The global organization, European Union, primarily constitutes of around 28 European nations and includes central universal economic, social as well as security regulations. Formerly restricted to Western Europe, the European Union executed a vigorous development into both Central Europe and Eastern Europe during the early phase of 21st century (Tuori 2016). The members of the EU primarily consists of the Czech Republic, Lithuania, Spain, Bulgaria, Slovakia, Poland, the Netherlands, and Ireland with many other unitary sovereign states of the United Kingdom. The EU has been originated by the Maastricht Treaty, which came into its functioning in the year 1993 (Tuori 2016). The agreement was essentially planned in order to improve the level of dogmatic and fiscal assimilation by efficiently generating a solitary currency that is the Euro (Pollack 2015). This single currency formulated a unified foreign policy and security policy with universal nationality rights. Furthermore the single currency led to the progress corporation in the parts of immigration as well as legal systems (Oshri, Sheafer and Shenhav 2016). The European Union has been honoured with the Nobel Prize for Peace in 2012. Such recognition has been resulted to the appreciation of the administration’s endeavours to successfully encourage harmony and equality in the European region (Tuori 2016). The following essay evaluates institutional and structural problems in Europe which have been held accountable for the Euro crisis. Furthermore, the paper further examines the background of institutional structure in Europe and the factors which stimulated its establishment and functionality. The thesis statement of this essay is “Monetary challenges EU suffered from comparable forms of dissolute financial transactions that led to the Euro crisis”
The EU can outline its origin from the European Coal and Steel Community (ECSC) as well as the European Economic Community (EEC) which was recognized in 1951 and 1958 respectively by the Inner Six republics of Belgium, West Germany, Italy, Netherlands, Luxembourg and France (Oshri, Sheafer and Shenhav 2016). As stated in reports, the French foreign minister Robert Schuman had driven the development of the ECSC with the Schuman Declaration in mid of 1950s. The organization is recognized as a significant prototype of various other European Communities which currently has been known as the European Union (Tuori 2016). Recognized as the financial and administrative union of 28 countries, the EU was formed under its current name in the early 1990s following the Maastricht Treaty. It was further witnessed as an expansion in size due to the agreement of new member states. Oshri, Sheafer and Shenhav (2016) reveal that the current significant modification to the statutory foundation of the EU, the Treaty of Lisbon came into functioning in 2009. Furthermore, Pollack (2015) claimed that the European Economic Community (EEC) that was designed in 1957 was purposed to establish a widespread market. This broadened market attributed the elimination of critical obstacles to the undertaking of goods, capital, services and labour. However the activities of these services inhibited market competitiveness and a common external trade policy.
Drawing significance from the long-term historic viewpoint, the European Union is regarded as one of the most unique radical creations of the late 20th century. However, after half a century that was signified by economic depression and dejection along with two world wars. The economic community had been set up by the 1957 Treaty of Rome emerged as the driving factor for one of the longest periods of peace as well as affluence that the European continent has ever enjoyed (Tuori 2016). However, Oshri, Sheafer and Shenhav (2016) indicate that the EU has faced critical barriers in recent times. These hindrances led to the incompetence of delivery of peace and prosperity which had always been recognized as a significant promise to the people of European Union. The long-running Euro crisis has been recognized as the most significant manifestation of its areas of issues. However, annual economic development among the 28 member states in the EU had been lagging at a considerable rate before the crisis at around 2.7%. Such a slow growth was further compared to the 3.5% growth rate in the US between 1997 and 2006. Furthermore, Streeck (2015) notes that the EU‘s record as a guarantor of harmony, peace and democracy in Europe has been marked by its incompetence to prevent a resurgent Russia under the regime of Vladimir Putin who aims to deter Hungary. The purpose to dissuade Hungary that is one of its own member states from being relapsed towards the semi-authoritarian rule (Avgouleas and Arner 2017).
Evaluating the areas of challenges that the EU suffered from comparable forms of dissolute financial transactions, Pollack (2015) stated the judgements to establish the Economic and Monetary Union (EMU) in Europe. This establishment however had been essentially encouraged by the EMU which was both an economic and political construction. The European institution which was established for the new monetary union had been highly negligible. The new European Central Bank had been charged with sustaining financial stability. However it prohibited from acquiring sovereign debts. This had been consequential to the Euro crisis situation whereby, it lacked the mechanisms and systems. These systems however had been exerted by majority of financial institutions to circumvent speculative attacks in the bond markets (Tuori 2016). Despite all these limitations, the single currency was well-constructive to the European Commission. It further declared that the single currency has become a representation of Europe. Further to this, it is perceived as one of the highly assertive outcomes of European integration by the euro-area citizens. Oshri, Sheafer and Shenhav (2016) claimed that Europe suffered from similar forms of profligate lending and borrowing. These factors had been triggered by emerging forms of financial derivatives and radiant regulation. These regulations, however, precipitated an economic crisis in the United States and global recession in 2008.
