Effect of Euro Zone Crisis on the European Integration Project - Essay Example

? Effect of “Euro zone crisis” on the European integration project Introduction Eurozone Crisis, or The European debt crisis, refers to the failure of Europe to pay the debts it accumulated in recent times. Some of the prominent members of European Union (EU) such as Greece, Portugal, Ireland, Italy, and Spain have failed to develop properly in recent times because of various reasons. The recent recession hit these countries more than any other countries in Europe. On the surface level, Eurozone crisis seems to be affecting only these five countries, but in the deep grass root level, this crisis has the potential to cause huge problems to the entire Europe because of the increasing interdependence of EU countries in one way or another. Bank of England referred this crisis as “the most serious financial crisis at least since the 1930s, if not ever,” in October 2011” (Kenny, 2012). This paper explores the history of European integration first and then explores whether Eurozone crisis has any effect on European integration. History of European Integration Second World War has changed the history of Europe immensely. In fact, Europe has been divided into distinctive ideological segments as a result of WW2. Eastern Europe came under the control of communist regime whereas Western Europe was occupied by democratic regimes or capitalist countries after WW2. Moreover, one portion of Germany (East) came under communism whereas another portion of it came under capitalism immediately after WW2. It should be noted that capitalism and communism would never travel in parallel directions. So, tensions between communist East and capitalist West of Europe started to intensify after Second World War. Prominent politicians and scholars of Europe such as Winston Churchill realised that the progress of Europe would never be possible if one part of it function in one direction and other part in opposite direction. Thus, the call for regional integration started immediately after the end of WW2. Moreover, the theories of Federalism and Functionalism, put forward by prominent scholars gave momentum to the integration process of Europe. “The term “regional integration” means combining parts into a whole, according to the Oxford Advanced Learners Dictionary” (Dosenrode, 2010, p.4). Europe was functioning as parts after WW2. For example, the whole Germany was functioning as East and West under two contrasting political ideologies. The fall of Soviet Union during the latter parts of twentieth century gave momentum to the regional integration process in Europe. The introduction of principles such as perestroika and glasnost by former Soviet leader Gorbachev helped the Soviet Union and other communist countries to expel communism from their territories. Majority of the Eastern European communist countries including East Germany embraced capitalism or democracy after the fall of communism in Soviet Union. The Berlin Wall has been destroyed and the two Germanies became united once again. All these incidents encouraged the regional integration process in Europe in one way or another. Moreover, the progress of Untied States towards prosperity made the European leaders aware of the necessities of a European Union (EU) to enhance their potentials for economic progress. The first pillar of EU was constructed in 1951 in the form of European Coal and Steel Community (ECSC) by the six countries; Belgium, France, West Germany, Italy, Luxembourg, and Netherlands. Since then, a series of incidents happened in the integration process of Europe. “The EEC Treaty, signed in Rome in 1957, brings together France, Germany, Italy and the Benelux countries in a community (EEC) whose aim is to achieve integration via trade with a view to economic expansion” (Treaty establishing the European Economic Community, EEC Treaty - original text, 2010). The 1960 Stockholm Convention resulted in the formation of European Free Trade Association (EFTA) (Convention Establishing The European Free Trade Association, 2001, p.2). The 1992 Maastricht Treaty, declared the formation of European Union (EU) officially (The Maastricht Treaty, 1992, p.2), followed by the formation of Economic and Monetary Union (EMU) and the introduction of a common currency Euro in 1999. The formation of EMU and the introduction of Euro were the last steps taken by the European countries for the regional integration process. The introduction of Globalization and its core principles such as collective growth encouraged European countries further to function under one umbrella. Eurozone crisis and European integration The Eurozone debt crisis began in late 2009, when a new Greek government revealed that previous governments had been misreporting government budget data. Higher than expected deficit levels eroded investor confidence, causing bond spreads to rise to unsustainable levels. Fears quickly spread that the fiscal positions and debt levels of a number of Eurozone countries were unsustainable (Nelson et al., 2012, p.2). European Integration process was going well smoothly until this information was revealed to the public. However, after the disclosure of this information the integration process in Europe started to retard heavily. The trust between the countries started to diminish after the disclosure of this information. A sense of cheating and betray started to develop in the minds of some European nations. “Opinion