8] Manuel Rodríquez Orellana, "Puerto Rico and the U.S Congress: The Road Ahead," Texas Hispanic Journal of Law & Policy 21, (Spring 2015), 31.

[9] Gerow, “Shooting for the Stars,” 637.

[10] Rezvani, “The Basis of Puerto Rico's Constitutional Status,” 121.

[11] Ibid.

[12] Ibid.

[13] Lawson & Sloane, “The Constitutionality of Decolonization,” 1126.

[14] Joel Colón-Ríos & Martín Hevia, “The Legal Status of Puerto Rico and the Institutional Requirements of Republicanism,” Texas Hispanic Journal of Law & Policy 17, no. 1 (Spring 2011), 25.

[15] Orellana, “Puerto Rico and the U.S Congress,” 33.

[16] Jan Susler, "National Lawyers Guild International Committee Presentation to the United Nations Decolonization Committee Hearings on Puerto Rico, June 20, 2011," National Lawyers Guild Review 68, no. 1 (Spring 2011), 33.

[17] Angelo Falcón, "The Diaspora Factor: Stateside Boricuas and the Future of Puerto Rico," NACLA Report on the Americas 40, no. 6 (November 2007), 28-29.

[18] Robert Pastor, “The International Debate on Puerto Rico: The Costs of Being an Agenda-taker,” International Organization 38, no. 3 (Summer 1984), 576.

[19] Lydia Saad, “Americans Divided Over Status of Puerto Rico,” Gallup.com, March 13, 1998. Accessed December 17, 2015: http://www.gallup.com/poll/4243/Americans-Divided-Over-Status-Puerto-Rico.aspx.

[20] Alvin Z.  Rubinstein, "The Case against Puerto Rican Statehood," Orbis 45, no. 3 (Summer 2001), 415.

[21] Ibid.

[22] U.S. Government Accountability Office, “Puerto Rico: Information on How Statehood Would Potentially Affect Selected Federal Programs and Revenue Sources,” GAO.gov, March 4, 2014. Accessed December 7, 2015: http://www.gao.gov/products/GAO-14-31.

[23] Lawson & Sloane, “The Constitutionality of Decolonization,” 1123.

[24] Ibid., 1125-1126.

[25] Ibid., 1192.

[26] “A Tennessee Plan for Puerto Rico?,” PR51st.com, [n.d.]. Accessed December 17, 2015: http://www.pr51st.com/a-tennessee-plan-for-puerto-rico/.

[27] R. A. Hudson, "Castro's America Department: Systemizing Insurgencies in Latin America," Terrorism 9, no. 2 (February 1987), 125.

[28] Lawson & Sloane, “The Constitutionality of Decolonization,” 1192-1193.

The History and Evolution of the EMU and its Impact on Globalization

Abstract

Throughout the last century European officials have been attempting to duplicate the economic prosperity found in the United States, which has been attributed to America’s successful monetary union. From the end of World War II till today economic unification has been steadily advancing, from limited trade partnerships to the current Economic and Monetary Union (EMU) of the European Union, with its crowning achievement: the currency union, known as the euro area. While the EMU is a powerful economic force, the inherent imbalances in fiscal policies at the national level had been exposed during the recent euro crisis, leading to the conclusion that the union needs to either take more steps toward centralizing economic policy; or begin to disintegrate the union, in whole or in part. A review of the existing literature will show that the preferable solution is radically less integration, including the possible disintegration of the entire euro area and a return to national currencies.

The Economic and Monetary Union (EMU) of the European Union is the largest such union in the world. It encompasses all 28 member states of the European Union regardless of whether they have adopted the euro as currency. The EMU is the end product of a century of modest steps toward unification of the EU economies, whose sheer numbers are impressive with more than 500 million people and a combined GDP larger than that of any nation on earth. The EMU and its single currency area are undoubtedly major advancements in globalization, but the heightened prosperity comes at a price. The amalgamation of so many disparate economies threatens to dissolve long-standing democratic institutions and perhaps the very concept of the nation-state itself.

WHAT IS E.M.U.?

EMU is the economic pact that all member states of the EU must abide by. Even the nine EU countries that continue to use their own national currency and are therefore not part of the Eurozone (officially known as the euro area) are fully part of the EMU, which is defined by three primary elements. The first is customs union—an international tariff-free zone with a common external tariff—and single market, meaning virtually all restrictions on internal trade have been removed. These two arrangements can be realized without political realignment, but the third and most important plank of the EMU (while still optional for EU countries) is monetary union—the sharing of an international currency—and this cannot be sustained without radical changes to existing political systems.

