European Union Regional Economics

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The European Union Model of Regional Economics

This paper examines the European Union economic model as an example of a regional integration for economic prospects in the world. Since 1972, twelve nations of Europe namely, Austria, Belgium, Britain, Finland, France, Germany, Ireland, Italy, Luxembourg, Netherlands, Portugal, and Spain co-operated economically under the treaty of European Economic Commission, EEC (Bartolini). However, the Union under examination in this paper came into effect on July 1987 when the single European Act came into force, thereby amending the founding treaties to cope with the transition into a single market. For a longer time, the European Union (EU) remains the most developed model in the regional integration examples. However, lately, severe economic crisis continue to shake the very foundation upon which the union stands. From debt crisis to refugee crisis, the challenges seem so great for some of the nation members to bear. Consequently, this now puts into question the economic benefits that accrue from the integration process (Hix and Høyland).

The lack of logical solutions to the EU’s frequent crisis ideally calls into question the very steadfastness of the union. The recent financial crisis that threatened Greece to decamp from the European Union reveals the institutional and structural cracks within the Eurozone. Two other countries of the union namely, Spain and Italy, now appear posed to go the Greece way. The economic decline of the EU comes in the wake of a new global economic order. Under this dispensation, there is now economic decline of the two world’s economic powerhouses, the United States of America (USA), and the European Union, but the rise in Asian and African economies. These economic realignments already threaten the social cohesion, and both the economic and political stability of the Eurozone (Kelegama 110-131). In the wake of these crises, the European Union’s status as the viable model of regional economics now is subject to threat. In the event that the European Union recovers from the crises that are threatening to tear it apart, it will emerge even stronger, and continue its role as the global leading model of regional integration.

The European Union Model Insights

The genesis of EU’s integration has its roots in the economic hardships of the early 1950s, following the conclusion of World War II. The success of the European Union as an economic and political conglomerate lies in a number of far reaching principles. First, the continent of Europe boasts of a number of visionary leaders. Among these are Germany’s Konrad Adenauer, and France’s Robert Schuman. The two leaders conceived a political alliance that operated on communal basis, and deviated from the traditional political model whose basis was the balance of power ((Bartolini). The United States’ support played a pivotal role at its conception was also crucial in the early years. Second, the Franco-German partnership was crucial in the integration process. For years, Berlin and Paris continue to be the engine of European amalgamation. Thirdly, the European political elite always share a common vision of sovereignty. This is instrumental in the common institutions that are strong, and legally binding on matters integration. Finally, Europeans share solidarity with their leaders on consensus approach based on tolerance. In this regard, the European decision makers try their best not isolate a member country (Bartolini. This approach saw Greece retain its membership in the wake of its recent economic crisis. The tolerance of policy makers in Europe encompasses an all-inclusive approach when dealing with a member nation. The basis of decisions, often, is on consensus, and political goodwill to offer colossal financial support to poorer member nations to take their rightful place in the union.

The four principles that continue to guide the European Union in crises, enables it to emerge stronger than ever whenever similar situations arise. This enables the union to ward off crises more easily. Some of the historical challenges that the EU warded off in the past include new treaties referendum failures. A case in hand is that of Ireland’s Lisbon Treaty in the year 2008 as well as the French and Dutch constitutional treaty. In each case, a referendum threw out each of the treaty. Another is the case of Charles de Gaulle who used “empty chair” tactic to withdraw his compatriots’ representation the political bodies of the union whenever these introduced the famed qualified majority voting (QMV). Charles de Gaulle ruled French during the 1958 to 1969 period (Dinan).

A more recent development involved the EU’s adoption of the flexible approach that resulted in a Europe divided into multiple layers of integration. However, not all the countries of Europe enjoy the Eurozone status. For instance, the United Kingdom trades in the Eurozone courtesy of the Schengen passport-free agreement. UK, however, continues to use the Sterling Pound as its currency. The EU allowed this arrangement to give leeway to Euro-sceptic nations to renege on certain obligations guarded by the union treaty (Volkens). Nonetheless, the EU remains committed to its core mandate that allows it the freedom to share sovereignty with any committed nation within the continent, while still committed to the values of strong common institutions.