polls constantly show that most Europeans appreciate the underlying advantages of European integration but are uneasy about certain EU policies and developments”(Dinan, 2005, p.7). For example, the single currency Euro is under the control of EU. EU is responsible for determining the exchange rates, interest rate and other monitory polices. Moreover, individual states do not have the authority to print more currencies or Euros without taking permission from EU. Loss of national economic policies, autonomy and sovereignty in financial matters are some of the costs incurred to the member countries of EU as a result of the introduction of EMU and EU. In other words, majority of the policies implemented by the EMU were intended for the economic progress of Europe as a whole rather than the progress of individual counters. It is not necessary that the policies implemented by the EMU affect all the EU countries in one way alone. The establishment of ECB forced member countries to transfer majority of their foreign reserves under the control of ECB. In short, economic independence or financial freedom lost for many of the member states after the formation of EU and EMU. Loss of capital and loss of freedom in determining fiscal policies, exchange rates, interest rates and other monitory polices is constructing a big hurdle in front of the European Integration processes. Greece, Spain and Portugal like poor countries believe that EU is not helping them adequately to escape from recent financial crisis. Many people in these countries are of the view that regional integration actually caused much harm than good to their countries. According to Allesi, (2011), “eurozone's wealthiest members called on weaker states to embrace strict austerity measures, inciting popular unrest and toppling governments in Portugal, Spain, Greece, and Italy” (Allesi, 2011). Even though regional integration in Europe was proposed and implemented for the growth of entire Europe, some of the member countries such as France try to exploit the situation. These countries are asking the weaker countries to implement drastic economic measures while staying away from implementing such things in their home soil. Thus, poor countries, in EU feel that a kind of exploitation and discrimination is taking place in EU and hence they are not much interested in the integration process. No governments or ruling parties would like to cause problems to their political interests in the name of any kind of integration. European integration is causing problems to the political interests of the governments in poor countries. Stern economic measures may not affect the wealthy countries such as Britain or France very much. However, the governments in poor countries forced to implement unpopular policies such as cutting public spending and raising taxes as part of the integration process. Therefore, majority of the people in poor countries are against the concept of European integration. After a lengthy discussion in Brussels, “eurozone finance ministers, the European Central Bank and the International Monetary Fund again admitted that they could not reach agreement on how to bring Greece's debts down to a sustainable level” (Wearden and Fletcher, 2012). The debt crisis caused severe problems in Greece because of its “massive spending and consumption coupled with increased wages and government benefits, in the years following its adoption of the euro. In November 2009, it was revealed that Greece had manipulated its balance sheets prior to the global financial crisis to hide its debt” (Allesi, 2011). Wealthy countries believe that Greece like poor countries is exploiting the favourable situations well. Anger is developing among wealthy nations such as France, Germany and England about the unethical behaviour of Greece. They fear that poor countries in EU may follow the footsteps of Greece and the concept of European integration could well turn out to be a disaster. The initial enthusiasm shown by the wealthy countries for regional integration is not there now. Wealthy countries started to think that it is unwise and illogical to take the burden of poor countries upon their shoulders in the name of European integration. “On 2 May 2010, to reassure investors confidence, the EU and IMF put together a €110bn bailout package for Greece conditional on implementation of austerity measures” (Anand et al., 2012, p.10). Same way many other EU countries got bail out packages to overcome the current financial problems. It should be noted that a substantial portion of the bailout amount is the contributions of the wealthy EU nations. It is difficult for these nations to share their capital beyond certain limits to the growth of other countries in EU. EU may serve as a liability to such countries and they may think about the possibilities of cancelling their membership in EU in future. “To quote one of the founding fathers of the EU, Jean Monnet: “If I could seize a fresh opportunity for the political integration of Europe, I would start from culture and not from the economy” (Dudt, p.3). European culture is predominantly Christian oriented. However, in countries such as Turkey and Algeria, Muslims hold the upper hand. Communities with contrasting interests such as Roman Catholicism, Orthodox Christianity, Protestantism, Sunni Islam, Shia Islam, etc are prevailing in Europe. Catholic Christians are concentrated mainly in countries like, Italy, Vatican, France, Hungary, Poland etc. Turkey, and