The European Union: A Liberal Reaction to the Global Financial Crisis

The European Union is arguably one of the most liberal institutions we have on the planet right now. Proponents of Liberalism hold the EU in great esteem as the example to follow for the rest of the world. But, the global financial downturn of 2008 has caused some countries in the EU, namely Greece and Ireland, to be on the verge of default. For a time, there was controversy over what the rest of the EU should do, namely Germany, who is their strongest economy. This past week, they made their decision. Germany, along with twelve other confirmed EU members, will help bailout Greece. A realist would ask, “why”? While a liberal would ask, “why not”? The Greek bailout and the European Union as a whole are prime examples of liberalism at work.

First, we need to look a little bit at the history behind this crisis. The global financial crisis of 2008 took most of the world by surprise. The American housing bubble collapsed, large banking institutions failed, and unemployment skyrocketed. By 2010, many countries were still in trouble. For the Europeans, it was no different. In an effort to guarantee the future financial security of the Eurozone, the European Union created the European Financial Stability Facility (efsf.europa.eu). Its goal is to “raise funds in capital markets to finance loans for euro area member states” (efsf.europa.eu). Unfortunately, Greece is too deep in debt to sufficiently be rescued by the resources that the EFSF had. It became clear that Greece was going to default unless some drastic action was taken, and member states scrambled to come up with a plan. Some argued that it would be best for Greece to default, Michael Gerson notes that many Germans are reluctant to bail out their fellow EU members unless “there is some consequence for irresponsibility” (1). Nicholas Kulish reports that despite some resistance, Chancellor Angela Merkel was able to pull together enough votes in the German parliament to expand the powers of the EFSF (A4+A9). Germany joins twelve other members of the EFSF in granting this expansion, but Greece will have to wait for four more countries to vote before it sees any aid (Kulish A9). For now, their fate hangs in the balance, but it is likely that they will get the help that they need.

This raises the question of the realist. Why would any sovereign state agree to spend their hard earned money to bail out some other country that was not as financially responsible as yours, especially if you are also in trouble also? In short, it is because of the liberal attitude of the nations in the European Union. Liberal Intuitionalism plays a huge role in this matter, not to mention in the EU as a whole. The EFSF is a perfect example of an international institution. 17 nations are members of it, all of which contribute to its funding. It provides a safe place for the nations to send their money, and a forum for them to voice their concerns. Their attitude about the Greek debt crisis also has liberal reasoning behind it. When speaking about the possible Greek default, Chancellor Merkel said, “I have made my position very clear that everything must be done to keep the eurozone together politically. Because we would soon have a domino effect"(BBC 1). This remark shows that the countries of the EU depend on each other for a lot of things. Due to the very high trade amount, another example of liberalism, if one country goes down, then others are sure to follow. Thus it makes sense for them to take a liberal approach to this situation. Unfortunately, it also requires Germany to take a leading role in the EU. Due to its complicated history- namely being on the losing end of two world wars in fifty years- some Germans, and other Europeans, are uncomfortable with this (Mayer 1). Regardless of whether they are a reluctant leader, or an enthusiastic one, Germany needs to take on this role if the EU is going to look the same at the end of this troubled time.

In all likelihood, the European Union will pull through. Greece will get its stimulus package, and will hopefully fix its financial mess. But a quite a few questions remain. For example, what will the Eurozone do if this happens again? Since this stimulus is not a long-term fix, what will happen with the Greek economy in the future? Not to mention, is this setting a precedent for nations in the European Union to just be bailed out whenever they need it? Only time will tell. In the meantime, the European leaders will kick the can down the road again, and we will not see a solution to this question until more substantial reforms are made to the financial core of the eurozone.

“About EFSF”. efsf.europa.eu. European Financial Stability Facility. n.d. Web. 30 September 2011. http://www.efsf.europa.eu/about/index.htm

British Broadcasting Company. “Angela Merkel tries to allay Greece default fears.” BBC News. 1 October 2011. Web. http://www.bbc.co.uk/news/business-14894774

Gerson, Michael. “Greek Default Could Reveal Flaw in EU Structure.” San Francisco Chronicle. 30 September 2011. Web. http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2011/09/29/EDF91LBC2A.DTL

Kulish, Nicholas. “Germany Approves Bailout Expansion, Leaving Slovakia as Main Hurdle.” The New York Times 30 September 2011: A4+A9. Print.

Mayer, Katherine. “Germany: Grappling with the Euro, and with Its Own Complicated History.” Time Magazine. 27 September 2011. Web. http://www.time.com/time/world/article/0,8599,2095157,00.html