EUROPE'S LEANING TOWERS
In the last two decades, the southern parts of Europe - Greece, Portugal, Italy and Spain - have been staggering in the shadow of a mammoth financial collapse, threatening the economic stability of the entire EU. It is unquestionable that uniting the continent under one economic zone has brought many benefits, but the challenges that came with it have strained the bridges of economic collaboration. It wasn’t supposed to happen. So, what went wrong? Before the introduction of the union of 28 states as we know it today, growth in Europe was stifled by the existence of many trade barriers between European frontiers. The fastest way to prosperity was by dissolving these barriers. It made business easier and more efficient. The next big hurdle was removed in 1999, when the Euro was introduced as a unified currency that binds 17 different countries together. Countries which chose to adopt the Euro, abolished the use of their own currencies and discontinued their monetary policies, signing control over to the European Central Bank. However, fiscal monetary policies remained in place which could be one of the reasons why the union faces so much economic complications.
While monetary policies determine how much money is pumped into the European Union economy, fiscal policies determine how much money is collected, and how much each government can spend. Countries with struggling economies like Greece were spending more money than they were collecting in taxes. To override the deficit, they had to borrow more. Now that they have joined the European Union, they had access to credit at cheap interest rates from Germany. In this scenario, banks were not afraid to lend Greece the funds. They were assured that the other big European economies will step in and repay the debt if Greece were to default on repayments. With access to cheap credit, weak European economies went on a lending binge and increased spending to boost economic growth. This unhealthy debt accumulation continued, making the economy look like a well-oiled machine on the surface, but a rusty engine on the verge of collapse under the bonnet. However, the bad management of debt was exposed by the recession of 2008, which brought the economy of the entire world to semi-hibernation. As the biggest lender in the pack, Germany was forced to change course by agreeing to lend more money, but only under strict austerity measures implemented in each country with a failed economy.
It meant cutting spending, companies going out of business, people losing jobs, and pushing bad economies further into the path of a tornado. Although by comparison, the economies of the debtor countries are very small, technically they could still pose huge risks to the entire continent. It is because of how the European Union is building policies on the principle of a federal state, which is making the continent solidly interconnected. Ultimately, when things go wrong it triggers a domino effect, which leads to collapse throughout the continent. Mainly, it is also because the European Union is choosing to overlook the fact that Europe is divided by cultural differences that cannot be easily ruled out. Hence, as Germany and France become more in charge of the Euro zone, they face the challenge of either creating a fiscal union to match the Euro's monetary union or face the slow collapse of the EU. However, signing over more power to the EU means countries will no longer be able to set tax laws, decide when to spend or not, and lose overall power of their sovereignty. Everything will be decided in Brussels. It is an incredibly complicated situation, but it is the way the super European power is moving to adjust the dials. So, will a new age of strict legislations breed a miracle era of economic prosperity in the EU? Or, is the continent sliding on a fragile sheet of ice?