Survival of the Euro and the European Union
The European Union refers to a significant and influential integration of European states and a respectable player in the world trade area. The Union was established with a purpose to provide free move of capital human resources and finance between the countries. For many decades, the EU has owned a strong power at the international level. However, whether everything will remain as it was before is an open question. Large and powerful Union found itself under unfavorable circumstances in one of the most severe crisis since its formation. The paper discusses the current state of the European Union debt crisis, focusing on the external and internal factors of the crisis in Greece. Moreover, the outcomes of the projected collapse of the euro are revealed. The work underlines the core mistakes in introducing the common currency and the possible way out.
The crisis in the European Union is also called debt crisis. Soros (2012) claims that all members of the integration are divided into two categories. The country may be either creditor or debtor. The chief creditor among all nations is Germany. According to the current debt policy, debtors pay considerable premiums in order to finance their government debt. Under these circumstances, countries obtain almost permanent competitive disadvantage that pushes them into depression. Similarly, Heisbourg (2014) determined two eurozones. The first one includes Germany, Finland and Austria that enjoy limited unemployment rates and an increase of GDP. The other group of peripheral states still faces a crisis with long-term unemployment, especially among the youth. France is directly between these groups.
Hence, the debt crisis in the EU appears as a result of the inability of debtors to maintain their debts, which undermine the stability and survival of the European Union and its currency, the euro. Due to the growing risks of government debt, financial markets punish the countries with debt troubles increasing prices of their other credits. Weak control of definite regulations realization has led to excessive borrowing states to challenge the attained stability and integrity of the Union. A debt crisis in the Eurozone revealed that the principles of economic growth supported by the financing of consumption via credits in the long term do not give a positive outcome.
Nowadays, the biggest threat for the integration process remains Greek crisis. Most economists and politicians admit that the latest bailout to Greece was little more than a pain reliever. It will calm down the situation for a short period, but the European inveterate problems will metastasize, with a depressing prediction for the common currency and possibly even the European Union as a whole.
The crisis in Greece happened because of the huge borrowing in international financial markets to fund the government shortage. The debt crisis in Greece is a result of both internal and external factors. The central internal factors that caused a crisis are large government spending, tax avoidance, shadow economy and a low level of budget revenues. Among external reasons that induced the accumulation of foreign debt are certainly simple access to exterior capital markets at a lower interest rate after entering the euro area, and insufficient application of EU rules regarding public or government debt and deficits. It is vital to note that Greece, after joining the Eurozone, has no longer option for an independent monetary policy. Hence, under the current circumstances, the government can only use the instruments of fiscal policy without any possibility to increase the money supply and stimulate the economy (Todorović, 2011).
This is the outcome not of a purposeful plan of actions, but of a chain of policy mistakes that began when the common currency was introduced. Euro became a two-sided coin. On the one hand, the main aim of the creation of the euro was to provide more growth, assistance, and stability of the national economies. On the other, euro undermined the political cooperation and support from the public to the Union. Since the beginning of the crisis (that is a result of euro introduction), trust in the integration has plunged by approximately 20 percentage points on average (Heisbourg, 2014). Hence, instead of improvement of political union as was supposed, the Eurozone led to the opposite effect. Moreover, a policy taken to rescue euro may worsen the situation.
It was a truism that the euro was created as an incomplete currency, because of the absence of a treasury. Nevertheless, members of the Union did not admit that by ceasing their own money circulation. The central mistake concerning the euro was that its acceleration made monetary integration much faster that the political association. According to Kregel (2015), the gap between monetary and political unification was “enshrined in the Maastricht Treaty’s sanctioning of “variable velocity” as the mechanism for European integration”. Hence, a monetary union appeared with no support of the political unit. Further, this has made Greece a decisive political pawn in the chess game being played out in the EU over the degree of political unification and centralization of powers.
Capitalists realized the concern only at the inception of the crisis in Greece. The financial institutions did not understand the trouble trying to buy time. However, due to the lack of understanding and unity, the economic state has not improved. As the Eurozone enters its seventh year of economic stagnation (Heisbourg, 2014), the outlook of the Europe remains in uncertainty. Under the various scenarios, there could be a full-blown federalization at one extreme or the shattering fall down of the euro and of the EU at the other. Somewhere between the extreme points lay the actual set of policies. As time passes, with the enormous mass unemployment rate in much of Europe, the possibility increases that a political or social disappointment will arise in some of the member countries of the European Union and Eurozone. The policy of prominent members under German leadership may hold the euro together for a vague period, but not forever. The eternal dissection of the EU into creditors and debtors where the creditors dictate terms for other parts is politically offensive for many Europeans. However, if the euro finally breaks up it may demolish the free trade principles of the European Union. Europe will be at worse conditions than it was when the union began its formation because the disintegration will leave a heritage of common distrust and aggression (Kregel, 2015). The later it turns out, the worse the final effect.
However, there is one more way out. The European leaders may have a deal and abolish the common currency. Definitely, that will be far from the ideal outcome. In political terms, the lifting of the euro and return to national currencies would be generally admitted as a huge step back for the Union. Nonetheless, the improvement in terms of growth and development of countries would be considerable, in view of the last seven years of crisis brought about by policy intended to save the euro. The common market and free trade, which was running from the beginning of 1990’s, would not be destroyed by the absence of the united currency. Meanwhile, the United Kingdom, Poland, and Sweden, among others, seem to enjoy all merits of the EU’s internal market, despite using their own currencies. Similarly, there would be no reasons to suffer for the European area of free movement. Even nowadays, not all members of Schengen zone belong to the Eurozone (Poland, the Czech Republic). Significantly, the return to national currencies would reinstate organization skills and sense of control to citizens who presently feel ejected, which in turn stimulates the denial of EU policy on hot-button concerns. Otherwise, the European Union without the euro would not just be a re-established Europe. It would be completely compatible with the consequences of free trade, unification, territorial extension and the improvement of competences (such as in jurisdiction and home affairs). Finally, the new European Union would be able to soothe a common feeling against the shift of core national competency to a European rank supposed to be less legitimate and genuine in political terms.