Noticeably absent in the EMU and the euro area is a centralized fiscal policy or common treasury (Selvaraj 2015, p. 20), both of which are needed to prevent imbalances in the common currency. Without those two critical institutions the monetary union could disintegrate or degenerate into a permanent vehicle for transferring wealth from the stable economies to the ones that need relief. If the EU goes ahead with its plans to create its own Eurozone treasury—which would invariably lead to a centralized fiscal policy—that could mean the end of nearly 400 years of traditional Westphalian nationhood in Europe. Legitimate concerns over the loss of national sovereignty have made the institutionalization of the euro—a single currency regulated by a single central bank—the most controversial aspect of EMU. The intricacies of the monetary union will therefore be the primary focus of this report.

MONETARY UNIONS PRIOR TO THE E.M.U.

The modern concept of economic integration could be said to have begun with the former British colonies in America, whose history of assimilation is remarkably similar to that of the EU and will be explored in detail later. There have been several other attempts at monetary union in one form or another in the last two centuries but none was of comparable size or scope to the US or the EMU. Beginning in the 1870s, the Scandinavian countries experimented with a mutual exchange rate tied to gold but the agreement was merely intended to be a pact between neighbors and not an expansionary scheme like the EMU (Tache 2013, p. 167). The ill-fated Hapsburg Empire produced a relatively successful currency union from 1878 through World War I but disintegrated after the resurgence of national currencies in the 1920s (Gross & Gummer 2014, p. 252). The most intriguing case study for the EMU has to be the Latin Monetary Union, an organic arrangement formed in 1865 between France, Belgium, Italy, and Switzerland (Tache 2013, p. 166). Prophetically, the LMU was put in jeopardy after Greece—a fiscally toxic nation even back then—joined in 1867 over objections that this would pollute the other economies in the union. Despite this, the strongest LMU nation, France, got wide-eyed about what it perceived to be an opportunity to increase its currency area and therefore its wealth (Tache 2013, p. 166). The LMU eventually comprised eighteen nations but had neither a central bank nor a single currency, so it eventually succumbed to the inflationary pressures caused by currency devaluation and the massive expenditures of World War I (Tache 2013, pp. 166-167). Interestingly, fear of hyperinflation was a reason for starting, not ending, the somewhat successful Benelux Union, which actually predated and overlapped some of the primitive predecessors of the EMU.     

EARLY ATTEMPTS AT UNIFYING EUROPE

The idea of integrating the continent had been around for ages, but it took the devastation of two World Wars and everything that accompanied them for European leaders to talk seriously about exploring the possibility of unification (Marshall 2012, p. 16). Preliminary plans for economic union had broad appeal. In 1945, Churchill reportedly encouraged the nations of Europe to emulate the American example of unification to promote, among other virtues, “economic cooperation” (Mauter 1998, p. 67). Significant figures in the government of the United States, motivated by a desire to prevent war and thus avoid future costly interventions in Europe, shared the same federalist vision (Gavin 2010, p. 35). In 1948 European luminaries of every stripe attended the Congress of Europe and produced a proposal for a unified continent with its own parliament (Marshall 2012, p. 16). In 1950 French premier René Pleven’s proposal for military union ultimately went nowhere, but in that same year his foreign minister Robert Schuman proposed the creation of the seminal European Coal and Steel Community (ECSC), which became the first step on the road to the modern EMU.

THE ROAD TO E.M.U.

The ECSC began in 1952 with only France, Belgium, Italy, West Germany, Luxembourg, and the Netherlands, but the idea of further economic integration was already gaining steam. In 1957 the same six countries signed the Treaty of Rome that established the European Economic Community (EEC), which later became the European Union.

The unofficially connected monetary system of the EEC enjoyed relative stability until the world’s currency markets became unhinged in the late 1960s. In 1970, the Werner Report was the first expression of the nations of Europe to establish an official monetary union (Fichtner & König 2015, p. 376). The Werner Report outlined three stages in the ten-year plan to realize EMU by the year 1980. Unfortunately, the gold standard—which is itself a type of monetary union (Tache 2013, p. 162)—was thrown out in 1971 and this unleashed a global pandemic of currency destabilization which, combined with the energy shocks of the 1970s, made the idea of monetary union less attractive (Fichtner & König 2015, p. 377).

