The Future of the European Union
Background and Introduction
Initially, the European union captured many people’s minds as it was considered the true embodiment of an open society. The 2008-2010 financial crisis has resulted in significant doubt over the future and stability of the union. Portugal, Ireland, Greece and Spain (commonly referred to as PIGS) are among the nations worst affected by the financial crisis. This is a stark contrast to the fortunate situations of other countries in the union such as Germany. As a result divergent opinions have arisen as to what the union should do to recover from the imminent collapse it may now face.
Countries like Greece have already expressed their intention to withdraw from the bloc. Such a move would severely weaken the union, as more countries are prone to follow and exit upon economic difficulty. Such a move would make the EU’s recovery virtually impossible. This paper will demonstrate the EU’s future is indeed sustainable. A mix of various reputable review sources will be used in this discourse.
The issue of the ‘euro crisis’ has been presented to the public as a simple systemic problem with negligible effects spaced out around the continent. This is probably due to the apparent two-sided outcome of the crisis, where some countries are deep in debt while others emerged rather unscathed by the crisis. McNamara (2010) aptly notes that Greece, Spain and Portugal were the worst hit nations in the crisis. On the other hand, the bloc’s hegemons, Germany, France and the UK, have either sustained their economic status or improved their competitiveness in the region. This is proven by their respective growth rates since 2011.
The hardest his countries have hard difficulties managing their national debt. The resultant budgetary deficits clearly demonstrate this. Soros (2012) explains that inabilities to finance their debts have left them open to defaults as the only viable means for survival. Such a situation is currently exemplified by Greece’s potential exit from the union, commonly termed as ‘Grexit’. An exit would cause these countries to lose any claim they had on assets that were denominated in the euro currency.
What makes the Euro crisis even more peculiar is that the hegemons in the region will also be affected, particularly Germany. However, this aspect of the crisis has been concealed from the public. It is imperative to note that Germany has served as the under-writer for a large chunk of European debt. Any defaults, thus, create a gargantuan risk of financial losses to Germany’s financial sector. They can potentially avoid this by withdrawing from the European Union.
However, such a move would be deleterious to their existing trade networks. McNamara (2010) explains that following their exit; they would face greater trade restrictions making their trade less profitable than it is presently. Similarly, their products would face significant competition from those produced by countries in the union. They also face greater trade losses from dropping currency values. Due to these risks, should creditor nations within the European Union (EU) decide to leave the union, they would face several transitional restraints. It is therefore imperative that the EU members improve and maintain their current relationships for mutual benefit. Powers like Germany would be spared the potential losses while the union would obtain the much needed stability and prosperity.
The EU has a distinct advantage. Its economic and political integration is unmatched by other regional blocs. This is evidenced by the integration seen in national institutions such as reserve banks within the union. Similarly, institutions such as the parliament have enabled the EU to position itself as a global entity. This consolidation offers competitive economic advantage to its members, especially in international trade.
However, all this poses even larger risks to any country wishing to leave the union. Soros (2012) points out that this consolidation has challenged the trust in European markets. Investing in the Eurozone now poses a significantly greater risk (Soros, 2012). The barriers to exit and potential defaults seem to have increased these uncertainties over Europe.
The EU’s problems are largely based on the economic and political inexperience within the countries in the union. Nevertheless, the union’s monetary policy has had considerable success compared to others such as the Latin and Scandinavian monetary unions. The latter unions’ policies both failed. McNamara (2010) proposes that the only way for a bloc to succeed is if political union is achieved within the member countries. Europe faces a similar problem.
Although the EU members share a common currency, the countries have not transferred sufficient political power to Brussels. The creation of a political union may lead to the resolution of the crises among some countries in in the bloc. However, it may be difficult for the European states to achieve this, as the current rhetoric in the region lies more with self-governance. An illustration of this is the UK where a significant portion of the population supports withdrawal from the union due to differences in opinions. Attitudes in the region are currently focused on the restoration of sole administration of national matters or Duality in the legal sense.
The situation in the Eurozone may be improved through the implementation of the following. First, the EU should consider the creation of a ‘Debt Reduction Fund’. Such a tool will be beneficial in restructuring debt problems for affected countries, especially cases where debt purchases exceed 60%of the GDP. Soros (2012) explains that if such a fund comes into existence, it would be funded through member contributions. What would result is an improved economic environment for the European countries as the austerity measures currently in place for the repayment of national debts would no longer be mandatory. This would also serve to control the risk influencing creditor nations such as Germany.
Second, there is a need to establish unified fiscal policy for the union. Unified fiscal policy can only be achieved through the creation of the ‘European Fiscal Authority’. However, its establishment would require EU member states, for the sake of stability, to surrender even more power to the union. Soros (2012) proposes that such a measure would develop the Euro into an independent and fully-fledged currency. Its implementation may also thwart any future crises in the union by ensuring the delivery of efficient responses. This would work by reducing the risk of withdrawal and default. Financing in the EU is sourced from Germany, Sweden and France; potential defaults therefore create a disproportionate risk for the named countries. Controls over such risk would enable the EU to meet its goal of creating a bloc that thrives sustainably.
Several issues led to the EU financial crisis. The most important, however, is the lack of political unity and authority in the union. McNamara (2010) demonstrates the source of this divergence to be the current social attitudes. National independence over carrying out some affairs has lead to a general lack of coordination within the European states. In addition to this, the bloc’s hegemons like Germany have failed to offer the much-needed leadership to the other countries in the union. Finally, with the establishment of a fiscal authority and debt fund, the majority of the problems they now face will be resolved. Implementation of these measures will alleviate their current plight, prevent future recurrences and improve the bloc’s economic state.
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 21 Oct. 2015].
Soros, G. (2012). The Tragedy of the European Union and How to Resolve It by George Soros. [online] Nybooks.com. Available at: http://www.nybooks.com/articles/archives/2012/sep/27/tragedy-european-union-and-how-resolve-it/ [Accessed 21 Oct. 2015].