One institution, the monetary system, was imposed on a collective group of sovereign nations. While all of the involved nations fell under the blanket term of 'capitalism', the specific policies and institutions all varied in very noticeable ways. As a collective, the Eurozone created institutions such as the European Central Bank, which was an attempt to create an institution at a higher level than those in individual countries. However, the actions of the European Central Bank were divisive and often clashed with decision-making in individual countries. Agreements made at the beginning of the pact were periodically ignored, making the pact weak and almost worthless, at a power level far below the leadership in individual countries. This shows the difficulty of creating effective institutions between sovereign nations, since the resulting higher-level institutions are only vehicles of compromise, and are often ignored by the leadership in the lower-level institutions and rendered useless.
Another inherent problem with the Euro was the fact that it tied many separate economies, many of which were operating on different levels. While the economies in Western Europe were robust, the economies in Eastern and Southern Europe often lagged behind. Putting them on the same currency prevented individual countries from controlling their own monetary policy, which is a basic and critical economic institution. Consequently, the Euro was valued too highly for the struggling economies and too lowly for the strong economies. It made the debt of struggling countries, including the countries currently in crisis of Greece, Spain, and Italy, look more attractive due to their presence in the Eurozone.
4 comments:
I do agree with the point that this article makes of the EU having incorporated under-preforming economies into its system and the the increased connectivity helped cause the current crisis, but in so doing he seems to be somewhat criticizing globalization with that stance? European nations created the EU and its forerunners to give themselves a chance in the global market that emerged after World War II and it has been mostly successful.
I think that part of the problem with the Euro zone is that it grew too quickly to be able to adjust to its new economic status. Before the 2000s there were 15 nations in the EU, a reasonable number. But in the past decade it added 13 members almost doubling though only 4 had been integrated in the Euro zone. Even though there are economic requirements for being allowed to join the EU, it would take time for the system to deal with this massive growth, but there was no time for that since the recession of 2008 began this doubt of European financial institutions.
I don't think this will cause the collapse of the Euro because there has been too much work done to save it to be undone, with bailouts to Greece and Ireland, though if another one of the sunny side nations, described by the article as those who have been economically hurt by the Euro, such as Spain or Italy need a bailout that could cause it to be done away with. Even if that happens, though, I think that Europe will still try for economic integration to avoid what happened in the 20th century (two world wars and a depression).
I'm not sure if he's criticizing globalization as a whole as much as he's criticizing Europe's attempt to create an economic institution that intertwines with decision-making processes above that of the national governments.
Do you think that the quick growth was more of a problem due simply to volume, or rather because of more lax standards to join the league? I'm more inclined to believe that the struggles are due to the pressures imposed on the system by underperforming economies, which would have been kept out of the league if standards were harsher.
While a significant amount of resources have been put into saving the Euro, this is a sunk cost, and I think that after the crisis is over, European leaders will come to a conclusion that having the same currency for such wide-ranging economies does not actually benefit countries on either end. I don't think tension in Europe has declined since the inception of the Euro, and we have gone into a deep global recession that was magnified for at least some countries in the European League due to the presence of the Euro.
Emma, I agree, I think that a lot of the issues arose from not have strict enough standards. There were countries that were allowed to join the Euro that probably were not ready (i.e. Greece, Spain, and Portugal). I still think that the "pig" nations would have been in trouble no matter what, whether they had joined the euro or not. For example, Ireland would most likely still have had the housing bubble collapse. And all of them, I would predict, would have very high unemployment.
Post a Comment