The Euro and European Identity: Symbols, Power and the Politics of European Monetary Union.

Matthias Kaelberer

Published in Review of International Studies Vol. 30, April 2004, 161-178

The Euro and European Identity: Symbols, Power and the Politics of European Monetary Union.

Abstract

This paper assesses the relationship between money, collective identity, and European integration. The recent move of the European Union (EU) toward a common currency the euro seems to contradict the conventional one nation/one money assumption about the association between states, territory and money creation. However, from a broad macro-historical perspective, the process of European monetary unification is not as exceptional and unique as it is often made out to be. I argue that the relationship between money and collective identity is reciprocal. On the one hand, money is a purposeful political tool in the construction of identities. On the other hand, in order to function properly, money requires some degree of collective identity among its users. Thus, the paper examines the role of the euro as part of an explicit project to facilitate the development of a European identity as well as the required level of European identity necessary for a successful functioning of the euro. The key identity aspect at stake in the relationship between money and identity is not an affective relationship between citizens and country, but rather a relationship of trust. During the process of modernization, trust has become rather abstract and institutionalized. To support a modern relationship of trust, identity does not have to rest on deep affective feelings of belonging. Diffuse identity, based on utilitarian or contractual factors and as part of evolving hybrid identity structures, is sufficient.

The Euro and European Identity: Symbols, Power and the Politics of European Monetary Union.*

What is the relationship between money, collective identity, and European integration? Conventional wisdom holds that the control of money is associated with the notions of sovereignty and state power, at least since the emergence of the nation state in the late nineteenth century. The popular formula for this connection has been that of one nation/ one money. According to this perspective, coins and banknotes have frequently defined the boundaries of political entities. Indeed, political elites have regularly used money to construct specific political identities and social boundaries. Accordingly, money has not only served economic functions but has also operated as a symbol of place, locality and power. The decision by twelve member states of the European Union (EU) to adopt a supra-national common currency the euro at first sight seems to contradict that historical association between states, territory, and money creation. While the European Union has arguably taken on some elements of statehood with the euro a leading example of that process the primary allegiance of citizens still rests with their nation states. Currently, and most likely for the foreseeable future, national identities are stronger than a European identity. On the other hand, the euro is certainly the most important symbol of European integration and identity beyond the individual EU member states to date. This situation raises an intriguing question about the causal links between European monetary integration and national (or supra-national) identities. What is the relationship between currency transformation and the construction and reconfiguration of national or supra-national identities? What does European monetary union tell us about the connection between money and identity? I argue that the relationship between money and collective identity is reciprocal. Money and identity can be both cause and effect. On the one hand, money is a purposeful political tool in the construction of identities. On the 2

other hand, in order to function properly, money requires some level of collective identity among its users. Thus, this paper addresses two main substantive issues. It examines the role of the euro as part of an explicit project to facilitate the development of a European identity, and it investigates whether there is a sufficient level of European identity to support a successful functioning of the euro. This discussion of the relationship between identity and money is embedded in a broader macro-historical perspective. In contrast to prevailing short-term assessments of the revolutionary change brought by the euro in the monetary landscape, I argue for a more cautious evaluation. The process of European monetary unification itself is not as exceptional and unique as it is often made out to be. The distinction between national and post-national money is exaggerated. A one nation/ one money formula does not fully capture the links at stake in the cultural dimensions of monetary transformation. Following Georg Simmel and others, I argue that money is, first and foremost, a social relation. Money does not have any objective material quality, but is based on the belief among market participants that certain items be they gold, paper, or computer blips have a generalizable exchange value. In other words, money is based on trust. During the process of modernization, however, trust has become rather abstract and institutionalized. This means that identity does not necessarily have to rest on deep affective feelings of belonging in order to support a modern relationship of trust. Diffuse identity, supported by utilitarian or contractual factors, is sufficient. Market participants simply need to believe that there are advantages to using a particular currency and that this money is built on a credible institutional structure. The article concludes that there is a sufficient level of Europeanness as part of evolving hybrid identity structures to support an effective functioning of the euro. In the following I will first analyze the conventional relationship between money, nation states and national identities. The second section addresses some of the shortcomings of a perspective that links the issue of monetary and territorial sovereignty 3

with the question of national identity. As a third step I analyze the connections between the introduction of the euro and the attempt to construct a European identity. In the fourth section I argue that the most fundamental identity issue at stake in monetary governance concerns the question of trust, rather than affective or primordial ties. On the basis of this argument, the concluding section asks how strong European identity would have to be to establish a successful governance structure for the euro.

Money, Nation States and National Identity It has by now almost become commonplace to attribute symbolic functions to money. Benjamin Cohen, for example, argues that political symbolism in addition to seigniorage, macroeconomic management and monetary insulation was one of the major benefits acquired by governments in the process of national monetary unification.i Before the second half of the nineteenth century, the monetary landscape was highly fragmented. Many private players issued various forms of money. In addition, numerous commodities (including metals, tobacco or furs) competed with coins and paper money to serve similar functions. According to one estimate, by the time of the American Civil war, 7000 different kinds of bank notes were in circulation within United States territory.ii However, during the nineteenth century, governments gradually became more or less monopoly suppliers of money in their respective territories.iii A symbolically important aspect of this process of monetary unification was the role of money in creating a collective identity among the users of a particular national money.iv According to this line of thought, national governments in part seized the monopoly of issuing and regulating money in order to increase the power of the state and to create greater national integration and societal cohesion. Territorialization of money allowed governments to build up the nation and promote a sense of community. Money as a cultural instrument helped citizens to feel part of the same political community. Supplementing the many other symbols of identity, money was another tool of helping 4

