Can European Union & Euro survive?

Union & Euro

European Union

The European Union (EU) is a political and economic bloc of 27 countries. Nineteen of these countries use the Euro as their official currency, while eight EU members—Bulgaria, Croatia, Czech Republic, Denmark, Hungary, Poland, Romania, and Sweden—do not. The EU was founded from a desire to create a single European political entity to end centuries of warfare among European nations, culminating in the devastation of World War II. It has since developed an internal single market through a standardized system of laws that apply in all member states where they have agreed to act collectively. European integration was seen as a remedy for the excessive nationalism that had previously devastated the continent. However, in 2016, the United Kingdom held a referendum (known as BREXIT) and voted to leave the EU.

Euro

Twenty-five years ago, the Euro was introduced in virtual form as the common currency of the Eurozone, which initially consisted of 11 countries. Physical banknotes and coins followed three years later, in 2002. Today, 20 countries use the Euro. Despite being one of the youngest fiat currencies in the Western world, the Euro has become undeniably powerful. It is the second most widely held reserve currency, accounting for 20% of official foreign reserves as of 2023, and the second most traded currency after the US dollar, which has been in use since 1792.

The monetary union established in 1999 and fully realized in 2002 comprises 19 EU member states that use the Euro. These countries are Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia, and Spain.

Europe is at a critical juncture in its history. The continent is in the fourth year of a financial crisis that remains unresolved and continues to escalate, causing hundreds of billions of dollars in capital to flee weaker countries. This crisis is tearing apart banking systems, pushing several governments towards insolvency and default, and has driven the economy back into recession for the second time in three years. There is talk of a "lost decade," with some regions experiencing deep depression-like conditions. Unemployment in the economic periphery of Europe—Greece, Portugal, Ireland, and Spain—has risen above 20%, and youth unemployment in some areas is as high as 50%, reminiscent of Great Depression-era statistics.

Can the Eurozone survive?

It is a question of when, not if, we will face another round of the European sovereign-debt crisis. The age of innocence is over. Many EU policies that evolved in a more benign environment now have to factor in power politics and become tougher and more responsive to changing circumstances. But is the EU equipped to face this challenge?

The central problem is that the EU’s traditional business model is quite unsuited for the demands of the geopolitical age. Each strand of EU external policy—from trade, development, mobility, transportation, and connectivity to enlargement and the neighborhood—usually follows its own political dynamic, driven by member states’ interests and powerful lobbies. The financing of EU action is regulated by multiannual plans and complex procedures, allowing little flexibility to respond to new developments. However, geopolitical action demands bringing together all relevant policies behind comprehensive and coherent external action based on a strategic outlook. It also presupposes the ability to rapidly shift priorities and resources.

The survival of the European Union (EU) and the Eurozone (the group of EU countries that use the Euro as their currency) depends on several key factors. The EU and the Euro have faced numerous challenges over the years, but they have also shown resilience. Adaptation to new geopolitical realities, strategic coherence, and rapid response capabilities will be crucial for the Eurozone's continued survival. Here are some critical aspects to consider:

Political Stability and Unity

a)????? Nationalism and Populism: The rise of nationalist and populist movements in several EU countries poses a significant threat to the unity of the EU. These movements often advocate for policies that contradict the principles of EU integration and cooperation. Nationalism in Europe is deeply linked to the birth of the nation-state. In some countries, such as Germany and Italy, nationalism contributed to state formation through the union of autonomous territories sharing a common culture. However, the violent side of nationalism directly led to the world wars. In recent years, the resurgence of nationalism has become a reality, fueling the rise of populist ethno-nationalist parties. These populist efforts to operate outside traditional political institutions are damaging both the function of European democracy and the project of European integration. At the turn of the 21st century, populist rhetoric and movements became increasingly apparent in Western Europe, challenging the foundational principles of the EU. The return of nationalism, coupled with the rise of populism, threatens the cohesion and future of the European Union.

b)????? EU Governance: The ability of EU institutions to respond effectively to crises and to manage diverse interests among member states is crucial. Effective governance can help mitigate the impact of internal political pressures. Europe is experiencing a?renaissance of national sovereignty?supported by a nationalistic turn of public opinion and represented by parties on both ends of the political spectrum. Popular disaffection toward EU membership is fuelled by the contemporaneous occurrence of two shocks,?the economic and the migration crises.

