Does the European Union Still Have a Purpose in Today’s Falling Economy?
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A Brief History of the European Union
The impetus for the creation of the European Union (EU) started in the 1950’s as an effort to avoid a third World War by establishing a united, peaceful, and economically thriving Europe. At the time the Cold War raged and half the European continent was under the domination of the Soviet Union.
The fall of the Berlin Wall in November 1989 was a turning point, leading to initiatives for a unified Europe. The four freedoms declared a goal of free movement of goods, services, people, and money throughout the EU. The EU embraced environmental initiatives, defense and security matters. Currently, 27 countries belong to the EU.
The 21st century ushered in the age of one currency, the euro, currently used by 17 countries. The EU confronted its worst problem during the financial crisis of 2008. During this time, several countries—including Greece, Portugal, and Ireland—came close to defaulting. The EU agreed to loan these countries funds to avoid default and the collapse of their economies.
The EU is not allowed to bail out member countries. The rationale behind the rule was to prevent countries from mismanaging finances, anticipating an EU rescue if necessary. The justification for loans was that the money was not an open-ended bail out. The ruling included a $140 billion bailout to Greece. The European Central Bank has had to defend its position to provide unlimited funds to support the euro by providing unlimited funds to countries in distress.
Further complicating matters, jobs are slowly migrating from high-paying Western European countries to low-wage Eastern European countries, creating ill will between member states. Subsidies to certain activities have put members against each other and stalled budget talks. The animosities, combined with the struggling euro, threaten the future of the EU.
Critics Speak out about the Future of the EU
Critics argue weak, poorly managed countries such as Greece should never have been allowed in the EU without proper due diligence. One step, then, towards restoring EU viability is stricter economic guidelines before accepting future countries into the group and consider the option of removing the membership to countries who violate the agreements.
Some opponents call for the demise of the EU and euro, believing they should be abandoned, and a new union started. The problem is the European banking system, trade, and government financing are all closely intertwined and have come a long way towards integration to abandon its efforts.
Still, others argue that the fall of the euro would probably lead to bank failures and other financial crises. Profound differences in culture, religion, and language remain an impediment to close intercontinental ties. The failure of the EU could precipitate another era of solving problems through conflict rather than peaceful means.
The Future of the EU
There have been ideas that would help the EU return to the economic success of the early 2000s. Proposals include the formation of a European Monetary Fund to assist financially strapped countries. The European Central Bank (ECB) could issue bonds to stabilize the situation and newly granted European financial system powers should avoid future wrongdoings.
Ultimately, the European Union retains somewhat of a grasp on trade (they remain the world’s second largest exporter of goods to United States); however, their ultimate success may depend on their ability to bounce back from the European Debt Crisis and avoiding Greece’s recent economic slump to turn into a contagion affecting the region. The International Monetary Fund recently emphasized that the EU has made progress in addressing the crisis, but stressed that member-state dedication to “following through on commitments” remains the key to success.
In a world drawn closer together by modern transportation and communications – including modern innovations in financial trading – an EU with a stable political and economic structure, free trade within its borders, progressive global trading initiatives, and one currency, builds a more secure world and can eventually help its citizens thrive and prosper.
Author Bio: Alfonso has been covering the forex market for more than 10 years, working at trading desks and global research and analysis teams. He works regularly as a market specialist in business dailies and online portals. You can read more of Alfonso’s work at http://forexblog.oanda.com.
Photo via Vectorportal