EU : A Big Step Forward or Two Steps Back ?

The Eurozone crisis has called into question the structure of the EU as well as its political unity. The crisis has left the member states to hang on to the ECB`s life buoy hoping for the storm to pass. Slowly it is has come apparent that the short term solutions are unable to tackle the problems the pre-crisis economy tried to suppress and is now facing a new ring of fire.

The EU started of as a union of states hence the start of the Eurozone has become a clearly unthoughtful step. The fixed value of the Euro was expected to even the Eurozone market as well as to unify the rules of deficit in the national budgets thus avoiding inflation and credit defaults. None of these hoped effects played out due to false players or higher benefits to the already richer members of the union. The principle of the capitalist economy is an ideal win-win situation where all members are never equal yet all of them are winning compared to their previous situation. What the Eurozone did not think of was the danger of loans from the core to the periphery in order to get them to buy more of their own exports, the banks relying on safe returns, the price rises and inflation within smaller and poorer markets where competition benefited the producers and left the consumers impoverished. The uneven distribution can also be seen in the free movement of labor that takes tax payers to work in richer member states. The Eurozone was an ideal like the gold standard, forgetting that it is impossible to imply the same rules within member states of different economic level, market size, population and economic outlook. The main benefiters before the crisis were Germany and other rich members who are now struggling to keep the Eurozone afloat by the only possible way : the creation of Federal Europe.

The ECB`s loans to the periphery and its support for the banks is not enough until the income differences within the Eurozone start to diminish or taking another route, the weaker markets will be allowed to practice protectionism in order to build up their national economies. The latter is an unlikely option for it would hurt the richer members and exporters who would consider it an unequal competition like the creation of the Eurozone itself turned out to be. Looking at the present and accepting the fact that once created the Eurozone is here to stay, it is best to compare it to the slowly dying stock market replaced by bond issuers. The idea to boost consumption through lower interest rates is the cause of the latter change. If the consumption rises enough and more credit could and would be used to boost the market, then banks would earn more money. This would lead to a rise in the interest rates thus encouraging saving as well as investing through more available credit. The second scenario faces a threat that if the bond market will be used for the issuing of debt instead of making investments in the stock market, the amount of credit from banks due to low interest rates will be tight. This could eventually lead towards a credit deficit followed by the dangers of bond defaults as the flow of circulating money would be reduced. For now it is too early to tell how much effect the low interest rates have had on consumption, but as governments keep selling bonds for higher returns- so are they exchanging the risk of bank failures against the risk of bond failures.

The EU`s financial problems can not be solved by member states following stricter rules hence the EU has set a need for a more unified economic base. Jose Manual Barroso ( the president of the European Commission ) has called out for a need of unitary fiscal and monetary policy as well as a banking union. Unions by all means are fun clubs but as long as Germany, France or other rich members do not understand the amount of financial sacrifice still needed to save the Eurozone- no policy will solve the EU`s democratic deficit. In reality, radical changes are needed such as unified fiscal policy that would set a minimum wage according to the Eurozone`s average income, the redistribution of the EU budget that would support the public sectors (health care, social services,)  of poorer member states as well as an inflation threat control whereby the EU would lower taxes for all member states where average income remains below the union`s one. The previous proposals are likely to have several set backs as well as a strong opposition from the wealthier members, but considering the road the Eurozone has been going down- it is time for its architects to accept the inconvenient changes as opposed to the collapse or two-three tier Eurozone slowly drifting apart.

BY: Tuuli Riit