However, Savage and Verdun (2016) were of the opinion that the most egregious factor lied on Greece. The Greek government in 2009 claimed that the lack of budget or financial resources would be multiplied three times than the expected level. Meanwhile, as the restless investors bailed out of the Greek bonds, certain information of contagion disseminated to countries such as Spain, Portugal and Ireland. Furthermore, private sector loans in these nations had developed an exponential rate on the back of possession elevation in housing, real estate and construction regardless of the considerably reserved public debt (Savage and Verdun 2016). In several cases, the fiscal deficits in these nations paralleled those in the US. However, unlike the US or the United Kingdom, these countries did not possess a central bank prepared to buy sovereign debt. Rather they initiated a highly afflicting procedure of negotiating rescue programs with the ECB and the European (Karyotis and Gerodimos 2015).
Underlying such a troubled situation, the Euro crisis signified certain structural dilemmas of operating a single currency which included multiple varieties of capitalism. Savage’s and Verdun’s (2016) opinion on Euro Crisis claimed that the union connected states at varying levels of political development. However, wide-ranging problems encountering the union had not emerged from the asymmetric monetary distress. But on the other hand these materialized from institutional asymmetries in the political financial systems of its member states. Meanwhile, Schimmelfennig (2014) posed indications that the Stability and Growth Pact restricting public loans and financial shortfalls had been challenging to implement.
Accentuating on the critical shortfall of governing abilities, Featherstone (2016) stated that one of the impacts of monetary union tends to support a set of unequal growth paths. These emerging paths witnessed the expansion of export sectors of northern Europe at the costs of domestic utilization. In contrast, several export sectors in southern Europe suffered by the increasing sheltered sectors which were typically dominated by construction. It is important to note that in the years between 1997 and 2008, both Spain and Greece elevated at rates close to 4% per year (Karyotis and Gerodimos 2015). On the other hand, in the case of Greece, the structure of polity had been equally critical to the origins of the Euro crisis. Karyotis and Gerodimos (2015) revealed that the Greek governments utilized the flow of financial resources from the north. Such a course of economic resources executed to invest spending rather than investment. These investments often had been operated in order to reduce political support for the ruling party amongst public workers and pensioners. The critical deficiency of governing capacities experienced by Greece is important to note which both collected and used funds effectively. For example, tax evasion has been accounted for 50% of the budget shortage in 2008 (Copelovitch, Frieden and Walter 2016).
Furthermore, deriving ideas from the new liberal growth model, Copelovitch, Frieden and Walter (2016) claimed that the Euro Crisis has been recognized as an existential crisis. Such a crisis posed critical impacts not just on the monetary union. But on the whole European integration project initiated with the ECSC for over six decades ago. In nations such as Spain, Portugal, Greece and Ireland, the lower and middle-class families of these nations have been extensively encountering these critical impacts. The European project has been positioned at the core of the European Union. However, the specific social-economic content has been significantly prejudiced towards the dominance of markets with the autonomy of large transnational corporations, particularly, the transnational financial resource (Karyotis and Gerodimos 2015). However, it has been noted that underlying the euro crisis is an in-depth crisis of such a specific European project. Furthermore, what emerged as a new liberal growth model primarily relied on two elements (Copelovitch, Frieden and Walter 2016). The first element is the globalisation of production regarded as a significant shift of manufacturing. These productions are purposed for developing new centres of development outside the industrialized north and especially the Eastern region of Asia. However, Hall (2018) denoted, the second element specifically viewed its relevance in the context of the euro crisis. The context related to globalisation includes worldwide liberalisation of financial resources. Such financialization has been attributed by the emerging speculative forms of financial resources thus has been critically inconsistent. Regardless of the fact that such a methodical instability was gradually emerging, it was vulnerable towards the global financial crisis. Such an inconsistency triggered in the year of 2008 when the international economic system was brought to the brink of absolute disintegrates (Copelovitch, Frieden and Walter 2016).
