When the current leaders of the continent met
last Friday, the world watched anxiously to see whether or not the E.U. could pull itself together in time to stave off collapse. After announcing that a deal was reached, and that a new treaty will be drafted next March, it looks like Europe has taken a step in the right direction.
The need to reach a clear consensus between individual European nations has never been easy – European integration has been a long, arduous process. It's often taken years to push treaties through. The E.U. has changed dramatically since the early days of the European Steel and Coal community. Envisioned as a response to the explosion of economic and subsequent military nationalism that gripped the continent throughout the first half of the twentieth century, the existence of the E.U. has coincided with a period of unprecedented financial growth in the region. It would be a shame to see nearly sixty years of work by politicians and bureaucrats acting on good faith to go to waste now.
Time – or the lack of it – is becoming more of a factor. Eurozone economies will most certainly be downgraded
, and rightfully so. The effects of a European meltdown on global markets can’t be underestimated – if the E.U. can’t get its act together soon, the financial outlook for the rest of the world will continue to be quite bleak. The failure of any economy that encompasses nearly 700 million people will inevitably have dire consequences for both developed and developing economies alike.
One of the biggest points of contention in Europe is what role the European Central Bank will play in the future. Either the ECB will have to issue ‘Euro bonds’ or it will have to purchase an unlimited amount of sovereign debt from individual European nations. The least popular option of course, at least for global markets, will be for the ECB to remain as it is – a last-resort mechanism to provide liquidity into the market. The third option is what the Germans want, and as the Germans will inevitably decide whether or not the E.U. will continue to exist and on what terms, this will be the likely outcome. A report from Reuters
suggesting the German parliament will demand more input into E.U. agreements will only complicate things further.
Personally I agree with Merkel; I think that re-structuring the ECB to resemble something like the Federal Reserve in the United States would be a mistake. The current crisis in Europe has much more to do with governmental mismanagement and irresponsible banking than an absence of liquidity in capital markets (although Europe does need an infusion of cash in the short-term). What Europe needs to do is focus on fixing the ‘real economy’ rather than bolstering an institution whose sole purpose is to manage monetary policy.
As the recent events in the United States have shown, it would be more appropriate to say that "managing monetary policy" in this context would be more like "printing money from nothing" – which does nothing to lower unemployment, punish irresponsible financiers, or keep government spending in check. A stronger ECB would simply facilitate all of the worst parts of finance capitalism. Before the Europeans dump more money into the economy, they need to fix the foundations of the economy. It will be a painful process, but the alternative is much worse.
David Cameron’s snub
of the E.U. in last weekend’s summit was interesting to watch, but not entirely unexpected. But Britain is not part of the Eurozone, and they are exempt from many of the regulations imposed on most other European Union members. Their absence from negotiations on what the E.U. will look like in the future will hurt Britain more than it will hurt Europe. Nick Clegg, the leader of the Liberal Democrats, warned that leaving Britain outside of the EU framework was “potentially a bad thing for jobs, a bad thing for growth, and a bad thing for the livelihoods of millions of people in this country” according to the Guardian
It’s still too early to say whether or not the European Union is approaching the end of its lifetime. More than likely, it will continue to exist. If it does, it will only be made possible through closer integration and coordination between European economies. There is far too much at stake for European leaders to let the E.U. fall apart, and they know that. What it will look like in a decade – or even a couple of years from now – will be very different from what it looks like today.