The next decade nevertheless saw major advancements toward European economic unification. In 1979 the European Monetary System (EMS) was created to keep exchange rate volatility within certain limits (Fichtner & König 2015, p. 377). By 1986, the single market had been established (Fichtner & König 2015, p. 377). In 1988, European central bankers and European Commission President Jacques Delors finalized yet another three-stage plan for economic and monetary union known as the Delors Report (Fichtner & König 2015, p. 376).

 Not everyone was enthusiastic about the idea, however. An ideologically eclectic assemblage of skeptics—led by some prominent politicians and economists such as Margaret Thatcher and Milton Friedman, as well as various media outlets and think tanks in Europe and America—openly doubted the survivability of European monetary union (Perpelea, M., Duţă & Perpelea, O. 2013, p. 139).

THE BEGINNINGS OF E.M.U. AND PREPARATIONS FOR THE EURO

The EMS was retired in 1991 by the Treaty of Maastricht which formally established the EMU. This new economic structure for the EU was to be supervised by a menagerie of the EU member state governments, a handful of EU bureaucracies, and the European Parliament. In keeping with the evolutionary trend, the process was to be accomplished through the stages specified in the Delors Report (Schwartz 1996, p. 30).

The first stage (1991-1994) involved completing the single market through the removal of internal barriers to the flow of capital. The second stage (1994-1999) set up the European Central Bank (ECB) and the European System of Central Banks (ESCB) to co-ordinate central banking at the national level (Schwartz 1996, p. 30). Note that all EU members’ national central banks are part of the ESCB, but only the ones from euro area nations comprise—in conjunction with the ECB—the Eurosystem that is tasked with regulating the euro.

The ECB has a notably high degree of independence. An elite Governing Council of the ECB, composed of high officials from the Eurosystem, has control over monetary policy for the entire euro area. The edicts from the Governing Council are expected to filter down to the non-euro countries through the ESCB. The third and final stage (1999 and after) sought to fix exchange rates and begin the era of the euro. Additionally, an informal body known as the Eurogroup, composed of administrators from the euro area member states, holds regular meetings to discuss and co-ordinate policies affecting the euro.

            Maastricht also spelled out the convergence criteria for countries that want to enter the monetary union: a deficit-to-GDP ratio of no more than 3% and a debt-to-GDP ratio of no more than 60%, along with fairly stable rates of exchange, interest, and inflation (Schwartz 1996, p. 30). In 1997 the Stability and Growth Pact intended to enforce good fiscal behavior in potential euro area member nations, as well as create new exchange-rate guidelines for those in the second stage (ERM II) of the transition process to the euro.

Eleven countries comprised the euro area at the start (said to have reached the third and final stage of EMU) and seven more were added from 2001-2015, beginning with Greece. The fateful decision to let Greece into the euro area would have profound repercussions for the monetary union.  

THE CURRENT E.M.U. AND THE EUROZONE

While there is no way to determine if the EMU is anything more than the sum of its parts, it is collectively a global powerhouse. The EMU has been a success at facilitating free trade within the member states and perhaps outside of them—a dynamic that not only increases prosperity but also decreases the likelihood of conflict (Alves 2011, p. 51). The EU nations have experienced a refreshing era of peace—at least in terms of major military actions between member nations—but just how much of this is because of EMU is uncertain.

In the early days of the euro area, the idea of pegging some African currencies to the euro was already being entertained, as was the notion of forming other monetary unions in Southeast Asia, Latin America, or North America (Mundell 2000, p. 225). Even the idea of a global monetary union had a degree of support (Mundell 2000, pp. 255-256),  but a worldwide single currency is not feasible. There would be no benchmarks to compare it with, so it could never be corrected except by inflating it or manipulating it monetarily (Mundell 2000, p. 231). Nevertheless, the plausibility of other potential projects in monetary union, and globalization in general, would hinge on the performance of the European monetary union.           

THE PROBLEMS OF GLOBALIZATION

Problems with the EMU were apparent—or should have been—from the very beginning. The conventional economic mentality that guided the EMU’s key institutions, namely, the European Commission and the ECB, rendered them inadequate to govern such an unconventional project so the system was destined to grow out of control (Flassbeck & Spiecker 2011, p. 180). There is evidence to support the claim that the architects of the EMU were willing to accept economic crises and social strife as part of their experiment because they believed these maladies could make further unification appear desirable (Fichtner & König 2015, p. 376). On the contrary, some of the euro area governments have taken advantage of the deficiencies of the euro to advance their own selfish ambitions at the expense of the other member states, while the impotent EU institutions find themselves unable to do anything meaningful about the lack of co-operation (Orphaides 2014, p. 262).