Regional Groupings in Other Parts of the World

Other regions of the world continue to seek regional integration to push forward a common agenda. Notable here include associations such as the African Union (AU), the Mercosur of South America, the Association of South East Asian Nations (ASEAN), and the Gulf Cooperation Council (GCC). However, nothing in their progress mirrors the EU’s success. Amongst these the ASEAN model is second to in EU in performance. Perhaps this follows their efforts that saw them send delegations in a number of times to Europe to seek the European Union’s experiences from Brussels. However, throughout its existence, the ASEAN shows no interest in sharing sovereignty, and therefore, continues to be an inter-governmental body (Kelegama 110-131). The same applies for the other bodies mentioned above. Consequently, the EU remains the world’s most successful conglomerate of nations in terms of economic and political cooperation. Therefore, the union remains the globe’s best success story in integration.

Pronouncements on closer cooperation continue to dominate the political scenes in Africa, Latin America, South America, Asia, and the Middle East, but none of the declarations of these groupings matches the EU’s spirit of cooperation, integration, and political goodwill (Kelegama 110-131). Their pronouncements over time remains mere rhetorical expressions, for after these declaration are not matched with equal seriousness in action.

The EU’s success story arises from historical reconciliation over time. This is a vital factor if any political entity wishes to develop the matching good will, and step into the world of cooperation and, eventually, integration. The engine of EU’s success story rests on the historical frequent reconciliation of two Europe’s decision makers – Germany and France (Bartolini). Years of political resilience of the leaders of these two nations, often provide the fodder needed to take reconciliation, and cooperation forward. In sharp contrast, no other regional body, matches the EU’s ambitious efforts when it comes to political goodwill. For instance, in the East Asia case, unless Japan and China show similar commitment, there will never be a genuine integration, and the ASEAN model will always lag behind the European Union (Kelegama 110-131).

Similar reconciliation must also exist between Korea, and Japan. The mistrusts in political leaderships witnessed in East Asia is rife all over the world. Issues remain unsolved because a deeply lingering suspicion by the political players of the day. For instance, when one discusses this, India and Pakistan comes to mind. So is Argentina and Brazil, Iran and Saudi Arabia, and so on. The European Union model shows that cooperation, and integration is only possible after historical reconciliation amongst the warring nations. It only then that they can proceed gradually into the necessary steps crucial for creating a regional community. After this, the regional community can go a step further and create a customs union, a free-trade area, a common passport, a single market, a common foreign-policy, and eventually a common currency (Kelegama 110-131).
The Current State of the EU

The European Union stands tall as a secure, prosperous, and a safe haven in comparison to other regional bodies of this world. Following its recent economic turmoil, however, the European Union needs to tackle its perennial major challenges, if needs to remain a global player and influencer worth emulating. It needs to tackle these challenges now with urgency, and determination. Only then will the European Union remain the world’s leading model of cooperation, integration, and economic union. However, the European Union’s current problems arise from a number of factors. First, the European Union experiences a rapid expansion and integration. The number of member states currently stand at 28. This is in contract to only 12 members in 1972. This is not commensurate with the European Union’s economic, and political strengths.

The emerging differences, and economic gaps between the member nations require urgent attention necessary. The EU must coordinate and institute the expansion of its capacity building efforts to bring all players at the same level. Currently, though, Germany and France seem to be its major beneficiaries. For these two nations, the EU provides a readily available labour force and a vast market for their rapidly expanding domestic industries. The European Union member nations must find equal footing if their model of economic integration is to suggest lessons for other bodies pursuing regional integrations (Volkens). These lessons will remain vital particularly when these regional entities come to the later stages of economic cooperation, and integration.

The second challenge that the European Union must tackle is increased fiscal coordination. This is necessary in the wake a seemingly worsening economic position. The European Union’s financial systems require cleaning, in order to bring them into agreement with the austerity plans that now most member nations embrace. The European Union continues to roll through murky waters, though. The ever persistent present danger of disintegration, and euro collapse remains. More so in the wake of rising national debt situation in member countries. Portugal and Ireland have since found their footing. Greece is reeling out of a life threatening debt situation that almost forced it out of the union. Similarly, the economic situation of Spain and Italy look dim. In addition, dissenting voices are heard in Britain, the Netherlands, and other quarters that threaten the very existence of the union as it is today (Hix and Høyland).