Furthermore, Blyth (2013) posed assertion about factors which emerged as a new liberal program for the European governance had encountered certain challenges. These challenges related to attainment of the beneficial position in the financial market and further continued accepted legitimacy. Such a deficit of authenticity tends to surpass institutional self-determining deficit from which the European Union critically suffers (Pollack 2015). These challenges, however, have been associated with the way in which the new liberal project has been driven by the transnational corporate elite. Such new liberal European regulations which did not possess any democratic legitimacy have been consequently identified as the critical threat. These policies have been an indirect contribution to the emerging inequality and social economic inconsistency in the name of competitiveness. These policies have further been regarded as unconstructive factors to the European financial system (Copelovitch, Frieden and Walter 2016). Ranging from the elevated levels of Europe scepticism to the rejection of European Union in France and the Netherlands, several authors have witnessed a critical emerging crisis over the European legitimacy much prior to the Euro Crisis and started to threaten to loosen the European Union whole project (Hall 2012).
Kalaitzake (2017) indicated that shedding light on the unconstructive and slow pace of the eurozone since the 2008 crisis is regarded as an understatement. Hall (2012) reveal that the highly unconstructive performance of its member states in comparison to the EU outside the eurozone and critically low operations than the United States that has been viewed as the core of the crisis. As the worst performing eurozone nations have been hindered by the economic stress and critical recession, the conditions of the UK had been worse than the Greek Depression that had its occurrence during the 1930s (Blyth 2013). It had been critical to circumvent the notion that certain deeper and critical economic crisis has the propensity to emerge in Europe’s problem financial systems. Pollack (2015) stated that economically European financial system could feasibly support creditors by revealing adequate compliance to endure and further evade evasion or deflation. Firstly, Germany posed its accusations towards Greece’s dissolution and the liability and economic shortfalls elsewhere. However, the fetishism related to economic shortfall has been significantly integrated to the economic crisis of Europe whereby Finland also have been encountering crisis with several shocks with the GDP in 2015 at an approximate rate of 5.6% lower than its rise in 2008 (Pollack 2015).
Secondly, Farrell, H. and Quiggin (2011) are of the perspective that leaders of Europe who efficiently understood Europe financial systems will implement advanced and improved policies. Such policies are purposed to evade the potential critical impacts of the euro crisis. It is important to note that flawed policies did not solely increased economic severity. These inconsistent policies noted that certain structural reforms weakened the overall demand and potential development of EU (Nugent 2017). Furthermore, the eurozone recognized as a political arrangement whereby the German’s proposition was expected to be low. The low financial performance of the member states has been a broader rightwing assessment of the EU. It has been noted that EU was centred on the Eurocrats’ inclination for oppressive and stringent regulations (Jones, Kelemen and Meunier 2016). Furthermore, in response to the asymmetric economic distress and inconsistencies in economic productivity, authors indicated that there would be a tendency to have certain adjustments in the inflation-adjusted exchange rate. Such inflation-regulated exchange rate signified that prices in the outside edge of the member states would have to correspond to Germany as well as Northern Europe nations. However, Scharpf (2015) claim that Germans showing strict inflexibilities about inflation. For such inconsistencies its economies would have faced a certain level of stagnancy, whereby the adjustment could have been attained exclusively through wrenching deflation. These inconsistencies, however, implied a distressed rate of unemployment with deteriorating integrations and unions. In such situations the poorest nations of the eurozone and their labour force bore the impact of the regulation burden (Kalaitzake 2017). Thus, by exclusively modifying the rules as well as institutions of member states which could serve as a contributory role to the euro crisis. Such a modification, however, would necessitate discarding the convergence criteria. As such criteria would further require economic shortfalls to be reduced to around 3% of the Gross Domestic Product (GDP). This decrease reinstated severity with the growth strategy underpinned by a solidarity investment for financial stabilisation (Fatás 2018).
Conclusion
Therefore, to conclude it can be stated that dismantling a disaster-prone financial system in which countries must borrow in a currency, not under their regulation but further relying on Eurobonds. The Eurobonds could facilitate EU to borrow as one entity in the EU. For instance, there a single European bond will finance the net debt of all the individual Eurozone member nations. Furthermore, the EU must consider improved financial burden-sharing systems at the time of modification. Such adjustments must be executed with nations operating current-account surplus obligating to increase wages and further raise the number of fiscal costs. It is further ascertained that the prices will have the tendency to get heightened rapidly comparable to the countries operating current-account economic shortfalls. However, from an economic perspective, these modifications are considered to be minor. But the current eurozone leadership may face a deficit of political regulations in order to execute these modifications inefficient manner.
References
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