European Union Economics Final

7/21/2019 European Union Economics Final

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Jamar Johnson, IE Business School, Feb 2013. European Union:

The oa! "o #isbon$

Why was the European Union created? Are these goals still matching the actual needs of the

Union?

The formation of the European Union was multi-tiered. Its origins can be traced back to

20thCentury rench businessman! "ean #onnet! who belie$ed Europe! %must seek&a fusion of

interests among the&peoples! not simply the maintenance of a balance of interests. i' This

assertion is rooted in the belief that finite resources will continue to ser$e as a catalyst for military

and diplomatic entanglements among European nations should re$olutionary practices not be

applied.iiThus! the best way forward seen by #onnet and other influential figures to ameliorate

Europe(s global competiti$eness was to interlink European interests economically. ollowing the

success of the )chuman *greement and its antecedents! the groundwork had been established to

unite Europe under one single currency.

+rior to the adoption of the Euro as the official currency for member states! political

ad$ertisements were designed to promote public opinion behind the public campaign populari,ed

as Europe //2(. Europe //2( emphasi,ed that an economically integrated Europe could

increase output and performance by ./ o$er a fi$e year spaniii

! while increasing employmenti$

.or citi,ens affected by sluggish economies! high unemployment! and stagnant trade! the promise

of a single currency pro$ed too compelling to ignore.

Are these goals still matching the actual needs of the Union?

The goals of the European Union will be met long-term. *s the European Union

continues to e$ol$e and undergo pertinent structural and internal ad1ustments! the European

Union will remain $iable globally$. *lready! due to the emphasis on a unified standard of policies!

we can see the positi$e changes that some nation-states ha$e eperienced. or instance! in the

countries of 3ulgaria and 4omania! we see a marked increase in the number of women entering

the workforce and contributing to their countries economy 5)ee Ehibit 6.

*lthough some countries ha$e seen early benefits to 1oining the European Union! there

remains much to accomplish. *ccording to Open Europe! 78 of nation- states with membership

within the Euro 9one ha$e ependitures eceeding their contributed capital to the European

Unions( budget$i. :f this 78! 7; of nation-states responsible for o$erspending are new-

members within the European Union. Epectedly! these nation-states were most $ulnerable to the

global recession as their economies were modeled after liberal monetary and trade practices

commonly found in


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Did the European Union make a mistake creating a common currency?

The European Union(s decision to create a common currency was a practical one.

Europe operating under a single currency increases the intra-continental trading of goods and

ser$ices while reducing import-eport tariffsi. #oreo$er! the European Union functions as an

institutional framework that centrali,es the collecti$e monetary policies of indi$idual member-

states in periods of both economic booms and busts.

Would Greece have been better off with a floating currency?

* floating currency within =reece would ha$e eacerbated their already fragile economy.

In 20! @A/? million was withdrawn in one day by indi$iduals holding accounts within =reek

banks due to widely circulated rumors of =reece re$erting back to the drachmaii. Bad =reece

kept a floating currency compared to its fied rate standard in the European UnionD! it would

ha$e encountered a more se$ere economic depression eclipsing the United )tates Economic

>epression of the 20thCenturyiii. =reece holding membership within the European Union was a

boon to their stability. In 200/! the deficit within their =>+ was approimated at ;.7! and later

reduced to less than in 202 i$. This is large part due to fiscal policy modifications marked

with increased austerity and the foregoing cash in1ections into its economy.

as the Euro hurt or helped Germany?

Fithin many media outlets! much attention has been placed upon =ermany(s Chancellor!

*ngela #erkel(s! disagreement with financially supporting =reek and other European countries

undergoing the turmoil caused from the global recession. Bowe$er! the fact remains that

=ermany has benefitted most with its incorporation of the Euro 5)ee Ehibit 86. =ermany! as

with many other European countries with a high standard of li$ing! benefit from labor arbitration

with workers emigrating from Eastern Europe. Gess concern has been placed on the influ of

cheap labor replacing their =ermany counterparts as labor capital. =ermany has eperienced a

continued decline in its birthrate and population 5)ee Ehibit ; and 76. In addition! =ermany has

benefitted tremendously from the increase of intra-European trade by as much as 20 5)ee

Ehibit 86.