The Euro

The major factor that seems to deem the influence of the European Union stems from the dismal performances of the euro internationally. The union’s central bank is the European Central Bank (ECB). Presently, 17 of the 28 European Union member nations use the Euro as its currency. The fact is that euro comes second to the dollar in the forex market trading. This gives it an international appeal, and thereby makes it one of the leading global reserve currencies. The euro came into existence on 1 January 1999 (Damian 222-229). Consequently, the account currency placed the European Union member currencies at the same level of strength, and thereby, sent the entire member nations individual currencies into oblivion. At launch, only eleven of the EU states adopted the euro. These included Germany, France, Spain, Italy, Portugal, the Netherlands, Ireland, Finland, Luxembourg, Belgium, and Austria. Greece joined the union in 2001, and similarly adopted the euro as its currency. So did Slovenia in 2007. Cyprus and Malta followed suit in 2008, while Slovakia adopted the euro in 2009.

The latest entrant into the union is Latvian who joined the membership on 1 January 2014. A number of other countries outside the Eurozone also use the euro. These include the Vatican City, San Marino Republic, Monaco Principality, as well as the Andorra Principality. In addition, many territories of the Eurozone countries including Madeira Islands, the Canary Islands, the Azores, the Reunion, French Guiana, the Balearic Islands, Europa Island, Martinique, Guadeloupe, Saint Pierre, Mayotte, Juan de Nova, and Saint Martin among many others also use the euro in their day-to-day transactions. Equally, the North Korean Republic, Cuba, and Syria also use the euro. Most currencies of the world similarly exchange their currencies to the euro based on the prevailing market exchange rates (Damian 222-229).

The Eurozone Crisis

The major challenge that the EU faces today is the continued fragile economies of a given Eurozone member nations. These include Italy, Spain, and Greece. Greece recently received a third bailout package to the tune of 85 billion euros. Like before, the bailout came with stringent austerity measures. Spain and Italy faces renewed speculation on the ability to service their national debt portfolios in the financial markets (Hix and Høyland). Even though there appear to be some light at the end of the tunnel for many of the European Union countries, economists warn on possibilities of a “double dip” recession in the Eurozone.

Many attribute the European debt crisis to a number of financial guarantees by the EU nations that feared financial septicity, and by the global moneylender, International Monetary Fund (IMF). When ratings agencies downgrade the Eurozone debt, and even giving the Greek debt a junk status at one point, it creates a panic in the financial markets. Consequently, the basis of the bailout agreements requires the recipient countries to have stringent austerity plans aimed at reducing the national debt portfolio (Hix and Høyland).

The national debt crisis among the European Union member nations began in 2009. It stemmed from the inability of some Eurozone member countries to repay or refinance the nation debt of their countries. The nations affected included Cyprus, Portugal, Ireland, Spain, and Greece. They became unable to foot the loans of the beleaguered banks without European Central Bank inputs. Further assistance became necessary from the lenders such as the International Monetary Fund and the European Financial Stability Facility (EFSF). Seventeen of the member countries created the EFSF sometime in 2010 (Hix and Høyland). Its mandate was to offer solutions on the spiraling European debt crisis.

The EU’s debt crisis has its genesis from the financial crisis that plagued the world in 2007 and 2008. This gave rise to the recession in 2008 to 2012. The latter led to the property bubbles in a number of countries, including the United States, and consequently, led to the crisis in the real estate markets. The culmination of the recession was in 2009, and led to the Greece’s discovery that its previous government exceedingly under reported the national budget deficit. The pronouncements signaled Greece’s a violation of the EU treaty policy, and led to fears of the euro collapse, as it eroded investor levels. This led to unsustainable high interest rates in the euro bonds. The fear this sparked in the fiscal world led to beliefs that the Eurozone debts were unsustainable (Hix and Høyland).

In 2010, in the wake of the fear of unsustainable Eurozone sovereign debt, each lender began demanded higher interests on the EU member nations’ loans, and consequently, spiraled the debt out of control. This made most member countries fail to finance budget deficits. In the phase of negative economic growth, and shrinking Gross Domestic Products (GDP), some countries raised taxes to finance the deficit as most governments slashed their expenditures. The negative social vices and economic downturns followed. This even led to votes of no confidence in the leadership, especially in Greece. In view of this, rating agencies downgraded three Eurozone debt statuses to the junk, and thereby, worsened the investor fears. The countries affected included Ireland, Portugal, and Greece (Hix and Høyland).

The Greek Case

In the wake of the upheavals in the Eurozone in 2010, the national bond yields for a number of the EU countries shot up. Those affected included the Federal Republic of Germany, Portugal, Ireland, and Greece. The escalation in bond yields forced the Greek government to seek the country’s first assistance in May 2010 (Hix and Høyland). Now, Greece got two bailouts. All the assistance came from the EU over a five years period. During this time, the country undertook the EU-led austerity measures. It aimed to reduce costs in the phase of a biting economic recession, political, and social unrest. Come June 2015, the Greek government in a phase of political divisions amid the never ending recession, faced a default on its national debts amid calls to leave the EU altogether. To save the day, the Greek parliament voted for further austerity on 5 July 2015. This led to the third bailout to the country totalling 85 billion euros.