people identify with each other and conceptualize themselves as nationals. To use Benedict Andersons apt phrase, money may have played a role in the formation of an imagined communityv and the consolidation of the nation state. The imagery of coins and bills provided policymakers with the opportunity to propagate their vision of the nation. Banknotes and coins can produce and reproduce national narratives in forms authorized by the state.vi Of course, this included the inevitable portraits of monarchs, presidents and other national heroes as well as the depiction of important historical events. Or coins and notes could picture important positive symbols of national identity, such as the American Eagle and other representations of such ideas as liberty and justice. In any case, the imagery of coins and notes clearly helps to spread a favorable self-interpretation of a nation. Unlike many other nations that could depict an uninterrupted historical lineage, post-World War II German deutsche mark notes, for example, returned in their imagery largely to pre-Bismarkian history and to artists and scientists rather than political heroes in order to invoke a softer and non-confrontational national identity.vii Along the same lines, deutsche mark notes also depicted several portraits of women in particular, the highly popular 100 deutsche mark note, which featured the composer and pianist Clara Schumann. Ironically, the euro has allowed Germany to rejoin symbolically the continual chain of European culture and history, as it is reflected in the artistic and architectural styles of more than two millennia of European culture depicted in euro notes. Post-Cold War Germany is once again part of Europe and can be proud of its role in a shared cultural inheritance. Choosing faceless artistic styles, in some sense, alleviates the need for Germany to delink itself constantly from 100 years of a problematic national history.viii Benjamin Cohen describes the territorially distinct monetary geography from the second half of the nineteenth century into the second half of the twentieth century as guided by the principle of one nation/one money.ix During this period, nation states 5

became the sole issuers of money and exercised exclusive territorial control over their national monetary domain. Since then, according to Cohen and many other analysts, the monetary landscape has significantly deterritorialized. National governments are no longer in such a privileged position as they were in earlier periods. Foreign currencies penetrate national borders, and monetary authority structures overlap. Increasing dollarization in various parts of the world and the introduction of the euro are only the two most visible phenomena of this process. One nation/one money is certainly an interesting and useful analytical perspective to explain large shifts in the international monetary landscape. It captures important features of a particular period in monetary governance, which now seems to be giving way to a different kind of monetary governance structure. However, as the next section will explain, the thesis of an overlap of nation and monetary geography also leaves numerous questions unanswered. It is not an optimal starting point for investigating the connection between identity and money.

One Nation/One Money and the Politics of Monetary Transformation The one nation/one money perspective is intuitively quite persuasive. That territory, national identity and money are somehow linked does not strike us as particularly odd or unconventional. However, from an analytical perspective, the ties between territory, identity and money are not the primary and most fundamental causal connections at stake in assessing the introduction of the euro. They are intertwined with other underlying factors. Processes of monetary transformation have often followed more closely functional imperatives and structural constraints than cultural needs. The following discussion addresses a number of analytical problems of the one nation/one money perspective. In some sense, the five problems I delineate in this section are related to the insufficient scope of the one nation/one money perspective. There never was a period of self-contained national markets. Capitalism has always been a world 6

system. Nations have continually been embedded in world markets, making the relationship between money and territory inherently tenuous. The first problem of the one nation/one money formula is that it applies to a fairly short period of history. It is limited to barely 100 years of monetary history. There is no necessary causal logic that suggests that the overlap between territorial and monetary sovereignty was a logical endpoint in the evolution of monetary governance. On the contrary, it seems more appropriate to interpret the stage of national monetary unification merely as one phase in the development of money, which was itself based on unique historical circumstances. National monetary unification in part reflected overlapping developments in the political and economic sphere. With the increasing range of market transactions and the widening scope of production, national governments were uniquely positioned to unify the monetary structure of their territory and to provide greater efficiency to market transactions in an otherwise fragmented monetary landscape: the size of nation-states corresponded fairly well to the developmental stage of the forces of production.x National governments could serve an important regulatory function in broadening the geographical scope of markets and economic transactions. Economic and policymaking elites had parallel interests in standardization and spatial extension of economic transactions.xi Second, national money had to exist in perennial tension with its international function. Money is there precisely for the purpose of exchange and not primarily for the self-definition of a closed entity. Actually, the necessities of international exchange were one of the main driving forces in simplifying domestic monetary structures and in issuing national money. For example, one of the first steps toward full national monetary unification in the United States was the adoption of a distinction between inside and outside money.xii Outside money allowed the federal government to settle external accounts, while monetary heterogeneity continued to exist domestically. This logic of exchange precludes money for purely national purposes. From the standpoint of 7

exchange, national monies are merely substitutes for each other. The essence of money lies much more in its mobility and continual motion than its territorial ties and static stability. Moreover, the international monetary geography has always been hierarchical a hierarchy created among formally, but not substantively, equal currencies. At no point in the history of national monetary sovereignty have all sovereign issuers of money been in a position to exercise effective monetary authority over their own territory.xiii Within international monetary relations only a small number of states have had a chance to pursue monetary policy autonomously. Power relations have always constrained the ability of monetary policymakers in weaker countries to pursue their own individual priorities.xiv Under the classical gold standard, the Bank of England for all practical purposes set the benchmark for global interest rates. Monetary authorities in other countries had to follow British policy. Similarly, under the rules of the Bretton Woods system the United States served as the standard setter for macroeconomic policy. If other countries were unwilling to adopt US domestic macroeconomic preferences they had to bear the adjustment costs of deviating from the American standard.xv De facto, most governments have not had exclusive monetary authority over their territory. International monetary hierarchy in some sense never allowed for fully insular monetary spaces. Under conditions of free capital mobility and continued financial globalization, the tension between nominal sovereignty and effective policy-making authority has become even more intense. National currencies are much less a key component of sovereignty rights when national monetary policy is ineffective. Third, the one nation/one money principle was by no means as complete and homogenizing as one might want to assume. National monies have not always been stable enough to serve adequately as enduring symbols of national identity. Currency substitution is not a new phenomenon, but has repeatedly occurred in cases of hyperinflation or other confidence crises in the national money. In addition, many 8

