In this reprint of his January 1998 lecture to the IEA, Mr Portillo directly addresses the political issues raised by EMU. He considers the project's effects on democracy and concludes that it raises real dangers of conflict in the future. The book also contains a postscript by noted American economist Professor Martin Feldstein.
The single currency is not 'merely an economic device' but '...a project in re-shaping the way our Continent is governed'.
The 'federalism' now being pursued at European level is 'highly centralising and owes much to the Monnet-functionalist approach'.
Much of the momentum behind European integration derives from the fear of war. But Europe is more secure from inter-continental conflict tan ever before because it is composed of democracies and '...it is inconceivable that democracies would go to war with one another'.
European integration is '... not the means to achieve the security of our Continent'. Because the form of integration reduces democratic control, rather than abolishing nationalism it risks stirring it up.
For democracy to work, people have to have more than just a vote. Resentment and unrest will be the result if policies are made by bodies '...though to be too distant, or made by people who are not democratically accountable at all'.
Motivation for the single currency is political, not economic. It is '...a bigger step towards centralised decision-making than any that has been taken before'.
Monetary policy will become the responsibility of a European Union central bank. Constraints on borrowing will restrict member-countries' freedom to decide either tax rates or spending levels. Because there is no single labour market, and the flexibility of currency adjustment will have been lost, the '...full impact of recession will...fall on unemployment'.
Electors will feel 'resentful and cheated' when they cannot through their votes influence economic policy or change the policy-makers.
Trying to establish democratic accountability at European level is not the answer. 'Europe' does not constitute a nation. 'No parliament spanning from Dublin to Athens...is capable of satisfying the democratic requirements and aspirations of each of our populations'.
Though the EU is composed of democracies, the Union itself is undemocratic. Transferring decisions from member-states to the Union reduces democratic accountability with the danger of providing '...a breeding ground for nationalism and extremism'.
1998, Occasional Papers 103, ISBN 0 255 36412 1, 31pp, PB