European Union
European Union

Further Effects

Ireland went the Greek way in its request for a bailout late in 2010, while Portugal came in next in the month of May 2011 (Hix and Høyland). Spain and Italy also found themselves in the rather precarious situation, and therefore, Spain put in her request to the EU for a bailout in June 2012; and so did Cyprus. Portugal also followed suit. However, come 2014, Spain, Portugal, and Ireland exited the bailout plan in the wake of domestic austerity actions, these countries’ fiscal reforms, and other favourable economic factors. Full economic recovery may still be far, but at least they are able to stand on their own. However, for Spain, a recent economic development in the country pushes it toward a second bailout plan.

For the European Union, the economic turmoil within the union comes amid momentous wealth shifts toward Asia and Africa. In the wake of this, the EU’s global GDP share dropped from 24 percent in 1990 to 22 percent in 2010. The emerging markets as those of China, India, Russia, and Brazil all compete the European Union for foreign direct investments, and growth resources like oil and gas. In addition, the European labour force ages drastically and now seeks leisure than work. Furthermore, the European Union lags behind in resource allocation to innovation. Innovation is the engine of growth, and where it lacks, stagnation quickly follows. The European Union’s Lisbon Strategy that aimed to turn the European Union into an economic powerhouse is conspicuously missing in action (Hix and Høyland). In addition, its latest 2020 plan, operating in an environment of lofty ambitions, certainly will not fare any better.

In this era of declining oil and commodity prices amid rising food prices economic recovery prospects for the European Union look grimmer. Simply put, future forecasts for the European Union paint a rather dark picture of the European Union, in the wake of its largely aging and immobile population. This gives the Union a competitive disadvantage in the wake of cheap labour markets in Asia and Africa, which now forces the union’s domestic enterprises to relocate to the two continents (Kelegama 110-131). This leaves the European Union economy overburdened by high unemployment rate amid rising health costs. In addition, the Asian communist and socialist development models now pose great challenges to the capitalist model of the Anglo-Saxon cooperation. Consequently, fewer Asian nations are eager to implement the American and European Union led reforms on environmental, labour, and social strata arguing this would greatly disadvantage their development plans at this critical juncture.

The third and critical challenge in the European Unionrevolves around finding a common identity. Member nations never speak with one voice, turning the union into a misdirected entity where opposing forces pull in different directions (Dinan). The current Syrian refugees’ crisis and the subsequent divisions it continues to cause in the leadership of Eurozone is a case at hand. Academicians describe it as one the greatest paradoxes of the European Union, in the phase of a widening and deepening rift. We have a European Union that progressively moved from the unification of its customs departments into a single-market economy, and currently boasts seventeen nations in its monetary union. We also have an EU that gradually increased the number of membership nations from just six at its onset to the current twenty-eight members. In this diversity that spans almost the entire continent, a common identity continues to be a great challenge.

Consequently, the European Union finds itself unable to strengthen the union’s political institutions further, in order to keep abreast with the deepening needs of this integration, in the wake of a heterogeneous membership. In the phase of a widespread public scepticism on the European Union’s vision of cooperation and integration, the citizens remain hooked to individual national values, and consequently, are reluctant in letting Brussels usurp the national powers. In addition, the two bearers of the EU’s vision, France and Germany are now openly divided on matters of economic governance (Hix and Høyland). Therefore, the union needs to find a common European voice in all matters that touch on global economic governance.

Many in the EU looked upon the Lisbon Treaty as a provider of the necessary impetus for deepening the economic prospects of the European Union, but the struggle seems to bare any fruit presently. As a result, national politicians are now reluctant to push forward the agenda for strengthening the European Union. The strongest proponent of the union, Germany, now relaxes its voice on closer integration (Hix and Høyland). This gives the sceptics raw fodder to publicly doubt the euro prospects. In this front, however, a number of European Union politicians, such as the former French president Nicolas Sarkozy, and Belgium’s former prime minister, Guy Verhofstad, who lead the liberals minds to the argument that the European Union now requires radical steps to best respond to its myriad political and economic crisis. This group believes that the European Union’s handicap stems from the weak central institutions of the European Union. Consequently, they assert that the European Union needs sufficient regulation that governs its energy and financial sectors. Unfortunately, for the group, lukewarm reception from Germany and a number of member nations continue to meet their recommendations.