countries have used more than one money during the period covered by the one nation/one money argument. Currency reforms in response to crises or functional necessities have been frequent, causing one to question whether national monies were indeed stable enough to establish enduring symbols of national identity. Many countries underwent monetary transformation processes that changed their national monies quite distinctly. For example, the French franc was devalued numerous times. The French authorities introduced a new franc just in 1960, leading to the oddity that older French citizens kept using the old franc as a measure of value until the franc was abandoned for the euro in 2002. Germany experienced two monetary reforms after 1871, and only its post-World War II success turned the deutsche mark into a symbol of national pride. Britain introduced a decimal currency only in 1971 and names for older coins have remained in popular usage. Even the Queen has been pictured on British banknotes only since 1960. Overall, the citizens of countries such as France and Italy attached very little national pride to their currencies. Giving up the French franc and Italian lira which had been plagued by inflationary problems for decades for the euro was not a significant sacrifice of national identity.xvi Fourth, by its very nature, money is not an ideal means for collective identity. In particular, it does not fully allow one to distinguish between self and others. The relationship between money and identity is highly abstract rather than manifest and concrete. Several aspects are relevant in this context: First of all, money has always been a concept rather than a physical entity and its tangible characteristics have further dissipated over time. As far back as its primitive beginnings as a commodity standard, money has always represented a conceptual leap of faith. It stood for more than its material appearance and concrete form. Furthermore, in the process of modernization, the definition of wealth and status of individuals and political entities alike has continuously moved from immobile and territorially distinct goods (such as territory and physical structures) to more and more mobile and abstract objects.xvii Money is an almost ideal 9

expression of this logic. As Georg Simmel argued, the money economy has produced a distance between people and their possessions.xviii National money creation itself was already a process of abstraction away from concrete territoriality and local identities. National market integration created a space beyond an individuals immediate territorial location and personal experiences. In this sense, money is part of the modernization process in which time-space relations become more distant and abstract. Following Anthony Giddens, we can argue that the creation of national money is part of the disembedding mechanism associated with modernity: Money brackets time (because it is a means of credit) and space (since standardised value allows transactions between a multiplicity of individuals who never physically meet one another).xix Thus, there is no necessary relationship between concrete territoriality and money. In addition to the modernization of the economy, the forms of money themselves have undergone a process of increasing dematerialization. Money has evolved from commodity standards over paper currencies to purely electronic forms.xx The physical and substantive aspects of money have continuously eroded in favor of immaterial qualities. Thus, the introduction of euro coins and notes represents an interesting irony. In one sense, the euro notes and coins are the most antiquated form of contemporary money. With further technological development they will become increasingly less significant.xxi On the other hand, the bills and coins are actually in themselves vivid expressions of this process of abstraction and dematerialization. The design of euro notes is anonymous and abstract.xxii Rather than depicting concrete places and historical individuals, they simply show architectural styles, primarily in the form of imagined bridges, gateways, windows and arches that evoke conceptual recognition but do not depict existing structures. Thus, in the case of the euro, money has become abstract even in its most concrete and materialized existence paper bills.

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The sequence of introducing the euro further underscores this irony. The euro already existed three years before bills and coins were finally released in January 2002. As an electronic currency, the euro served as the vehicle for the large majority of transactions in Europe even before it became more manifest in terms of visible cash. The introduction of coins and notes, in that sense, was merely a symbolic gesture to catch up with what had de facto happened already earlier. Thus, January 1, 2002 was an important date on the symbolic level but virtually irrelevant in real economic terms. The euro was already there when it arrived. A fifth problem of the one nation/one money formula concerns the very concept of national identity. National identity is not a fixed category at all. Identities are in constant flux. The nation is a subjective and psychological entity. People feel that they belong to a group in this case, the nation. While primordial and affective ties may be significant distinguishing criteria for the feeling of belonging, national identities are in the end socially constructed. Utilitarian considerations and contractual obligations can strongly facilitate or reinforce feelings of belonging. Economic or political success, after all, can be significant unifying forces. In any case, the meaning of the nation and national identity can change over time, interact with other forms of identities and be part of individuals multiple identities. If the concept of the nation remains fluid, however, the one nation/ one money relationship cannot be a fixed entity either. Furthermore, the very fact that nations are constructed entities opens the door for functionalist arguments: governments, through their actions, construct and reconstruct legitimacy for the nation state. The nation state itself succeeded because it was better able to deliver favorable political outcomes than competing forms of political organization.

The Euro as a Project for Identity Construction The argument that money has been part of national identity construction sheds interesting light on European monetary integration as well. While there are many other 11

economic and political motivations to pursue monetary union, the euro is in part also an explicit project for identity creation. It constitutes a component in the construction of a new European political architecture that transcends the nation state. At its most basic level, this identity discourse reflects a functionalist logic. According to a widespread argument, European monetary unification presents the logical outgrowth of the single market project. It was only natural to supplement the single market with a single currency. In some sense, the coming of the euro appears to be an inevitable result of progress in European integration. Most importantly, the euro can be justified and can legitimize itself by the efficiency gains of a common currency. In addition to the functionalist justification, the euro also has given way to greater efforts at creating affective ties to Europe. The imagery of the euro bills and coins are expressions of this attempt. Already the design of the euro symbol was chosen with an explicit attempt at identity construction. As the European Central Bank argues: It was inspired by the Greek letter epsilon, harking back to Classical times and the cradle of European civilisation. The symbol also refers to the first letter of the word Europe. The two parallel lines indicate the stability of the euro.xxiii Euro coins feature a national symbol on one side and European symbols on the other. The official interpretation of the European Central Bank establishes an explicit connection to identity construction in the coin design: The European side of the coins . depicts a map of the European Union against a background of parallel lines linking the 12 stars of the European Union flag. The 1, 2 and 5 cent coins show Europes place in the world and the 10, 20 and 50 cent coins depict Europe as a group of individual nations. A united Europe without frontiers is represented on the EUR 1 and EUR 2 coins.xxiv The euro bills leave no room for national symbols. Both sides of the banknotes picture common European symbols and themes. They feature the European flag and a map of Europe, the most important public symbols of the EU. The attempt at identity 12