Algeria like countries have Islam as the major religion whereas Orthodox Christians are heavily populated in countries like, Russia, Ukraine, Rumania, Bulgaria, Greece. Protestant Christians are staying in mainly in countries like Denmark, Germany, Finland, Sweden etc. The integration of Europe with the help of contrasting cultures is definitely a big task. “Being European -- like being British -- cannot be defined by ethnicity or religion. Europe is all about multilayered loyalties -- the national and European overlying and interlocking with the local and the regional” (Figel, 2006, p.4). France, Britain and Germany are the prominent members of EU. Historically, these three countries are in big competition for supremacy in Europe. Their competition or cold war often creates problems to the regional integration process. In short, cultural differences between different countries in EU are playing a big role in the present Eurozone crisis and in the integration process. According to German chancellor Angela Merkel, "The euro is much more than a currency; it is the guarantor of European unity. If the euro fails, so will Europe" (Paterson, 2011). Euro is the proud symbol of Europeans at present. In fact, Euro has the ability to provoke nationalism in the bloods of Europeans. So, any problems caused to Euro, might cause problems to the integration of EU. At present Euro is struggling to fulfil its initial promise of becoming the strongest currency in the world. Any problems occur to euro may cause problems to the integration process also. France and other wealthy EU countries would like to have two types of economic integration among EU countries; one for the wealthy nations and the other for the poor nations. It is impossible for the EU countries to work under the umbrella of EU with two types of integration. Such a scenario would never allow EU to achieve its objectives. A divided Europe would be the outcome of two types of integration among EU countries. The history of the EU shows that crisis often—but not always—leads to increased integration. Crisis alone will not produce results unless there is the political will and creativity to respond with decisive innovation. From the initial establishment of the European Coal and Steel Community in response to the challenges of postwar reconstruction to the single-market innovations of the 1980s, examples abound of the ability of political elites to seize crisis for policy innovation. Even so, long periods of stagnation in political, economic, social, and security arenas have persisted even in the face of serious dysfunction. In the early years of the EU, the so-called empty chair crisis blocked movement on needed decision-making reform for years. A long period of economic stagflation and hard times in the 1970s brought little in the way of policy integration (McNamara, 2010). It is illogical to believe that the current Euro crisis may result in the collapse of EU in immediate future. The success and failure of EU depends on the political will of the EU leaders. Angelina Merckel is trying hard to give momentum to the integration process. However, France seems to be having other ideas. Britain on the other hand remains somewhat silent over the future of European integration. It should be noted that former British leader Churchill is one of the major architect of EU. Moreover, many British leaders in the past worked hard for the European integration process. However, the economic climate in Britain at present is not so good to bear the liabilities of other countries. Therefore, current British leaders are keeping a meaningful silence over this issue. Conclusions The current Eurozone crisis has created many problems to the European integration process. Even though the European leaders are trying hard for keeping the concept of integration intact, success seems to be a distant reality. Poor countries in EU believe that they were forced to implement unpopular economic policies because of the compulsion from wealthy countries. On the other hand, wealthy countries such as Germany, Britain and France started to think that poor countries in EU are becoming a burden for them. It is impossible for the wealthy nations to assist the poor nations beyond certain limits. France is arguing for two types of integration in Europe; one for the wealthy countries and the other for the poor countries. Such a scenario would divide Europe again into different economic zones and regions. Granting more financial freedom to the member countries is one way of solving the current crisis. However, it is quite possible that these countries will misuse such freedom. In short, the support for European integration is diminishing not only in poor EU countries but also in wealthy EU countries. References Anand, M.R., Gupta, G.L. & Dash, R., 2012. The euro zone crisis: Its dimensions and implications. [Online] Available at: http://finmin.nic.in/workingpaper/euro_zone_crisis.pdf [Accessed 22 November 2012] Alessi, C., 2011. The Eurozone in Crisis. [Online] Available at: http://www.cfr.org/eu/eurozone-crisis/p22055 [Accessed 22 November 2012] Convention Establishing The European Free Trade Association, 2001. [Online] Available at: http://www.worldtradelaw.net/fta/agreements/eftascfta.pdf [Accessed 22 November 2012] Dinan, D. 2005. 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Eurozone crisis as it happened: Anger in Greece as debt talks fail. guardian.co.uk, Wednesday 21 November 2012. Read More