The European Union is a union of 27 member countries, that predominately operates in Europe. It had predecessors, however under the current name, it was founded in 1993 after the Maastricht Treaty. Since its founding, the EU has adopted many policies and regulations to theoretically make its members better off, however the current crisis does not reflect much positivity to this. So, how could the Europeans possibly overcome this current debt crisis? Well there are many theories, and for every theory there seems to be an opposing theory against it.
First off, I believe that the EU started going down the wrong path with the adoption of the Euro. There were countries in the Eurozone with different credit rates getting abnormally low interest rates. Also, let us not forget that the Euro was a stronger form of currency than some of the countries had formerly possessed. Common sense then tell us, that credit terms are better, there is an economic outburst, and that outburst leads to investor willing to make high-risk gambles and spend a lot of money. Then, when everything calms down, the debts still remain.
So theoretically, if needed, one could go to the bank to get a loan to pay off a serious debt. However what happens when money spenders try to withdraw from their now broken banks? So, that leads to the question of possibly fixing the broken banks. After all, if a bank is borrowing money to pay off its debts and give loans, it’s digging itself into a hole that is not easily climbed out of. So how do we fix this? Some argue a bailout. This is a poor decision, look at how the bailout scheme worked for us here in America, it didn’t.
A bailout is bad for the economy because it does not fix an economic crisis it just prolongs it. A bailout will interrupt the process of reallocation of resources, which will hurt in the long run. This reallocation problem also incarnates another problem, being that political corruption will be increased. Via lobbyist, the desire for personal wealth, and supporters having money, economic resources can be reallocated in a place none to beneficial for the nation as a whole. Well what if the banking system is changed? Upon doing research I found an interesting topic about something called limited purpose banking (LPB).
Some people are arguing that if this is implemented, then the deficit crises can improve. This LPB theory makes all the banks become mutual funding companies that issue mutual funds. It sounds kind of crazy, but has its benefits. The mutual funds end up acting like small banks, however there is one critical difference in that they don’t borrow. All of the small various properties of LPB are quite interesting, however I do not know how to talk with all the economist’s jargon and word-vomit, so it boils down to this.
One of the things that the European Union wants to do is protect the financial system, and this would compromise it! There is no leverage involved and this theoretically would also reduce credit. So lets think for a minute, how about raising the taxes? This is a definite wrong answer. This will cause political and social unrest, which I don’t think I need to say the EU does not need any more of. It is also not a sound theory. It is no doubt that consumer spending is a huge economic boost. However someone cannot spend what they do not have.
The consumers will start to spend less, which will the cripple the economy. Also taking more substantial taxes out of the working class’ paycheck is not a good idea, especially in today’s world. This leads to citizens’ desire to work going down the drain. If the pay is not enough to cover the desire to work, then individuals will quit working and get on government support. Who wants to work for low wages when they could get even more money from government handouts because they don’t work? It seems most people in the world today don’t have much pride or sense in job satisfaction.
All this makes the taxes go up even more, and taxes can be at such a high level that they are counterproductive (a Laffer Curve illustrates this quite well). Then what happens to a nation when nobody is working? I know this is a bit extreme, but illustrates the point. All the decisions in the EU seem like they take forever to make. This is because so many people have to all unanimously agree on a policy. It is not a certain percentage vote. According to the European Union website “The EU’s standard decision-making procedure is known as a ‘codecision’.
This means that the directly elected European Parliament has to approve EU legislation together with the Council (the governments of the 27 EU countries). Imagine trying to agree on a serious issue with that many people. That is the underlying problem, the diversity of the members, and not being able to agree on a solid policy, but having to merge a bunch together to make everyone happy. With everything going on, it is all but impossible for member nations’ governments to refinance the deficit that they all have, all surmounting to a big pile-up that is associated with the EU.
How can they overcome the current crisis? No doubt whatever the proper answer is that nobody knows for sure the answer will take time. It will take years. I think they should start by not only being a monetary union, but implementing a policy to be a fiscal union as well. This way the fiscal policy of member nation is integrated. With everything reaped and expended collectively, at first everyone will bleed but should end up working as a team to collectively succeed. As far as the whole “two Europe” plea that was quoted by Nicolas Sarkozy, it is completely fundamentally unsound.
As mentioned before, a problem with some theories is that they will involve way too high of a risk of political and social unrest, which is bad for the current situation faced by the EU. A two-speed Europe will break the EU apart. That brings the term “unrest” to a whole new level. “Why is this a bad notion? ” one may ask. The answer lies again with the effects, however short term and long. The short term are split with positive/negative. Some people will be happy with it, and some people unhappy is the simplest way to say it.