construction again becomes explicit in the official interpretation of the European Central Bank: On the front of the banknotes, windows and gateways symbolise the European spirit of openness and co-operation. The 12 stars of the European Union represent the dynamism and harmony between European nations. To complement these designs, the reverse of each banknote features a bridge. The bridges symbolise the close co-operation and communication between Europe and the rest of the world.xxv It is certainly no coincidence that the gateways also represent an orientation toward the future and that bridges represent links between people. In addition, the use of architectural themes serves as a fitting metaphor for the project of building Europe. The choice of styles and artistic periods on the banknotes is also revealing for the idea of Europe behind European monetary integration. The 5 euro note features a classical Roman arch and aqueduct; the 10 euro note depicts a Romanesque church door and bridge; a Gothic church window and bridge are the images on the 20 euro bill; the architectural style featured on the 50 euro bill is the Renaissance, on the 100 euro bill Baroque and Rococo, on the 200 euro bill Iron and glass architecture and finally on the 500 euro bill modern 20th century architecture. The imagery on the euro banknotes attempts to establish links to a common European tradition. It refers back to the classical ancestry of Europe and deliberately constructs a common European historical memory. The imagery clearly indicates that it is not difficult to construct the roots of a common European civilization. Classical antiquity, the Renaissance, the Enlightenment, as well as the technological and industrial revolution are shared historical experiences among Europeans.xxvi The chronological ascent in artistic styles also reads history in conventional European teleological fashion as the story of progress.xxvii While German banknotes visibly emphasized historical discontinuities, the euro can conveniently forget uncomfortable aspects of European history such as war and imperialism in the name of an optimistic and progressive vision of Europe. It romanticizes history as easily as national currencies do. 13

On the other hand, the euro design reveals an intriguing glimpse of possibly underlying notions of European identity. Are Russia and Turkey countries that were bypassed by such common European developments as the Renaissance, the Reformation and the Enlightenment part of Europe? If they join the European Union, would these countries have to sign on to a similar reading of history as it is exhibited in the euro banknotes? Does Europe end at the German-Polish border? At the former borders of the Austro-Hungarian Empire? Or, at the Ural and Bosporus? Regardless of the answer to these questions, the design of the euro in part reflects a desire to develop a European consciousness and to shape deliberately peoples cognitive orientation toward Europe. In that sense, the euro is an attempt at identity construction.

Money, Identity and Trust Deliberate elite efforts to construct a European identity are not new. The euro in that sense is comparable to other symbolic efforts to create greater European consciousness, such as the European flag, the passport, anthem or the European Champions League in football. However, there is one particular aspect that gives money a very special identity dimension, namely the issue of trust. Money is not so much an economic or material entity, but rather a social relation.xxviii This means that issuers of money always have been challenged to offer a product that market participants would actually trust. In a very broad sense, people identify with each other when they engage in money transactions. They accept money in a market exchange based on the assumption that others would do exactly the same. While this may be most obvious in the case of dematerialized forms of money (e.g. paper, tokens or electronic blips), it is even true of commodity-based money. For example, there is nothing inherent about the value of gold. A gold standard is also only based on the trust that others value gold as much as oneself. Money is merely a conceptual scheme and, in this sense, all money ... is virtual.xxix

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Trust is the important category at stake, because money is essentially a form of credit. Why would anyone actually exchange goods and services for a piece of paper, a coin or an electronic blip for that matter? In the last resort, money represents a promise by society as a whole to back up its value. With the replacement of barter, money became an abstract guarantee by society to the holder of money that he would be able to continue to turn it to account and to dispose of it without a loss.xxx Simmels famous dictum adequately describes the situation: Money appears, so to speak, as a bill of exchange from which the name of the drawee is lacking.xxxi The fact that the name of the drawee is lacking illustrates that within modern societies trust is removed from the personal level and depends on abstract systems. Among the abstract systems most important for the context of money would be the monetary institutional structure in particular the credibility of a central bank and the stability of the banking system. Ultimately, monetary institutions have to earn the trust of participants in markets. Their legitimacy does not come from any form of essentialist ties. Whose countrys imagery is on the coins and notes does not matter, if market participants do not trust the issuing institution although one could argue, of course, that the imagery is supposed to invoke feelings of trust. On the other hand, imagery obviously becomes a non-issue when we consider electronic forms of money. Thus, trust in the stability of the monetary system is highly abstract. It clearly rests on a societal and political foundation but the feeling of identity that is necessary to sustain the monetary system is far removed from affective ties and personalized trust. Trust in complex modern societies is institutionalized. Within a modern monetary order, the pertinent institutions such as the European Central Bank, its constituent national central banks, national governments, and the network of transactorsxxxii are much more crucial foundations for the emergence of trust and monetary stability than personal ties or affective feelings of belonging. Thus, the key analytical question to ask about the relationship between money and identity is

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not whether money requires some form of identity, but rather how strong European identity would have to be for the euro to succeed.

Does the Euro Need European Identity? One of the great dangers in assessing European identity is to use the hegemonic model of the nation state as the measuring instrument for the intensity of European identity. Clearly, any form of a European identity would be quite different from the national identities of individual EU member states. For the foreseeable future, a European identity will most likely remain weaker than the respective national identities.xxxiii There is little prospect for European identity to rival national identity anytime soon. However, European identity is not a zero-sum situation. Over time, identities have continuously become more complex. Even national identity is already a step toward greater abstraction from mere kinship ties. In part, national identity became a tool to compensate for the dissolution of particularistic ties during the modernization process.xxxiv Continued (post)-modernization and globalization, however, have made it even more visible that national identity is only one layer or component of multiple overlapping identities albeit in most cases a stronger form of identity than others. European and national identity are both constructed. Following Benedict Anderson, Europe as well as the individual nation states are imagined communities. European and national identity can coexist as a part of hybrid identities. There is no intrinsic tradeoff between national and European identity.xxxv While these two forms of identity may compete with each other, they are certainly not mutually exclusive. Precisely because European identity can only be based on diversity and inclusiveness, it can coexist with national, subnational and other identities. It has to continue to grow alongside other identities, rather than to replace them. To make any sense of the concept of European identity at all, it is important to conceptualize identity as multilayered rather than as

