The economic situation in the European Union (EU) remains one of the most glaring issues threatening the global economy. Several member countries, notably Greece, Italy and Spain, have been slow to recover following the recent sovereign debt crisis. In light of these issues, former President of the European Parliament Pat Cox spoke at the Eck Visitors Center on February 26 to discuss where the EU has been, where it is now and where it is going.
Donald Crafton, Interim Director of the Nanovic Institute for European Studies, introduced the speaker and the topic of the lecture with a brief reflection on a recent New York Times article which asked “Has Europe really lost its mojo?”
Cox began by tracing the history of the post-World War II European integration project. Immediately following the war, East and West Europe were in a state of deep crisis and badly in need of renewal. The United States, as a key contributor in winning the war, was able to bring some conditions for renewal to the table in the form of the Marshall Plan. Despite these conditions and continued efforts by outside diplomats, division still reigned in Europe for years. Cox emphasized that outside influences can only accomplish so much in a situation such as this. “Others can help bring you to peace, but it is only the self that can achieve true reconciliation,” Cox said.
Peace was essential following such a divisive war and countries such as the United States worked to enforce peace; however, the true reconciliation needed to be European—Europe had to learn to trust again. According to Cox, France and Germany took leading roles in achieving the necessary reconciliation and several steps—including the Treaty of Rome in 1957 —were taken in ensuing years to further foster relationships.
Six countries came together in 1973 to form the original union. The union further developed over the years through a gradual process of deepening relationships within the union and enlarging to through the addition of more member countries. Following the original enlargement, Greece was added in 1981 and Spain and Portugal were added in 1986. Austria, Finland and Sweden were incorporated in 1994 to bring the total to 15. By this time the Berlin Wall had collapsed, and two important debates were taking place within the EU on the matters of a single currency and on political union.
Fast forward to today and the EU has suddenly become a union of 500 million people with a share of global GDP roughly similar to that of the United States. The EU is very unique for such a large economic zone in that a large group of sovereign states has conferred authority and confidence on this union in certain areas traditionally regulated and overseen by an individual government. Cox noted that because of this unique situation, it is not wise to assess the effectiveness of EU public policy through an American federal lens because the situations are not comparable. The EU is not a mature union. It is more than a merely inter-governmental regulator but radically less than a fully federal union. The EU possesses, says Cox, a “permanent state of in-between-ness.”
The eurozone crisis was immediately preceded by the collapse of Lehman Brothers and a global loss of confidence. Wholesale credit markets dried up. At the same time, Greece reviewed its books and revised its deficit upward from 4.5 percent of GDP to 14 percent of GDP. The crisis now began in earnest. The European Central Bank (ECB) and the European Council were somewhat limited by a lack of tools to address the burgeoning economic problems. Individual states in the union were unwilling to give up control of economic policy because of doubts about the effectiveness of a centralized monetary policy.
The European Council and ECB put together a bailout for Greece equal to 110 billion euros, but the president of the Council remarked that this was “like constructing a life boat while you were still drowning in the sea.” The ECB also decreased interest rates, provided emergency liquidity to struggling banks, introduced new financing measures and essentially said that they were willing to do whatever it took to save the euro. This willingness helped build confidence in the recovery, but was not sufficient as the crisis spread from Greece to other peripheral countries. The ECB ran into many constraints due to the individual interests of the 27 member states. This crisis has revealed, Cox said, the original design flaw of a centralized money system in a decentralized economic state.
Cox next offered his views on the future of the EU and what should take place there to prevent this sort of crisis in the future. First, he said, the EU should establish a three part-banking union that allows bank supervision to proceed to the ECB, the creation of a resolution mechanism similar to the FDIC and a federal deposit guarantee scale. A stronger fiscal union and tighter economic governance are needed to lift southern Europe out of its unemployment slide. In the end, Cox emphasized how he has grounded expectations for what is possible for the EU, but he believes that it is not a good idea to abandon the EU. “Too much [capital] has gone in to let it dissipate,” Cox stated.
In the end, the “cost of not sorting it out will be too great,” and this cost will ultimately be the incentive for the EU to actually get things done.
Image of the speaker, Pat Cox, can be found at this link:
Tim Bradley is a freshman studying economics and theology. He goes by “Big T” when he takes to the streets. Send him something at tbradle5@nd.edu.
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