With all the members (not to mention new members applying), some will want to branch off, some are okay with that but want to stay in, and some are just as adamant about everyone staying together as a “one-speed” as their counterparts are to their favoring on the flipside. Take for example the Euro adoption debate, where his “two-speed” quote arose. There are still member countries that do not use the Euro, like the British who will not give up the pound, but still swear that integration is necessary. This imposes boundaries on the so-called “integration.
” The notion of creating a policy that is okay with certain member states being exclusive will never be passed, or not without repercussions. The unrest would be hard to imagine, or perhaps not. The idea has apparently been floating around for quite sometime. However the fact that it has not been put into place and merely revived from time to time must say something. On that note, let us also not forget that this multi-speed Europe does exist to a certain extent, with the ten non-Eurozone members. However as far as breaking off is concerned, look what happened to our now America way back when the C. S. A. succeeded from the Union.
Granted states rights are not the issue here at the EU but it is somewhat relevant to the “two-speed” idea. The advocates of it want the integration to be at different levels, and letting those countries in layman’s terms handle their own stuff (political, financial, etc. ) The exclusiveness no doubt will be expected to come with exclusive rights, which will not be passed in a decision process like the EU uses. Once again we face the same problem mentioned earlier with the diversity. It is very ironic, the main problem here is conflict of interest, and the EU is trying to look out for every member’s best interest.
After all is said and done, there should not be a “two-speed” EU, if that was done it would defeat the purpose and there would not be a union at all. Reformation is definitely needed in the EU. However, I do not see how the 27 members will ever come up with any meaningful reforms. According to Joschka Fischer, the key to saving Europe is to save the Euro, which can only be done by creating a political union. If this is not an option, the EU will dissolve. I think a reform in the decision making process would be beneficial. Upon my research as mentioned, the diversity conflict of interest problem sticks out like a sore thumb to me.
With the diversity and the decision making process the way it is, I do not see a feasible possible outcome. With everyone trying to make everyone happy, ultimately at the end no one is happy because their idea is undoubtedly merged with a counterpart idea so that everyone gets a piece of the pie. No doubt that everything will have to be to an extent, I mean if everybody ran their government the exact same way the EU would be a nation and not a union. That is the beauty of it. However there are a lot of shortcomings that have been seen by the whole world.
There is a zero percent chance that all of the member states will be able to have a collaborated integration with everyone being happy with the outcome. Summing all this up to a scenario is simply this, the EU will not have meaningful reforms any time soon, and when the EU will have meaningful reforms, it will be doing it with fewer members. There is such a thing as the beneficial level of conflict. With a certain mixture of diversity, different backgrounds and different points of view are illustrated in a way that a group with this beneficial level of conflict will arise and come up with the best plan.
However just as there can be not enough conflict (imagine a decision making process with members of only one political party! ), there can also be too much conflict, and the modern day EU is a perfect example of that. If reforms are trying to be made and a decision is favored by a solid majority, however a few members completely disagree, they should be faced with a non-to-nice ultimatum. Integrate with the decision, or not be a member of the EU. After all a lot of members do seem to say that integration is necessary, even though ironically their actions do not always reflect their words.
Forget meaningful, this is the only way reform is going to come to the EU, and if this were to happen, the reform would be meaningful to the new EU after it was all said and done. Long story short, everyone will disagree, as long as there are two people on this earth disagreements will arise, but trying to fix the problem quickly will not happen. Sitting down, having an educated debate, respecting the points of view from others instead of immediately bashing them, and finally reaching a conclusion is what needs to happen. However this has been tried many times before and it seems like it just cannot happen.
This is once again due to the diversity and conflict of interest between member states. With fewer member states, especially those not wanting to integrate for the greater good, possibly one day the EU maybe can reach a positive reform. As for now, it will not and if it keeps going down this road we may not have an EU in the next generation. Chamley, Christophe, and Laurence Kotlikoff. "A Proposal to End Europe's Debt Crisis. " Financial Times. N. p. , 13 June 2012. Web. 01 Mar. 2013. "How EU Decisions Are Made. " Europa. eu. N. p. , n. d. Web. 01 Mar. 2013.
Huguenin-Virchaux, Janine. "Two Choices for Europe: Dissolve or Form Political Union | The Global Journal. " Two Choices for Europe: Dissolve or Form Political Union | The Global Journal. The Global Journal, 14 Nov. 2011. Web. 01 Mar. 2013. Mead, Nick, and Garry Blight. "Eurozone Crisis: Three Years of Pain. " The Guardian. Guardian News and Media, 02 Nov. 2012. Web. 01 Mar. 2013. "Sarkozy: There Are Now Clearly Two Europes. " BBC News. BBC, 12 Dec. 2011. Web. 01 Mar. 2013. "Timeline: The Unfolding Eurozone Crisis. " BBC News. BBC, 13 June 2012. Web. 01 Mar. 2013.