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undivided. If we were to conceive of identity as an exclusionary concept, European identity would still be almost non-existent due to the strength of other layers of identity. The EU is certainly not a natural or organic association. It lacks the immediacy of kinship ties. Emotional or affective relationships within the European Union are quite minimal. As the former President of the EU Commission, Jacques Delors, observed: Europeans will not fall in love with a Common Market.xxxvi European identity, therefore, is conceivable for the most part only as a civic identity.xxxvii A common ethnic or linguistic background is not a necessary requirement for identification, as such established nation states as Switzerland or the United States can attest to. If identity is primarily constructed, the need for affective identity can remain limited. Rational calculus and contractual obligations are for the most part sufficient to create the level of identity necessary for the proper functioning of the euro: Europeans do not have to love the euro, they merely have to believe that there are advantages to using it and that its institutional foundations are credible. As part of a hybrid identity, the euro does not need an identity basis as strong as national identity: polycentric forms of governance require at best hybrid identities. Current levels of European identity provide a sufficient cultural basis for European Monetary Union. A diffuse feeling of Europeanness has been developing for a number of decades.xxxviii Europeans feel close to several layers of European governance. Moreover, even though the affective ties remain weaker than in the case of national identity, it should not be ignored that historical memory is not the exclusive property of the nation state. Actually, the imagery of the euro coins and notes itself demonstrates rudimentary notions of a common reading of European history and broader European cultural ties: the history of Europe offers many possibilities from which to add the required historical depth to the invention of a common European tradition.xxxix The cultural tradition of antiquity, feudalism and the uniformity of the medieval period, the experience of the reformation, renaissance, enlightenment, nation state formation and the 17

industrial revolution are all common experiences of Western Europe beyond individual nation states. The introduction of the euro is merely another part of this construction of a common European identity. It makes European identity more tangible and provides a concrete European symbol that engraves another element of Europeanness into the daily lives of individuals. While European identity as such is still diffuse, the cultural attitudes of elites have increasingly Europeanized. Elites have largely shaped the domestic debates over monetary union and the Maastricht Treaty. And political acceptance of monetary union has been achieved more strongly in those countries, where elites have a greater European identity (e.g. Germany and France) than in others with lower degrees of Europeanization.xl A significant portion of the political and social elite in European countries is strongly attached to the idea of Europe and shows characteristics of a strong European identity. The fact of elite consensus on this issue, however, has also raised doubts and questions about the feasibility of further European integration in the face of a growing gap between elite and popular opinion.xli Nevertheless, the elite commitment is an important engine for European integration. It is worthwhile remembering that even national monetary unifications during the 19th century were largely elite projects, which did not necessarily have automatic popular appeal.xlii In addition, there are international forces that push for greater levels of European identity and integration. Since identity does not merely reflect internal cohesion but also delineates in-groups against out-groups, external factors play a crucial role in defining the identity of groups. Globalization and international economic factors have already pushed Europe to adjust and to search for joint solutions to commonly experienced pressures. One incentive to establish EMU was, of course, to compete more successfully with the dollar and to increase Europes monetary power.xliii Moreover, growing AmericanEuropean conflicts over various political, cultural and economic issues have increased the visibility of distinctly European values and cultural traits. For example, the debates over 18

the death penalty or environmental protection have reinforced the feeling of a value structure that clearly distinguishes Europe (and not only individual nation states) from the United States. Despite all its intra-European variations, the European model of society will most likely continue to put more emphasis on shared European values of social solidarity. Europe as a whole is unlikely to follow American preferences for abandoning the welfare state. Thus, Europeans more and more feel that they share at least aspects of a common culture that defines Europe externally in distinction from the rest of the world. Europeans have increasingly recognized common interests as well as common values and traditions. European identity is already much stronger than it was decades ago. This may not always be reflected in attitudinal surveys of individuals. Eurobarometer results seem to indicate a recent weakening of feelings of Europeanness.xliv However, these individual data overlook the concrete political situation as it manifests itself in intra-European relations. Europe has become a de facto aspect of daily life. The EU plays a largely irreversible role in economic production and market transactions among European countries. It is difficult to envision a Europe reversing the common market. War among the major European powers is even more unthinkable. Moreover, the EU has an emerging constitutional structure.xlv The European Court of Justice and European legal principles have become part of daily life. A Europe without borders is a reality for many travelers. Many cross-national activities take Europe for granted. Europe has become routine and represents a social fact.xlvi Even the cultural sphere has offered greater opportunities for shared experiences. Football, for example, has become more and more Europeanized with the introduction of the European Champions League, the increased European-wide mobility of players (a consequence of the single market!) and the European-wide visibility of the games greatest stars and clubs. Beckham, Zidane or Figo are not merely national heroes anymore. Their talents and accomplishments have become part of a

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European public discourse. The euro now reminds us daily how far Europe has developed as a community. Nevertheless, the level of affective identity is relatively low. This complicates, of course, notions of solidarity among Europeans. It simply means that at this point major redistributive policies on the EU level appear problematic. The extractive capacity of the EU is limited so far and for it to grow, the mutual feeling of solidarity would have to increase as well. As Brigid Laffan argues, some of the more recent policy initiatives have been moving the EU from issues of instrumental problem-solving to fundamental questions about its nature as a part-formed polity.xlvii This shift in the intensity of European integration, according to Laffan, has led to increasing legitimacy problems and a democratic deficit. Solving these problems requires a corresponding increase in European identity and the development of a public political space that would allow the pursuit of joint European policies based on democratic legitimacy. From Laffans perspective, the crucial question for the viability of EMU is whether it requires higher levels of European identity than exist currently in the EU. Laffan does not answer this question explicitly. Amy Verdun and Thomas Christiansen, however, take this line of argument one step further. They argue that EMU suffers from a legitimacy vacuum in the sense that the creation of a set of supranational institutions ... precedes the existence of a demos a political community with shared values.xlviii According to their analysis, the European Central Bank (ECB) is not sufficiently embedded in society. Thus, it is difficult to assign accountability for monetary policy outcomes. Under these conditions, legitimacy acquires a functional logic. The ECB cannot achieve legitimacy as part of a political community, but needs to gain it through the achievement of positive economic results. Viewed from the identity perspective developed in this paper, the fears voiced by Laffan as well as Verdun and Christianson are less frightening than they might appear at first sight.xlix Even though the euro is the most far-reaching integration effort of the EU 20