            The hope was that the monetary union would serve as a vehicle to transmit salubrious economic practices throughout all of its member states, but instead it became a way for the less responsible economies to free-ride on their more circumspect neighbors (Alves 2011, p. 48). Because of its institutional structure, the euro area can serve as an enabler for the member states obsessed with the counterproductive economic habits of profligate spending and heavy regulation, because there is an expectation that the debt incurred as a consequence of these policies will be shifted to the rest of the monetary union (Alves 2011, p. 50). Not only are the bad fiscal policies of the PIIGS (Portugal, Italy, Ireland, Greece, and Spain) countries offset by the protections afforded by the single currency, they are actually incentivized (Alves 2011, p. 47). It did not take long for a severe debt crisis to develop.

THE EUROZONE CRISIS

The worldwide panic of 2008 set off a chain of events that ultimately exposed serious underlying structural problems in the monetary union. The root cause of the Eurozone crisis was actually not the currency, but numerous other issues stemming from a pervasive lack of growth and unwieldy public debt (Weber 2015, p. 247), much of which is a direct result of the excessive social welfare spending throughout the EU (Lemieux 2013, p. 227). The currency union comprises strong economies that implement pro-growth measures such as Germany as well as sluggish Southern European economies whose populations nonetheless continue to receive increased nominal wages (Flassbeck & Spiecker 2011, p. 182). There had long been evidence that Greece acted unscrupulously by not disclosing its shaky financial situation in the early 2000s in order to meet the convergence criteria necessary for entrance into the monetary union, but after the crisis it was revealed that Greece also concealed its budget deficit during the financial crisis (İmre 2011, p. 74).

The countries that had already been running huge deficits in a desperate attempt to keep their economies afloat finally sank during the crisis, causing all kinds of financial problems related to public debt that are still unresolved (Fichtner & König 2015, pp. 381-382). With the stronger EMU nations having to bail out the fiscally troubled members of the union such as Greece, Ireland, and Portugal, the inherent imbalances of the flimsy system could no longer be dismissed (İmre 2011, p. 74).

CONSEQUENCES OF THE CRISIS

Throughout the 25 years of its existence, EMU planners have over-relied on manipulating the common currency as a means to achieve further integration and accustom the populations to the inherent disruptions caused by monetarily combining unequally yoked economies (Fichtner & König 2015, p. 383). This has not only led to economic crises, but severe social and political upheaval as citizens rebel against the policies of a system that seems to be perpetually advancing away from the constraints of democracy (Fichtner & König 2015, p. 383). No country has exemplified this outrage more than Greece, whose people—having recently elected a government stridently opposed to the status quo—are strongly considering leaving the euro area (Fichtner & König 2015, p. 383). Conversely, the populations who are shouldering most of the load in the EMU are undoubtedly pressuring their officials toward re-thinking the whole idea of monetary union.

The conventional approach to the European crisis has been to think of it solely in economic terms, but at the core of the crisis is the issue of the viability of the European Union itself (Lehmann 2014, p. 33). The economic crisis has exacerbated a great deal of pre-existent animosity toward the EU that its leaders had been ignoring, but they must now acknowledge the opposition’s frustration and make the needed reforms or risk jeopardizing the plans they have for further integration (Lehmann 2014, p. 33). The currency union that was supposed to unite Europe has instead produced seismic rifts in the EU, and the flaws in the euro are threatening the future of the entire experiment in European unification (Orphaides 2014, p. 262).

POSSIBLE SOLUTIONS

The competitiveness gap between the stronger economies such as Germany that keep wages closer to the market level, and the weaker Southern European economies where wages have experienced artificial inflation, has led some to conclude that the only answer is the EU-wide regulation of wage policy (Flassbeck & Spiecker 2011, 180). To mitigate the consequences of a financial crisis that affects each country differently, one recommendation is to have a centralized insurance framework in place (İmre 2011, p. 74).

The official plan to correct some of the flaws in the EMU has already been outlined. The unending evolution of the EMU is apparently set to continue in at least two more stages. The first stage (2015-2017) consists of using the mechanisms currently in place to better co-ordinate national and system-wide economic policies; and the second stage (to be completed by 2025) is a more aggressive vision that includes the establishment of a single treasury for the euro area.

