Plans for Political Union Unravel in Europe

Apr 29, 2020 in Research Paper

Research Paper Example

The question of the European currency and safety of the European Union has become the subject of discussions and disputes, differing by a rigid character for a long time. Some experts consider that the European Union will break up to the end of 2013. Moreover, this breakdown can be full or partial, and also the countries will refuse the euro and will return to their national currencies. 

The given paper touches upon the problems, arisen in the article “Plans for Political Union Unravel in Europe”, written by Marcus Walker in Berlin and Gabrielle Steinhauser in Brussels. 

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The economic policy of the EU is directed at its tight coordination in the member countries of the EU, their domestic market, and establishment of common goals. In their turn, in case of the implementation of the economic policy, the EU member states promote the achievement of the EU common goals. It is a question of the coordination of their economic policy with the principle of the open market economy with free competition.

The European Union summit’s agenda includes the questions of the reformation of economic and monetary unions, the creation of the banking union, and migration policy. Such questions as the principles of economic and social policy in the conditions of proceeding crisis, “migratory flows”, development of new technologies and innovations will also be included into consideration of the EU members during the summit. Moreover, the summit can become the reason for the strengthening relationships of the EU with its eastern partners. Besides, there is a question of the introduction of the so-called European Border Surveillance System (EUROSUR), the aim of which is to strengthen monitoring over the external borders of the Schengen area and reduce the number of illegal migrants arriving at the EU and strengthen the “internal security” of the European Union. 

However, the problem of the EU external borders is only one of the questions on which toughening of a policy of the EU central organs is tracked. Another such area is supervision in the banking sphere. Single Supervisory Mechanism (SSM) was launched in November 2013. In the run-up to this event, the European Central Bank declared the beginning of a “thorough check” of the balances of financial institutions of all present 17 countries of the Eurozone, and also of Latvia, entering it in 2014. It includes 130 financial companies, the share of which composes about 85% of the banking assets of the Eurozone.

By fall, the European Central Bank’s promise to intervene massively in bond markets had calmed the financial-market panic. The move bought time for governments to address the euro’s flaws. However, it also reduced the pressure to take politically unpopular steps (Walker & Steinhauser, 2013). 

The European Central Bank reduced a banking discount rate from 0.5% to a record-breaking low level of 0.25%. The lowering of a rate pursues the aims to increase business activity, to improve the investment climate, to lower the unemployment rates, and to give additional pulses to the development of the economy of the EU problem countries. The lowering of a base rate will help in a struggle against the recession in the Eurozone. The decision of the European Central Bank on lowering a rate promotes euro solidifying, lowering of the profitability of bonds of the European states, and also rise of staple prices. Until the end of the current year, the rate of inflation can sharply decrease. It is connected with a serious condition of the labor market of the region, and also with the economy loosening as a whole. 

The European Central Bank continues to trace a situation as feeble growth rates bear inflationary risks in themselves, and also it is expected that export of the Eurozone will test a positive impact of improving the world economy on itself. According to the point of view of the European Central Bank, the feeble dynamics of crediting reflect recurrence in the economy.

Implementation of such a policy will allow strengthening the confidence of the private sector of stability of the European banks and the quality of their balances. If this check reveals the problems with the capital, appropriate banks will be subjected to recapitalization at the expense of the private capital. It is known that in November 2014, the European Central Bank will become the uniform banking regulator of the Eurozone - and this check can be considered as a direct prelude to this act. However, the present measure can objectively promote a dimple of contradictions within the EU in the area of the Eurozone boundaries. After all, the Eurozone is not only the European Union, which includes 28 states.

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As a whole, the success of the EU summit depends on the EU partners, in particular, regarding their respect for the general values on which their partnership is based. The most important issue is a free trade zone with the EU. The situation with the trade balances worsens: import grows very fast. It leads to the increase of the EU external debts. 

At present, the European currency is not able to execute the key functions, which include solidifying of the general European economy, convergence, combining, erasing the existing contradictions between all members of the international organization. There is a clear boundary between the participants of the Eurozone and the other participants of the EU, non-included into the currency union, made by a prolonged crisis. Great Britain, Sweden and Poland are in a peculiar isolated situation, which does not correspond to the consolidated unity of all participants of the currency union. Owning to this dilemma, the European governments of the countries, which are not included in the Eurozone, are simply angry. Some problems are observed in the most political image of the EU, and their criticism is often directed at the European manual and all administrative models.

Owning to similar problems, Europe is obliged to retain the uniform currency. There is a need for a change of the principles of the euro functioning; it is necessary to develop an accurate policy that can become a basis for the euro. For this purpose, every EU state should avoid the practice of the accumulation of huge debts.

The article also discusses the problem of currency integration and the necessity of political and banking unions for making the euro function well. Currency integration is essentially important during the era of globalization and competition toughening in the European and world markets. The EU countries aim at currency integration, tending to become significant players in the EU markets and to strengthen the euro currency. In the course of the EU currency integration, the participants of the agreement pass some stages of development of the currency union, which is the higher form of currency integration but cannot solve all problems. 

Germany refuses to assume additional obligations. As a result, all opportunities for the settlement of the EU crisis are already missed. The crisis extended from Greece to other countries with a high budget deficit. The decay of the Eurozone will lead to a huge crisis in all EU countries; however, Germany does a minimum for the prevention of the decay of the currency union. If Germany quits the Eurozone, the euro exchange rate will sharply decrease that will allow debtor countries to lower the debt, expressed in this currency.

The European countries passed a long and thorny way to the formation of the European Currency Union (ECU). At present, not all the EU members transferred to a uniform currency - the euro. Therefore, in order to evaluate the perspectives of the further development of the European Currency Union, it is necessary to balance all positive and negative sides of the introduction of the euro, having analyzed its economic and social aspects.

Ms. Merkel’s adviser on Europe, Nikolaus Meyer-Landrut, argued that further integration should focus on a limited goal: enforcing stiffer discipline in the economic policies of member countries to improve their competitiveness (Walker & Steinhauser, 2013).

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