yet, its redistributional implications do not go much beyond the situation that existed already under the European Monetary System (EMS) prior to the introduction of the single currency. All participating countries had to follow the macroeconomic preferences of the German central bank, and pressures for fiscal consolidation have existed for all participants ever since the Mitterand turnaround of the early 1980s. The one change may be that EMU establishes specific quantitative targets for fiscal policy in terms of the convergence criteria for EMU and the stability pact. However, with the possible exception of Germany, all participating members of EMU should be much more satisfied with the distributional implications of the common currency than with the previous arrangement. This is not meant to deny the potential problems that could emerge in the case of asymmetric shocks. The level of European-wide solidarity does not reach very far yet. However, one can certainly argue that the pre-EMU monetary policies posed more legitimacy problems than those under EMU. Now at least the system is rule-governed and all the central banks of participating countries take part in common decision-making. Thus, even though the ECB is not a democratic institution in the conventional sense, its legitimacy is higher than that of pre-EMU central banks, which had to follow directly the monetary policy of the German Bundesbank.l In addition, the need for the ECB to establish legitimacy through the production of favorable outcomes is less dangerous than Verdun and Christiansen assume. To the contrary, it would be far more problematic if affective feelings of belonging were the crucial criterion of legitimacy. A utilitarian and contractarian basis for legitimacy is adequate for complex modern systems despite the fact that it does not fit idealized notions of a political community. Even nation states legitimized themselves primarily by the production of outcomes in particular successful modernization and the provision of security and not by affective ties. Those political entities unable to produce favorable outcomes delegitimized themselves and many of them simply did not survive. Within the monetary sphere such phenomena as capital flight and currency substitution are common 21

expressions of the ability of citizens to exhibit their distrust in certain aspects of the states institutional structure. Again, nation states emerged as replacements for the affective ties that loosened in the modernization process. Moreover, as pointed out earlier, the European Monetary Union itself establishes something of a European public space. The euro serves as a tool of European-wide communication. Consumers now engage in transactions in the same kind of money. They recognize euros as their money even if they deal with a foreigner. Prices across Europe become comparable in the same language. In this sense, identity is no longer exclusively tied to the individual nation state, and the euro as well as the ECB can serve as a new catalyst for collective identity formation.li Moreover, prior to the euros official introduction there existed social and political practices in Europe that laid the necessary foundation for the formation of trust (and identity). Among those were the long-standing practice of exchange rate cooperation in the EMS and increasing integration of capital markets. The euro was not merely established by treaty, but existed in some sense as a custom and social practice a long time before that. The point that often gets lost in the emphasis on national identity and the proper functioning and legitimacy of European integration is that certain cultural practices and political patterns have never been national to begin with. Many are sub-national and some are international. Efforts at constructing international identities have had as long a history as the attempts to create national identities.lii In practice, national identity in many European countries has been much more multi-layered for long periods of time than single dimensional views of national identity would be willing to acknowledge. In addition, there has been an increasing trend toward diversification in this area as well. Overall, the national level has lost some significance in terms of cultural practices and political patterns. With the further development of market transactions, productive forces and other elements of the globalization process, the capacity of nation states to provide their functions has declined in some areas. Consequently, nation states lose some of their 22

formative power and loyalty.liii Thus, changes in the forces of production and market transactions make it necessary to realign previous identities to new circumstances. The euro has to be understood as part of that realignment process.

Conclusion Money and identity are connected through a reciprocal relationship. On the one hand, money historically has been a tool to help construct collective identities. Money served as an identity-creating tool in the process of national monetary unification during the late 19th century. Although I argue that the one nation/one money perspective is too narrow to assess the connections between identity and money in a comprehensive fashion, money can be part of a process that forms a community. In this sense, the euro is not different from previous uses of national money. Images of a shared historical narrative illustrate that the euro is in part also an attempt to construct a European identity. It is another elite effort to create symbols and meaning that make Europe a part of everyday life. In any case, the nation state in Europe has no longer an exclusive claim to structure the relationship between money and identity. On the other hand, money also requires as its foundation some level of collective identity. Money is a social relation and it depends on the trust between individuals that the medium they use for exchange (commodities, coins, paper or computers blips) will be accepted by others and can be used again. During the modernization process, the relationship between money and identity has increasingly become abstract. Trust is now generated more thoroughly through institutions than through affective ties. Contractual and utilitarian considerations can strongly influence feelings of belonging and collective identities. Current levels of European identity as part of an evolving hybrid identity structure in Europe are strong enough to provide favorable conditions for an effective functioning of the euro. However, the reciprocal relationship between money and identity also means that the relationship is conditional. While a successful euro may forge greater 23

levels of European identity, a badly managed euro would produce exactly the opposite effect. European identity and mutual trust would be weakened. Interestingly though, this again is not very different from the historical experiences of established nation states.

