EURO CRISIS: THE FUTURE OF THE EUROPEAN UNION
By Student’s Name
EURO CRISIS: THE FUTURE OF THE EUROPEAN UNION
The European Union has in the recent past hit the headlines due to the financial crisis it currently faces. The climax of the crisis that shifted the spotlight onto the European Union (EU) was the Greece financial crisis. Recent events have led to a rift between the debtor countries and the creditor countries. While predictions point to further collapse and eventual dissolution, the EU continues to exist albeit with some unrelenting problems. This crisis has placed the future of the political and economic union in doubt. Discussing the future of the EU involves evaluating several aspects of the union’s structure and understanding where it all went wrong. This paper will attempt to point out some factors crucial to the survival of the EU including the state of the Euro currency, political and monetary integration, the role of creditors and improved policy making protocols.
The EU is one of the few monetary unions that been successful in the integration sovereign nation states with a common financial objective. The structure of the EU rivals that of other financial institutions that have tried to implement the same system without success (McNamara, 2015). The edifice holds together the member countries through a system of interlocking laws and guiding institutions. Although the structure of the EU has enjoyed relative success in the years it has been active; it now faces the unprecedented challenge of holding it together. Member countries lack proper political consensus among them, making this the greatest challenge facing the EU structure.
Monetary unions require significant integration to survive. Monetary unions need political integration along with fiscal consolidation to form one unit. A combination of these factors would yield a competitive monetary union, but the lack of any factor makes the survival of a currency union challenging. The current state of the European Union is strange in that the union is a centralized monetary authority having no fiscal capacity and a relatively weak form of political consensus and identity. The history of the European monetary union portrays the lack of concern for the complete integration of the political, monetary and fiscal aspects of the union. The illusion of integration was used to woo countries into the union by reducing the interest rates on the money borrowed by indebted countries such as Portugal and Italy. The rift between the creditor and debtor nations intensifies the debate on the durability of the EU’s political integration. In the event that the EU splits, then Europe would unquestionably suffer. Trust among the countries would be lost which would only increase the already present hostility in the region. This will further worsen the situation.
The current financial crisis in the European Union puts greater emphasis, on the need for improvements in the political integration plan. So doing will slow and eventually retard the disintegration of the union (McNamara, 2015). The common Euro currency alone is not enough to remedy the situation facing the countries in the union. More integration is required particularly with respect to the political and financial capability of the union. However, decisions made in the recent past do not indicate any intent, on the part of the leaders, to unify the member countries. The German chancellor Angela Merkel declared that each nation should work to save its financial systems independently as opposed to joint action as the European Union. Her statement was made shortly after the aftermath of the Lehman Brothers’ financial meltdown. The decision led to a series of events that greatly contributed to the deterioration of politics in the Eurozone. The countries realized the effect of this decision more than a year later, in 2009, after Greece unearthed the debt that the country had previously been covering up.
The future of the European Union hinges on the direction that the creditor countries will take to salvage the union (Soros, 2012). When the European Union was formed, one of its objectives was to provide a relatively stable market for all member countries to compete. However, the current state does not allow for the somewhat equal competition between the creditor and debtor countries. As a result, the debtor countries cannot recover easily as their economies have either stagnated or enjoy minimal growth per year.
At the forefront of these creditor countries is Germany. As the largest creditor country, Germany has experienced relatively improving economic status in the European Union (Soros, 2012). The unique situation of having one of the biggest economies in the Eurozone placed the responsibility to control the EU on Germany. When the financial crisis was developing, Germany was in pole position to contain the situation and reverse the effects, but it failed to act appropriately. Germany chose to disregard the emerging crisis so as to avoid the huge financial risk it would incur if it took action. After the crisis had spread from Greece to other debtor countries, it presented an actual and imminent threat to the euro. The collapse of the euro would affect all the member states of the EU, especially the creditor nations such as Germany. Germany, therefore, took steps to salvage the situation but only slight steps to ensure the survival of the euro.
The policies implemented by Germany play a critical role in examining the future of the euro currency and the EU as a whole. Due to the potential influence of Germany in the state of affairs in the EU, the country needs to decide whether to leave the monetary union or stay put and lead it through the crisis. The former option seems less unlikely since it would hurt Germany, but benefit the debtor countries since the value of the euro would depreciate. The creditor countries on the other hand stand to lose on investments. If Germany opts to lead the way, then it needs to level the competition field between the debtors and creditors. The EU then needs to improve on the economic growth of all nations to attain at least 5% so as to lessen the debt burden (Soros, 2012).
In conclusion, for this crisis to be solved, a change in policy on the EU structure is needed. It also needs to improve its preparedness for another financial crisis. Most of the alternatives to save the situation hinges on the direction Germany takes to either leave the union or actively increase its efforts to salvage the situation. The future of the EU hangs in the balance since the survival tactic employed currently will not spur growth or increase the debt burden swiftly enough to prevent the collapse of the Euro.
McNamara, K. (2015). The Eurocrisis and the Uncertain Future of European Integration. [online] Council on Foreign Relations. Available at: http://www.cfr.org/world/eurocrisis-uncertain-future-european-integration/p22933 [Accessed 22 Dec. 2015].
Soros, G. (2012). The Tragedy of the European Union and How to Resolve It. [online] The New York Review of Books. Available at: http://www.nybooks.com/articles/2012/09/27/tragedy-european-union-and-how-resolve-it/ [Accessed 22 Dec. 2015].