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What are the other barriers to grow that the EU is facing

*ccording to the European Economic !orecast! %5m6ember states that reco$ered solidly

after the 5global6 recession of 200A-0/ will continue to outpace more $ulnerable countries gi$en

the profound differences between countries in terms of eternal and internal ad1ustment needs. $'

Geast performing countries within the European Union! such as =reece! +ortugal! and Italy

whose economy is now teetering on the brink of economic relapse from $i$iiD! must strictly

adhere to austerity measures in go$ernment ependiture. *lthough unpopular due to its

implications 1ob loss and deceased consumer confidenceD in the short-termH in the long-term!

such practices will facilitate greater structural balance within sluggish and on-the-brink

economies.

Coupled with the stress for cash! many of the foregoing economies suffer from high-rates

of unemployment and reduced consumer confidence$iii. Bow will central go$ernments limit

so$ereign debt while increasing its consumer confidence and employment rate ortunately! loan

commitments ha$e worked to pro$ide liJuidity to ailing economies. In addition! remittance is a

bidirectional relationship aiding both the host country increased labor capitalD and the emigrated

country large inflows in currencyD! as in the case with +olish nationals entering the =erman

workforcei.

"ould fiscal coordination solve the problem?

iscal coordination has been a standard course of action after Europe(s! but it became

more pronounced due to the global recession. It has been pro1ected that Europe! as a whole! will

eperience a modest increase in its =>+ performance ! with greater momentum occurring in

20?i. E$idently! the practices of austerity and loan commitments to $ulnerable countries ha$e

shown some success. Bowe$er! many European countries still remain susceptible to the market

conditions of the United )tatesii. urthermore! it remains to be seen how committed so$ereign

states will be in their internal ad1ustments to curb go$ernment ependiture. Bowe$er! if we are to

1udge from the pre$ious four years to the present day! we see a stark contrast between the

contagion of fear running rampantH to now! a more conser$ati$e and controlled approach to

economic policies geared to impro$e Europe(s economy steadily. Cautious optimism should

increase consumer confidence thereby aiding in a $irtuous circle for growth in the coming

yearsiii.


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Ehibit

)ourceK )ourceK Uatabase! compiled from national and international. *ccessed2LL20?

Ehibit 2

)ourceK European Central 3ank! *utumn Economic orecast 202!

httpKLLec.europa.euLeconomyMfinanceLpublicationsLeuropeanMeconomyL202LpdfLee-202-

Men.pdf
http://ec.europa.eu/economy_finance/publications/european_economy/2012/pdf/ee-2012-7_en.pdfhttp://ec.europa.eu/economy_finance/publications/european_economy/2012/pdf/ee-2012-7_en.pdfhttp://ec.europa.eu/economy_finance/publications/european_economy/2012/pdf/ee-2012-7_en.pdfhttp://ec.europa.eu/economy_finance/publications/european_economy/2012/pdf/ee-2012-7_en.pdf


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Ehibit 8

)ourceK The


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Ehibit ;

)ourceK Uatabase! compiled from national and international official sources.

Ehibit 7


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i%ar&ar! Business e&ie', (u"hors: )unnar Trumbull an! *iane +hoiEuropean Union' %he (oad to)isbon! pg. 2.iiIbi!, p. 2iiiIbi!, p.2i&Ibi!, p -&European +en"ral Ban, (u"umn Economic Forecas" 2012 p. 3/,h""p:ec.europa.eueconomnancepublica"ionseuropeaneconom2012p!4ee520125/en.p!4.(ccesse! 2/2013.&i6pen Europe, Briefng Note: European Communities (Finance) Bill, 2007.&ii%ar&ar! Business e&ie', (u"hors: )unnar Trumbull an! *iane +hoi European Union: The oa!"o #isbon, p. 2.&iii %ar&ar! Business e&ie', (u"hors: )unnar Trumbull an! *iane +hoiEuropean Union' %he (oad to

)isbon! pg. 7i7European +en"ral Ban, (u"umn Economic Forecas" 2012 p. 13,h""p:ec.europa.eueconomnancepublica"ionseuropeaneconom2012p!4ee520125/en.p!4.(ccesse! 282013.7ober" (. 9un!ell, ( Theor o4 6p"imum +urrenc (reas, The (merican Economic e&ie', olume-1, ;o.

European Union Economics Final

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