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I am grateful to Richard Mansbach, Michelle Mattson, Jim McCormick, and Tony Smith for their thorough reading of earlier versions and their support in writing this article. This paper also received valuable comments and questions at the 2002 annual meeting of the American Political Science Association and in the Brown Bag lunch series at Iowa State Universitys Political Science Department. I would also like to express my gratitude to David Armstrong and the comments I received from the three anonymous reviewers for the Review of International Studies. In the context of my research on this topic, I had a number of very valuable conversations with various individuals. I am grateful to Ulrike Gurot, Thomas Risse and numerous European policymakers for sharing their insights with me on this topic. Work on this paper also benefitted from a summer grant by the Council on Scholarship in the Humanities and an Iowa State College of Liberal Arts and Sciences Faculty Development Grant. Nicole Asmussen, Cheryl Carder and Milan Dalal provided outstanding research assistance for this paper. While all of the individuals mentioned contributed to the strengths of this article, all remaining weaknesses and errors are mine. i Benjamin J. Cohen, The Geography of Money (Ithaca: Cornell University Press, 1998). ii Eric Helleiner, Historicizing Territorial Currencies: Monetary Space and the Nation-State in North America, Political Geography, 18 (1999), p. 320. iii For a superb description of the process of national monetary consolidation see: Eric Helleiner, The Making of National Money: Territorial Currencies in Historical Perspective (Ithaca: Cornell University Press, 2003). iv This point is made most explicitly in: Emily Gilbert, Forging a National Currency: Money, StateBuilding and Nation-Making in Canada, in Emily Gilbert and Eric Helleiner (eds.) Nation-States and Money: The Past, Present and Future of National Currencies (London and New York: Routledge, 1999), pp. 25-46; Emily Gilbert and Eric Helleiner, Introduction Nation-States and Money: Historical Contexts, Interdisciplinary Perspectives, in Emily Gilbert and Eric Helleiner (eds.) Nation-States and Money: The Past, Present and Future of National Currencies (London and New York: Routledge, 1999), pp. 1-21; Eric Helleiner, National Currencies and National Identities, American Behavioral Scientist, 41 (1998), pp. 1409-1436; and Marcia Pointon, Money and Nationalism, in Geoffrey Cubitt (ed.) Imagining Nations (Manchester and New York: Manchester University Press, 1998), pp. 229-254. v Benedict Anderson, Imagined Communities (London: Verso, 1983). vi Pointon, Money and Nationalism, p. 231. vii Pointon, Money and Nationalism, pp. 229-254. viii Just to mention another peculiar aspect in this vein, the Confederate States of America and several southern state banks issued notes depicting romanticized images of slavery obviously alluding to the significance of slavery as the economic foundation and common identity among the southern states. Again, this serves as another example of how their use of money reminds citizens on a daily basis about their membership in the collective entity of the nation. See: http://www.cwc.lsu.edu/BeyondFaceValue/ ix Cohen, Geography of Money. x Wilfried Loth, Identity and Statehood in the Process of European Integration, Journal of European Integration History, 6 (2000), p. 22. xi For a parallel argument about the emergence of the sovereign territorial state and its efforts at standardization see: Hendrik Spruyt, The Sovereign State and its Competitors (Princeton: Princeton University Press, 1994). xii Jerome Sheridan, The Dj Vu of EMU: Considerations for Europe from Nineteenth Century America, Journal of Economic Issues, 30 (1996), pp. 1143-1161. xiii On the distinction between sovereignty and authority see Susan Strange, The Retreat of the State: The Diffusion of Power in the World Economy (New York: Cambridge University Press, 1996). xiv Benjamin J. Cohen, Electronic Money: New Day or False Dawn? Review of International Political Economy, 8 (Summer 2001), pp. 197-225 uses the model of a currency pyramid to explain the hierarchical elements of the current monetary system. Adding to Cohens contemporary model, I argue that the monetary landscape has always been hierarchical. Contemporary processes of deterritorialization only make this issue of asymmetry more visible and politically pertinent. xv For the British and American position as monetary hegemons see: Barry Eichengreen, Hegemonic Stability Theories of the International Monetary System, in Richard N. Cooper, et al. (eds.) Can Nations

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Agree? Issues in International Economic Cooperation (Washington: Brookings Institution, 1989), pp. 255298. xvi In the words of Elie Cohen, The Euro, Economic Federalism, and National Sovereignty, in Anthony Pagden (ed.) The Idea of Europe: From Antiquity to the European Union (Cambridge: Cambridge University Press, 2002), p. 265: The suspicion by the French of the French currency from 1945 to 1983, and their readiness to abandon the franc demonstrates that in France, the sacralization of the national currency is not as strong as it is in Germany. Germany, of course, appears to be the exception among the EU members on this point. Pride in the deutsche mark was arguably a part of German Post-World War II identity. Ultimately, the strong European identity of Germany helped to overcome the constraints imposed by deutsche mark nationalism. German political elites in part achieved this by promising merely to extend the deutsche mark to the rest of Europe and by establishing rules for monetary union that reflected German preferences for stability and central bank independence. xvii Richard Rosecrance, The Rise of the Virtual State: Wealth and Power in the Coming Century (New York: Basic Books, 1999) makes this point most explicitly for the international political economy. xviii Georg Simmel, The Philosophy of Money (London and New York: Routledge, 1900[1978]). xix Anthony Giddens, Modernity and Self-Identity: Self and Society in the Late Modern Age (Stanford: Stanford University Press, 1991), p. 18. xx Jack Weatherford, The History of Money: From Sandstone to Cyberspace (New York: Three Rivers Press, 1997). xxi For the debate on electronic money see: Cohen, Electronic Money, pp. 197-225. xxii In contrast to the paper money, the coins national sides allow countries to represent concrete entities, such as Queen Beatrix for the Netherlands, Botticellis Venus on the Italian 10 cent piece, or the Brandenburg Gate on German lower denomination coins. xxiii European Central Bank, Euro Bank Notes and Coins at http://www.euro.ecb.int/en/section/euro/euro.html (2002). xxiv European Central Bank, Euro Bank Notes, http://www.euro.ecb.int/en/section/euro/banknote.html. xxv European Central Bank, Euro Bank Notes, http://www.euro.ecb.int/en/section/testnotes.html. xxvi On the historical narratives at stake here see: Jan Ifversen, Europe and European Culture A Conceptual Analysis, European Societies, 4 (2002), pp. 1-16. xxvii Chris Shore, Building Europe: The Cultural Politics of European Integration (London and New York: Routledge, 2000). xxviii The theme of money as a social relation was first developed by Simmel, Philosophy of Money. For contemporary interpretations see: Nigel Dood, The Sociology of Money: Economics, Reason and Contemporary Society (New York: Continuum, 1994) and Geoffrey Ingham, Money is a Social Relation, Review of Social Economy, 56 (1996), pp. 507-529. xxix Geoffrey Ingham, On the Underdevelopment of the Sociology of Money, Acta Sociologica, 41 (1998), p. 9. xxx S. Herbert Frankel, Money: Two Philosophies. The Conflict of Trust and Authority (Oxford: Basil Blackwell, 1977), p. 31. xxxi Simmel, Philosophy of Money, p. 177. xxxii On the issue of institutionalized trust see also Nigel Dodd, What is Sociological About the Euro? European Societies, 3 (2001), pp. 23-39. xxxiii On the relationship between national and European identities see: Sophie Duchesne and Andre-Paul Frognier, Is There a European Identity? in Oskar Niedermayer and Richard Sinnott (eds.) Public Opinion and Internationalized Governance (Oxford: Oxford University Press, 1995), pp. 193-226; Robert Hettlage, European Identity Between Inclusion and Exclusion, in Hanspeter Kriesi et al. (eds.) Nation and National Identity: The European Experience in Perspective (Zrich: Verlag Regger, 1999), pp. 243-262; Max Haller, Voiceless Submission or Deliberate Choice? European Integration and the Relation Between National and European Identity, in Hanspeter Kriesi et al. (eds.) Nation and National Identity: The European Experience in Perspective (Zrich: Verlag Regger, 1999), pp. 263-296; Brigid Laffan, The Politics of Identity and Political Order in Europe, Journal of Common Market Studies, 34 (1996), pp. 81102. xxxiv Loth, Identity and Statehood, p. 22.

