The EU - To Be Liberal or Not To Be Liberal?

The European Union is often hailed as a shining example of a liberal institution. What isn’t there to love about it? Twenty-seven states (with more clamoring to join) give up a share of their passport-free travel between member states, and for seventeen of the EU states, a monetary union that eliminates exchange rates and promotes further trade. It seems like the perfect setup.

                

Then along came the Eurozone crisis. The whole world cringed as Greece’s financial system crumbled, with their debt at 182.2% in relation to their GDP. The European Union has had to authorize bailouts to Greece to prevent the country from filing bankruptcy. Other members of the Eurozone also have extremely high ratios of debt-to-GDP ratios: Italy is currently at 146.6%, Spain at 179.4%, and even Germany, Europe’s current economic powerhouse, is at 185.1%. And it only goes up from there. In fact, nearly all of the Eurozone members (and EU members and general) have higher debt-to-GDP ratios than is actually allowed by the European Union, with Ireland rounding out the group with their debt at 1,382% in relation to their GDP. Member states are supposed to keep their debt-to-GDP ratio below 60%.

       

Somewhere, something went horribly wrong. What about the EU’s clear guidelines were misunderstood? Was it simply the council’s fault for not properly keeping an eye on the member states? According to Jason Manolopoulos, an expert on the Greek financial crisis and the Eurozone, "There was shockingly weak due diligence in assessing the suitability for entry into the euro, and equally weak application of the few rules that were supposed to police its operation.” Members of the Eurozone – Germany in particular – wanted to create a currency that would have a very strong standing in the world market. By spreading the Euro to many countries, the Euro’s clout strengthened as it became applicable in more and more places. Guidelines were made lax in order to ensure that the Euro would become a world player. Countries were allowed nearly total reign over their own economic infrastructure – something Eurozone members were not to expect due to the Maastricht Treaty, which outlines the guidelines by which Eurozone members must abide.

The Euro quickly expanded to become a world power. One US dollar is worth less than one Euro – current exchange rates peg the euro at $1.00 = 0,75€. However, this value has depreciated in the past few months due to the financial crisis. Because exchange rates are determined by supply and demand, and the demand for the Euro has fallen due to lack of faith in it.

           

Leaders from EU member states are struggling to reach a conclusion as to how to “fix” the Eurozone. One current solution, which was proposed by France and Germany, is to essentially separate the Eurozone from the Union and make it its own entity, which will make financially regulating the member states easier. However, this plan is currently in limbo because the British Prime Minister, David Cameron, sees no benefit in it for the country.

           

Angela Merkel, Germany’s chancellor, has said that it doesn’t make a difference if Britain decides to sit this one out if all of the other countries agree to create a new financial pact. However, this sorely hurts the cohesion that the European Union has built up since its creation. Liberal institutions are built upon cooperation, which is currently very difficult to attain due to different attitudes towards the economic crisis.

           

At this point, it seems clear that the members of the Eurozone must either band together more strongly and create more austere measures for fiscal policy or let the liberal institutionalism fade into the background and let the individual countries pick up the remaining pieces. Both solutions have the potential to be detrimental to everyone involved.

           

If the European Union is to prevail, it will follow the standards of liberal institutionalism and give up even more of its economic sovereignty to reach higher security standards among member states. Regulations will be set in place and every country – especially those already in jeopardy – will be very closely monitored. The only concern to doing so is that the Germans have been leading the charge on financial austerity and that the EU will slowly be taken over by solely German economic policy. This is already an issue being hotly debated, especially because any one country “taking over” the EU would make it a non-liberal institution. Instead, it would hold more of a realist’s perspective, with one country being the hegemon of the European Union. This is something no one wants to happen, even Germany, whose stance in the world is almost entirely dependent upon its ties to the EU.

As the EU is already a strong and seriously taken world player, it should continue to follow its liberal roots and take the path to financial austerity through the use of essentially Keynesian economic policy. Not only does the EU need a net to fall back on, like so many have suggested, it also needs to ensure that member states have strong economies that follow the guidelines of the Maastricht Treaty, like they were originally supposed to. Following their measures would ensure the EU economic prosperity and a world-wide influence for years to come. 

WORKS CITED

Alessi, Christopher. "The Eurozone in Crisis."Council on Foreign Relations. 02 Dec 2011: n. page. Web.

Augstein, Jakob. "The Return of the Ugly Germans Merkel Is Leading the Country into Isolation." Der Spiegel. 08 Dec 2011: n. page. Web.

Baker, Luke. "Europe pushes ahead with fiscal union, UK isolated." Reuters 11 Dec 2011, n. pag. Web.