The creation of a single treasury would have profound implications for the monetary union. This would potentially place all decisions regarding the member nations’ fiscal policies in the hands of EU officials. The Eurozone crisis could lead to the EU taking complete control over economic policy, but unless changes are made to the existing order this could prove disastrous (Alves 2011, p. 51). The euro—and the entire EMU—could be put in serious jeopardy if a fully centralized supergovernment were ever given the power to use the common currency as a tool to reallocate wealth through currency manipulation (Alves 2011, p. 51).

THE FUTURE OF THE E.M.U.

The success or failure of the monetary union is dependent on whether the euro area is an optimal currency union—a collection of territories in which a single currency would maximize economic potential. While the European Commission still believes the Eurozone will eventually become an optimal currency area (İmre 2011, p. 74), this was a question that should have been answered before the monetary union was created. It should be noted that the decision to form the Economic and Monetary Union was entirely voluntary, and support for the idea came almost exclusively from the elites and not the people (Perpelea et al 2013, pp. 137-138). EMU is a solution in search of a problem, and now the biggest problem in Europe is the EMU itself.

The EMU is anomalous in the history of monetary unions because it has heretofore functioned without a binding political arrangement for fiscal decision-making; in nearly every other case, political union has preceded monetary union (Tache 2013, p. 166). The Latin Monetary Union exemplified how monetary unions among large, independent nation-states will fail sooner or later if they do not unify politically (Tache 2013, p. 167).

WHAT WOULD FURTHER INTEGRATION MEAN?

The comparison between the United States and the euro area deserves further evaluation, as both unions are economically alike despite obvious differences in organizational structure (Orphanides 2014, p. 244). The dramatic story of the United States is, at heart, an account of the vicissitudes and perturbations of a monetary union. It should not be assumed that the formation of the United States was inevitable, nor should anyone forget that unification was a long process, not a single event. There had been attempts to unify the colonies going back to Ben Franklin’s Albany Plan of Union in 1754. From the Articles of Association up till the present day, the union continues to evolve in ways that Europe should take note of because not all of the developments have been positive.

Europeans who believe that further integration can be accomplished without giving over national sovereignty to a continental government should know that present-day America is far removed from what the Founders intended to create. The United States was not a nation (and still is not); the United States were thirteen sovereign nations (Young 1977, p. 1572). The people considered themselves citizens of their respective states, as federalism was never intended to eviscerate state (national) sovereignty (Young 1977, p. 1575).

“A MORE PERFECT UNION”

Aside from a disastrous experiment with the Continental currency during the Revolutionary War, the road to the American version of monetary union began in earnest with the Articles of Confederation, which have been unfairly charged with setting up a failed form of union (Young 1977, p. 1975). The Articles gave Congress the power to borrow money, issue currency, and regulate foreign trade (Young 1977, p. 1574). The centralization of monetary policy was furthered by the Constitution, whose framework to create “a more perfect Union” included giving Congress exclusive authority to issue fiat money and regulate its value. It was not until after the Civil War, however, that the federal government took complete control over monetary policy (Tache 2013, p. 164).  Subsequent Progressive Era corruptions of the Constitution such as the Sixteenth and Seventeenth Amendments greatly tilted the balance of power away from the states toward what looks suspiciously like the type of national government the Founders feared would eventually eviscerate the federalist system. More than two centuries of sustained efforts to concentrate more power in the hands of federal officials rendered the state governments an afterthought, just as the procession of Treaties, from Rome to Maastricht to Lisbon, has groomed the heterogeneous peoples of Europe into forsaking their national pride and accepting complete consolidation.

It is not easy to ascertain precisely which stage in the development of the American monetary union most accurately reflects its European counterpart at this moment, or exactly which incarnation of the United States most closely resembles the ideal that the grand designers of the EU are trying to emulate, but the paths the two unions have taken thus far are strikingly similar and the result in both cases is a substantial loss of sovereignty.

THE UNITED STATES OF EUROPE?

Even during the heyday of federalism in the post-World War II years, it is still uncertain just how far Churchill and his peers wanted to go toward European unification, and the evidence suggests the great British leader would never have been in favor of unification if it came at the expense of political sovereignty (Mauter 1998, p. 83).