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Liesbet Hooghe and Gary Marks, Multi-Level Governance and European Integration (Lanham: Rowman and Littlefield, 2001) and Martin Kohli, The Battlegrounds of European Identity, European Societies 2 (2000), pp. 113-137. xxxvi Quoted in Peter van Ham, Europes Postmodern Identity: A Critical Appraisal, International Politics, 38 (2001), p. 242. xxxvii Jrgen Habermas, The European Nation-State: On the Past and Future of Sovereignty and Citizenship, Political Culture, 10 (1998), pp. 397-416. xxxviii Laura Cram, Imagining the Union: a Case of Banal Europeanism? in Helen Wallace (ed.) Interlocking Dimensions of European Integration (New York: Palgrave, 2001), pp. 231-246. xxxix Hanspeter Kriesi, Introduction: State Formation and Nation Building in the Swiss Case, in Hanspeter Kriesi et al. (eds.) Nation and National Identity: The European Experience in Perspective (Zrich: Verlag Regger, 1999), p. 24. xl For research results along those lines see: Thomas Risse, A European Identity? Europeanization and the Evolution of Nation-State Identities, in Maria Green Cowles, James Caporaso and Thomas Risse (eds.) Transforming Europe: Europeanization and Domestic Change (Ithaca: Cornell University Press, 2001), pp. 198-216 and Thomas Risse et al., To Euro or Not to Euro: The EMU and Identity Politics in the European Union, European Journal of International Relations, 5 (1999), pp. 147-187. xli See, for example: Laffan, Politics of Identity, pp. 81-102 and Ulrike Liebert, Constructing EMU: Euro-Scepticism and the Emerging European Public Space, in Lars Magnusson and Bo Strath (eds.) From the Werner Plan to the EMU: In Search of a Political Economy for Europe (Brussels: PIE Lang, 2001), pp. 271-300. xlii For an analysis of American money debates see: Gretchen Ritter, Goldbugs and Greenbacks: The Antimonopoly Tradition and the Politics of Finance in America (New York: Cambridge University Press, 1997). xliii International monetary power is, of course, not the only incentive for EMU. There is a wide array of motivations for EMU. For an analysis of incentives see: Andrew Moravcsik, The Choice for Europe: Social Purpose and State Power From Messina to Maastricht (Ithaca: Cornell University Press, 1998). xliv See for example the data reported in Liebert, Constructing EMU, pp. 271-300 and Hooghe and Marks, Multi-Level Governance. xlv James A. Caporaso, The European Union and Forms of State: Westphalian, Regulatory or PostModern? Journal of Common Market Studies, 34 (1996), pp. 29-52. xlvi Yasemin Nuhoglu Soysal, Locating Europe, European Societies, 4 (2002), p. 272. xlvii Laffan, Politics of Identity, p. 81. xlviii Amy Verdun and Thomas Christiansen, The Legitimacy of the Euro: An Inverted Process? Current Politics and Economics of Europe, 10 (2001), p. 267. xlix For a well-argued rejection of the no demos thesis see: Jrgen Habermas, Why Europe Needs a Constitution, New Left Review 11 (September-October 2001): pp. 5-26. Along similar lines of argument see Soysal, Locating Europe. l The EMS functioned asymmetrically in the sense that the Bundesbank set monetary policy for the rest of Europe. Other participants in the EMS had to follow German preferences or were effectively forced to leave. The fact that Germany set the floor of interest rates in the EMS is an example of the former; the currency crisis of 1992/3 is a vivid example of the latter. On the asymmetry of the EMS see: Matthias Kaelberer, Money and Power in Europe: The Political Economy of European Monetary Cooperation (Albany: State University of New York Press, 2001). li Kenneth Dyson, EMU as Europeanization: Convergence, Diversity and Contingency, Journal of Common Market Studies, 38 (2000), p. 658. lii See, for example: Martin H. Geyer and Johannes Paulmann, (eds.) The Mechanics of Internationalism: Culture, Society, and Politics from the 1840s to the First World War (Oxford: Oxford University Press, 2001). liii Loth, Identity and Statehood, pp. 19-31.

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