Research Paper on "European Monetary Union"

Research Paper 9 pages (2701 words) Sources: 10

[EXCERPT] . . . .

Euro Monetary Union

The Admission of New Nations into a Struggling European Monetary Union

The European Union was formed in 1993 with the intention of unifying under a shared economic purpose the individual member states of the European continent. Among its key objectives was to strengthen the whole of the European economic community through the proliferation of continental trade and commerce and to strengthen individual nations by bringing those in the developing phases into a dynamic intercontinental marketplace. With the 2002 adoption of the Euro and the initiation of the European Monetary Commission, twelve member states would officially converge under a single currency. This would mark a dramatic transition within the scope of European history. Where the fates of the interacting states within the continent had always been deeply intermingled, this would mark the first time that these shared interests would supercede the individual differences historically critical to European identities. Less than a decade from the initiation of this tectonic shift toward aggressive monetary globalization, many observers and member states are in a position to question either the rationality of the feasibility of the transformation which has been thrust upon the members of the union. In a philosophical sense, the European Monetary Union is guided by the as yet unproven claim that economic convergence between a multitude of partners is feasible in spite of the critical fiscal differences separating them. Indeed, the view is that those poorer nations aspiring to membership will take fundamental policy steps to qualify for participation that will help to assuage these differences. But in a more practical sense, the sheer chasm of economic control and prosperity between such EU leaders as the United Kingdom, France and Germany and, at the opposite end of the spectrum, such struggling nations as Italy, Spain and Greece appears too great for the Euro to bridge.

This brings us to consideration of a troubling question before us, and one that calls into question our shared confidence in the very survival of the Euro. Today, the European Union is in a state of economic crisis, most pointedly represented in the tumbling value of the once mighty Euro and in the civil collapse threatening Greece, a member state of the Monetary Union. These realities are at the center of the discussion here, which asks generally whether newly admitted countries to the European Union should also be admitted entry into what is referred to as the Eurozone. This is the span of 16 countries which has disbanded its own currency in order to the adopt the Euro. The primacy of Greece in the course of this discussion cannot be overstated as it appears today as a prominent piece of evidence both for the European Monetary Union and for developing nations desiring succession to the Euro that the inherent dangers of the continental currency far overshadow the imagined benefits. Where in the first years of its institution the Euro appeared to thrive and to generate a great deal of interest amongst the succession states especially breaking away from the sphere of Soviet influence. Here, the Euro appeared a gateway to a shared European prosperity.

Recent events would reveal not only that these assumptions were critically premature but additionally that they grossly underestimated the consequences of removing monetary authority for individual nations while failing to create a similarly continent regime for addressing fiscal realities. As we examine Greece more closely, and the implications of the current Euro crisis, it becomes clear that we cannot advise for the membership of any new states under the Euro. Moreover, even if the Euro does manage to survive this dramatic devaluing at so early a point in its life, it must be seen as a point for inflection upon the expectations of globalization. Within the scope of this reexamination, it should be seen as necessary to pull-back from the proliferation of the Euro and to accompany this pull-back with far greater scrutiny over the qualifications of individual nations for membership.

As noted, Greece is the most important example for why the current discussion is necessary. For the European Union, Greece would be an early and natural partner, particularly considering the relationship that had been established during the World Wars. To that extent, "Greece's European orientation predates the linking of the country's course with efforts towards European integration within the context of the European Community Union. However, the orientation became concrete upon submission of the application for accession to the newly established European Economic Community in June 1959." (Greek Embassy, 1) Its brief encounter with dictatorship after the 1967 military junta would only temporarily derailed the process. With the restoration of democracy in 1974, Greece would achieve full ascension to the evolving European Union and would thus be a charter member of the modern incarnation. It would ratify the Euro in 2001.

Today, a storm has beset the value of the Euro and the small Mediterranean nation is at the eye of this storm. As Bilefsky (2010) reports, "The economic challenges facing the European Union unsettled investors around the globe on Tuesday as hundreds of demonstrators took to the streets in Greece, unfurling banners over the Acropolis to protest the government's new austerity measures. It was not supposed to be this way when Greece, eager to join first the European Union, then the euro zone, pledged financial overhaul." (Bilefsky, 1) However, all indications are that Greece was moved to overzealousness by the declaimed promises of shared continental prosperity claimed by membership in the European Monetary Union. Where many argued that these goals were unrealistic, it would appear now that Greece is a demonstration to confirm this most pressing fear.

The Euro is in the midst of a veritable freefall since the start of the new year which has spilled out into all of Europe. According to Vogt (2010), "since the beginning of the year the European currency fell from nearly 1.50 to around 1.35 -- a 10% loss." (Vogt, 1) Vogt provides the chart shown below to confirm this trend, one which mirrors the precipitous decline in the value of the American dollar in the last decade. The chart here provides all indications that this recession has now rippled out into Europe with palpable consequences:

(Vogt, 1)

As the chart demonstrates, the value of the Euro has reached a point of crisis that is subjecting all of Europe to a serious reconsideration of the qualifications for membership. The Greek history of membership under the Euro is a particularly compelling one as it denotes the clear contradiction between the imposition of hardline qualifications for Euro-zone membership and the subversion which Greece was able to perpetrate in order to represent itself as meeting this qualifications. Primarily, Bilefsky indicates that membership requirements were such that a nation's deficit could not exceed 3% of its GDP, a condition which Greece could not meet. Still, as Bilefsky reports, the European Union is inherently political in nature, perhaps more so than truly economic (a condition to which we might attribute some of its core failures). Much to the point, Bilefsky notes that nations such as Greece would be distinctly capable under these conditions of obscuring the true nature of their economic challenges in order to gain said membership. Bilefsky reports that "in the end, Greece joined a year earlier than expected, in January 2001. It had -- on paper -- slashed its budget deficit. and, while it had not reduced its debt enough, it invoked the precedents of other countries, like Italy and Belgium, that had been allowed in despite breaching the limit. The political imperative of keeping the euro on track silenced any critics." (Bilefsky, 2)

It is thus the nation's crisis and the EU's responsibility to prop it up are conditions which both conspire to discredit or even make insolvent the European Monetary Union. The subversive tactics used to gain membership would be fundamentally dangerous to all parties -- those which claimed to be ready for the economic rigors of this major adjustment and those which were to absorb the inevitable failures thereby created. The enormous bailout package issued this month by the European Union is a stark demonstration that this is so. Accordingly, Baetz (2010) reports that the "euro750 billion ($1 trillion) rescue loan package only bought euro-zone countries more time, but didn't resolve the continent's underlying debt problem, German Chancellor Angela Merkel and a European Central Bank official said. The market turmoil will only calm down if the 16 member states of the euro zone reform their economies and reduce their deficits, ECB chief economist Juergen Stark told the Frankfurter Allgemeine Sonntagszeitung newspaper on Sunday." (Baetz, 1)

This is a policy approach which closely and problematically mirrors the deeply questionable bailout tactics only recently employed to great consternation in the United States. Here, Trumbull (2010) remarks that "America's TARP fund, the Troubled Assets Relief Program of 2008, may be a cautionary tale. Even at the height of the financial crisis, America was wary of bailing out its own banking system. The initial… READ MORE

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