The Validity of this Model

Recent political and economic crisis in the Eurozone puts heavy challenge on the European Union’s model of governance as an implantable system of governance. However, some scholars argue that this fallout is only temporary. History is rife with instances where the EU rebounded from the ashes. This group argues that the European Union will leverage its present day adversity, and move forward in its integration efforts. This group cite as an example, the 1954 case where the plan mooted for a common European defence system failed. It is this plan, however, that gave birth to the EEC in three years’ time. Another common point of reference is the empty-chairs crisis under the then French president Charles de Gaulle in 1965. His theatrical actions later resulted in the Single European Act in 1986 through a unilateral acceptance of QMV (Bartolini). In addition, the 1980s currency tribulations gave rise to the common European Monetary System, and eventually the euro.

In the wake of regional blocs’ dominance in the global economic and financial agenda, the European Union as a single player is unlikely to achieve much on its own. A long time ally, the United States, now presses for a reduction in the number of seats the European Union occupies in the Group of 20 (G20), and the global lending houses, including the World Bank, and the IMF (Hix and Høyland). In due course the changes could trigger stronger for the integration process.

In the phase of these crises, the EU continues to attract negative media attention. However, despite the critics, most governments of the member nations, and other regional groupings continue to show strong faith in this union. Of significance is the fact that despite the crises, neither the next door Russia, nor the now Asian economic giant China nor Russia sold their holdings of euros (Hix and Høyland).

Neither has the European Union’s problems dimmed other regional groupings’ quest for greater cooperation, and eventual integration. For instance, ASEAN continues to push forward its proposals for the establishment of its ambassadorial steering committee, in line with the arrangement in Brussels. They call theirs Coreper. Consequently, South Korea, China, and Japan continue to intensify the regional trilateral ministerial meetings. The aim is to establish closer ties in the East Asian cooperation (Kelegama 110-131).

Consequently, a lot exists for the benefit of many from the European Union model of integration. At the core of the matter is the fact that the European Union is a heterogeneous organization. Therefore, how the member countries manage crisis serves as a pointer to the emerging regional bodies. For instance, if one considers monetary union objectively, it becomes clear that an integrated economic and political system is necessary to evaluate the national debt of a member country, and consequently, defers speculation. This serves well those nations aspiring to forge a customs union and adopt a free market economy, which finally leads to a common currency (Kelegama 110-131).

Experts assert that the process of integration is very difficult indeed, as invariable setbacks and crises often arise. However, as one evaluates the European Union case, data available proves such sceptics wrong. The EU as a regional union boasts of an excellent record in tackling crises, and move forward ever strongly than previously. Experts attribute this to a very strong political will. Consequently, the valuable lessons from the European Union model gives an impetus on investment benefits member nations accrue from their goal to integrate regionally. In as much as the system may not prove politically convenient, however it is a platform that time testifies have great advantages to regional economies. Moreover, it is prudent to understand that integration only succeeds, in the arena where the citizens and governments believe in the cause as vital above national interests (Hix and Høyland). Consequently, where commitments lack, the regional grouping crumbles at the first bump on the road to this city called integration.

References

Bartolini, Stefano. Restructuring Europe: centre formation, system building and political structuring between the nation-state and the European Union. Oxford University Press, 2005.

Damian, Monica. “The Comparative Analysis of the Monetary Policy Strategies before the Adoption of the Euro Currency and the Impact upon the Maastricht Criteria.” Journal of Applied Economic Sciences (JAES) 3 (17 (2011): 222-229.

Dinan, Desmond. “Ever closer union: an introduction to European integration. “Boulder, USA–2005 (2004).

Hix, Simon, and Bjørn Høyland. The political system of the European Union. Palgrave Macmillan, 2011.

Kelegama, Saman “South Asia and other regional economic groupings.” South Asia (2010): 110-131.

Volkens, Andrea, et al. Mapping policy preferences II: estimates for parties, electors, and governments in Eastern Europe, European Union, and OECD 1990-2003. Oxford: Oxford University Press, 2006.

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Steve Jones

My name is Steve Jones and I’m the creator and administrator of the dissertation topics blog. I’m a senior writer at study-aids.co.uk and hold a BA (hons) Business degree and MBA, I live in Birmingham (just moved here from London), I’m a keen writer, always glued to a book and have an interest in economics theory.

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