The idea of monetary union is inherently antithetical to state sovereignty. One of the reasons why the federal government of the US took control of the currency was to disempower rogue states after the Civil War (Tache 2013, p. 164). Coincidentally, one of the goals of the architects of the European monetary union was to prevent wars between the countries (Tache 2013, p. 164), but soon there may be no more countries. It is unlikely that the EU can continue on its current trajectory much longer without federalizing the Eurozone nations under a single government, which, as the American experiment has demonstrated, will eventually result in nationhood. This would obviously be a colossal disruption, as the Eurozone does not have the same natural conduciveness to nationhood that early America had. The former colonies had a population of perhaps 3 million, not 300 million-plus; were bound by a common language and culture, not dozens of these; and their borders were newly minted, not hundreds of years old. Even in those fortuitous circumstances, the greatest assemblage of statesmen the world has ever produced in its history could not reconcile fundamental differences between the states at the time of union, and many of these were economic in nature. There were northern states that had transitioned to a burgeoning form of capitalism and southern states whose economies were still heavily reliant on a system of plantation slavery that would later be called communism, but the Eurozone contains nations that have differences rivaling even these infamous quandaries. Americans from different states have a fraternal bond that makes union possible (Buccola 2014, p. 262), but it will take an extreme effort to get Greeks and Germans—to name just one example of an awkward pairing—to identify as countrymen. Perhaps the Europeans can resolve their economic discrepancies diplomatically, but the consequence for the United States was Civil War, and even that did not resolve all of the internecine disputes.

The most instructive American history lesson for modern Europeans is that homogenization has not solved the kinds of economic imbalances currently afflicting both the United States and the euro area. The debt crises in America and the EU are strikingly similar (Gokhale & Partin 2013, p. 193). Europeans should know that even in the United States, wages and consumer prices are not uniform either, and attempts to federalize wage floors and price ceilings would only further distort local markets. Europe would have an exceedingly difficult time trying to overcome fully federalized economic regulations because the Old World does not have the labor mobility found in the United States. Largely for economic reasons, Americans routinely migrate across state lines, to the tune of approximately 8 million people, or 3% of the population, annually (Perpelea et al 2013, p. 141).

BAIL OUT OR FORCE-OUT?

In the EMU, or any other type of economic union, there is always the inherent problem of risk externalization: The tacit understanding that at least some of the consequences of any one state’s irresponsible fiscal policy will be borne by the other member states (Buccola 2014, p. 262). If a bailout is given to the financially troubled state, this only heightens moral hazard and therefore the likelihood of future reckless spending for all the states in the economic union (Buccola 2014, p. 262). This economic law is more applicable now in the United States than ever before, even though the fiscal policies of the states have been placed in the hands of the federal government to a considerable extent. The largest state in the union—California—and some mid-size ones such as Illinois, Michigan, and New Jersey are riddled with overwhelming public debt to the point where they may never be able to meet their obligations (Buccola 2014, p. 237).

No state has ever been kicked out of the United States and, although some have infamously tried to escape, none successfully has. No EU country has left the euro area thus far, but since reliance on perpetual bailouts is unsustainable there are only two long-term options for the stronger Eurozone nations: either impose radical fiscal restraints on the troubled member states or force them out of the currency union. If neither of these reforms is made, the net givers—the states for whom monetary union is a losing proposition, such as Texas or Germany—may have no choice but to uncouple their economic locomotives from the dead weight they are pulling and leave the currency union. Since the remaining member states in that case would be net takers—the ones that receive more than they give—the result would be a monetary union with no money, which would of course disintegrate.      

THE FUTURE OF GLOBALIZATION

The monetary union in the United States has undoubtedly contributed to the unmatched prosperity of that great nation, but it is not the reason for the success. The font of American prosperity is capitalism, and if Europeans wish to emulate anything about the United States it should be this. The most well-designed economic union in the world will never make up for bad macroeconomic policy, and Americans—who had long taken their free-market blessings for granted—are beginning to learn this the hard way.

Monetary union is the economic application of the old adage that postulates there is safety in numbers. The smaller members in the union believe they can piggyback on the larger economies, and the giants view the smaller states as places where they can impose economic hegemony and advance their own national interests. History has shown that in the long run neither situation is tenable for all parties involved.

Disintegration is not something to be feared. EU member states can rediscover their sovereignty while still having beneficial economic partnerships and retaining many of the advantages they have now. Switzerland and Norway, for example, are not even EU members but are part of its more intelligently designed trade agreements such as the single market.

The future lies not in further globalization but in separation. This will take place either voluntarily or as the result of a monstrous crisis that de-integration might have prevented. The benefits of monetary union in terms of increased efficiency are simply not worth a suicide pact. In both America and Europe, centralized policymaking has led to central planning on a level that Westerners should be uncomfortable with. For these nations, some of which once ranked among the greatest the world had ever known, the solutions will come not from Washington or Brussels, but from within.

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