Eurozone Crisis: Why the Issue is Overblown and the EU Will Persevere

Amid British Prime Minister David Cameron’s accusation that Brussels was “living in a parallel universe” after the failed European Union budget talks this week, questions about the long-term economic strength of the EU still linger. However, it is unwise to think that this Black Friday foreshadows the demise of this unprecedented international experiment for the EU.

First off, it is important to accept that there is no one panacea that will save the EU or its common currency, the Euro. There are a number of measures ranging from stimulus to austerity, to the readjustment of the common agricultural policy, to the standardizing of fiscal policy that may help keep the Euro afloat and allow the EU’s net contributors such as Germany, France, and the UK to remain confident.

Secondly, any talk of states leaving the Euro zone and allowing the monetary union to disintegrate is economically unjustifiable. As Rutgers University professor R. Daniel Kelemen explains in Foreign Affairs, if struggling economies on the periphery of the EU were to leave, their “financial system would collapse, and ensuing bank runs and riots would make today's social unrest seem quaint by comparison.” These smaller economies benefit substantially from their membership in the union and would not simply give it up due to the current financial calamity. As the graphic shows, from Hungary to Greece it is evident that these negative net contributors (or net beneficiaries) gain immensely from being in the EU.

 

Third, during this crisis many are quick to forget the European Union’s enormous share of international trade and its importance to its transatlantic neighbor the United States. Since 2000, the U.S. has invested ten times more in the Netherlands, seven times more in the U.K, and three times more in Ireland than in China. Similarly, the U.S and EU account for 54% of the world’s GDP. It is clear that all the parties involved in the union, save the UK, as their exit is still a possibility, are highly incentivized to keep the intergovernmental organization together.

As for the Euro, European Central Bank President Mario Draghi has one powerful tool at his disposal: the printing press. Draghi is poised with his bond-buying “bazooka” to ease the strain on struggling markets within the EU and to maintain investor confidence in the region. This will drastically increase the liquidity of Euro’s in the region, and more importantly, throughout the international community as the Euro is gaining substantially as a reserve currency. This is not to mention that some states in Europe such as Kosovo and Montenegro officially use the Euro as their currency even though they are not officially part of the union. As economics editor Robert von Heusinger of the Berlier Zeitung explains, “The ECB has the unbelievable advantage that it can literally print the money that it has committed to the unlimited purchase of bonds. In that way it can stand up to any speculative attack and win.”

The European Union definitely has a difficult road to recovery, but apocalyptic claims about its disintegration and failure are greatly overblown. Institutional reforms are absolutely necessary. Considering that all the states involved have compelling economic reasons to follow through with them, however, there is no reason to believe that EU is leaving anytime soon.

How likely are you to make Mic your go-to news source?

Siv Cheruvu

My name is Sivaram Cheruvu, but I usually go by Siv. I'm a Student at Rutgers University studying Political Science, History, Economics, and French. I have studied in France, interned at a conflict-resolution NGO, and worked on numerous political campaigns in my home state of New Jersey. I enjoy discussing all sorts of issues ranging from politics to sports, and regardless of your viewpoint, I think its always important to bring it to the table.

MORE FROM

Will Justice Anthony Kennedy retire at end of Supreme Court term? Here's what we know.

Rumors that the 80-year-old swing justice may leave the bench are fueling fear of a second Trump pick on the nation's high court.

3 states and D.C. allow same flammable building materials behind Grenfell Tower fire

The causes of London's Grenfell Tower are similar to the justifications used to waive fire regulations in the U.S.

New Jersey bill would require kids to be taught how to interact with police

Students from kindergarten through 12th grade would receive the education.

UK Parliament hit with cyberattack

Members of Parliament had difficulty accessing their emails Saturday in the wake of the attack.

Istanbul LGBT pride march banned by government for safety concerns

A right-wing nationalist group has vowed to stop the protest.

Compounds seized by US in December reportedly contained material useful in Russia probe

The Trump administration has reportedly been considering returning the New York and Maryland compounds to Russia.

Will Justice Anthony Kennedy retire at end of Supreme Court term? Here's what we know.

Rumors that the 80-year-old swing justice may leave the bench are fueling fear of a second Trump pick on the nation's high court.

3 states and D.C. allow same flammable building materials behind Grenfell Tower fire

The causes of London's Grenfell Tower are similar to the justifications used to waive fire regulations in the U.S.

New Jersey bill would require kids to be taught how to interact with police

Students from kindergarten through 12th grade would receive the education.

UK Parliament hit with cyberattack

Members of Parliament had difficulty accessing their emails Saturday in the wake of the attack.

Istanbul LGBT pride march banned by government for safety concerns

A right-wing nationalist group has vowed to stop the protest.

Compounds seized by US in December reportedly contained material useful in Russia probe

The Trump administration has reportedly been considering returning the New York and Maryland compounds to Russia.