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Rodrik’s trilemma is false. The euro trilemma is another one

That is where my political trilemma begins to bite: We cannot have globalization, democracy, and national sovereignty simultaneously. We must choose two among the three.

If European leaders want to maintain democracy, they must make a choice between political union and economic disintegration. They must either explicitly renounce economic sovereignty or actively put it to use for the benefit of their citizens. The first would entail coming clean with their own electorates and building democratic space above the level of the nation-state. The second would mean giving up on monetary union in order to be able to deploy national monetary and fiscal policies in the service of longer-term recovery.

Dani Rodrik, today.

To be sure: Dani Rodrik calls globalization in this case lack of exchange rate risk, i.e. a single currency, that is, among euro countries. To national sovereignty he opposes EU politically representative institutions.

I disagree fundamentally on his political trilemma, which has the following (wrong) implication: You can’t have democracy if you have a set of countries (states) with a common currency that exercise national sovereignty on their policies. You can’t have a common currency if you have democracy and national sovereign states. You can’t have sovereign states if you have a common currency and democracy.

You can, actually. When the United States did not have a Federal government, i.e. until basically the XXth century, it was a dollar democracy where states ruled.

But now let us look at the euro area.

Rodrik’s basic argument: if we want a democracy, we have to choose between the euro and European supranational institutions or national sovereign policies out of the euro. Wrong again: we could live very well for a while, until we mature a common European identity, under a euro area with a common agreement that current account surplus countries engage in expansive and inflationary fiscal policies to reduce tensions while current account deficit countries engage in reforms (without austerity, because with austerity you might lose democracy).

The true trilemma thus stands rephrased (we will call it the Piga trilemma, just to feel cool):

We cannot have austerity, democracy and a common currency simultaneously. We must choose two among the three.

If you have austerity and a common currency, you can’t have democracy. You have troikas.

If you have austerity and democracy, you can’t have the euro, you exit it, by majority voting.

If you have democracy and a common currency, you can’t have austerity, but fiscal expansion to save employment and cure the recession.

That easy.

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