Economic Performance and Disparities

c)?????? Economic Disparities: Economic imbalances between member states, such as those between northern and southern Europe, can strain the union. Policies to promote economic convergence and solidarity are essential to address these disparities. The emergence of new, fast-growing economic competitors has, for its part, changed the very foundations of certain policies. Income inequality in the EU has increased because the process of income convergence between countries has stalled and income inequalities within countries have expanded.?Pay and income?inequality remains a concern and the working poor are still a substantial group among workers in the EU.

d)????? Fiscal Policies: The stability of the Eurozone depends on the fiscal policies of its member states. Efforts to coordinate fiscal policies and manage public debt levels are crucial for the survival of the Euro. The EU and the?European Central Bank (ECB)?have struggled with high sovereign debt and collapsing growth in Portugal, Ireland, Greece and Spain since the global financial market collapse of 2008. Greece and Ireland received financial bailouts from the community in 2009, which were accompanied by fiscal austerity. Portugal followed in 2011, along with a second Greek bailout.

Social and Cultural Cohesion

e)????? Migration and Integration: The EU's approach to migration and the integration of migrants into European societies can impact social cohesion. Successful integration policies can enhance unity, while failures can exacerbate divisions. Layoffs, redundancies and migration of jobs to countries where labour is cheap affect the daily lives of European citizens. The EU added eight eastern European countries in 2004,?triggering a wave of immigration?that strained public services.?

f)?????? Cultural Differences: Respecting cultural differences while promoting common European values is a delicate balance. Efforts to foster a shared European identity can strengthen the EU. The lack of a feeling of belonging to a real Union among citizens is an obstacle to many European developments. EU's integration process has also led to the reassertion of regional identities, which can sometimes conflict with national identity.?There is a divide between Eastern and Western Europeans on issues such as national identity, religious minorities, and cultural superiority.?For example, Eastern Europeans may have higher levels of religious nationalism, while Western Europeans may be more open to multiculturalism.

External Challenges

g)????? Geopolitical Pressures: The EU faces external pressures from major global powers, such as the United States, China, and Russia. A united and coherent foreign policy is necessary to navigate these challenges effectively.

USA & EU: The United States' recent actions—such as withdrawing from the Paris climate change deal, pulling out of the Joint Comprehensive Plan of Action (JCPOA) on Iran’s nuclear program, and attacking the integrity of the international trading system through unilateral tariffs—have shaken Europeans' faith in diplomacy as a means to resolve disagreements and protect Europe. European leaders now fear that the transatlantic security guarantee will depend less on alliances and common interests and more on purchases of American technology and materiel.

EU & Russia: Like the United States, the EU has had to reconsider its relationship with a more assertive Russia, impacting European security and stability. The EU has supported Ukraine's political transition, condemned Russia's annexation of Crimea in March 2014, and urged Russia to cease backing separatist forces in eastern Ukraine. These actions underscore the EU's commitment to maintaining stability and security in the region amid geopolitical pressures.

h)????? Global Economic Trends: The global economy affects the EU through trade, investment, and financial markets. The EU's ability to adapt to global economic changes is vital for its economic stability. The European economy has encountered headwinds, grappling with the high cost of living, weak external demand, and monetary tightening, leading to a notable loss of growth momentum. Western economies have outperformed expectations, offering a glimmer of hope amid a tumultuous global landscape. The real geopolitical challenge lies not in foreign and security policy but in the economic core of European integration. If one considers the world to be dominated by rival power blocs, many of the EU’s current policies—on trade, investment, competition, research, and technology—appear in need of a rethink. The union can no longer approach international economic relations as essentially cooperative win-win partnerships. Europeans must take power relationships into account, address their own vulnerabilities, and make their policies more robust and resilient. Unlike in foreign and security policy, in economic areas, the EU already has the instruments to defend its interests. The European Union is in the midst of a profound economic and financial crisis, which has raised real questions over the future viability of the euro, the most ambitious project in the process of European integration. While the union can look after its interests in trade policy, it remains acutely vulnerable to Washington’s weaponisation of its dominant position in the world’s financial system. The EU’s efforts to preserve the 2015 Iran nuclear deal in the face of renewed U.S. sanctions proved unsuccessful because most European companies and banks simply cannot afford to be locked out of the U.S. market. Washington’s sanctions against companies involved in building the Nord Stream 2 gas pipeline, which will bring natural gas from Russia to Germany under the Baltic Sea, confirmed this point. This crisis has thrown open a new fault line across Europe, between Germany and all the other major countries, especially France, Italy, and Spain. It is a conflict that is destined to remain with us for decades to come and will define the future of the continent.

i)??????? How the EU Can Survive in a Geopolitical Age

Whether the EU can protect its interests and values in this new situation will depend on stronger and more decisive leadership. For several decades, the EU has ignored power politics and concentrated on economic integration. But over the past fifteen years, as authoritarian regimes have come to power in many parts of the world and U.S. leadership has declined, geopolitics has come back with a vengeance. With its weak structures, EU foreign policy is struggling to adjust to the new reality.

?U.S.-China Rift: The EU’s economic relationship with the world’s second economic superpower, China, is even more fraught. On substance, the EU and the United States share many concerns about China, such as its insufficient respect for intellectual property, forced technology transfers, and unfair practices that favor state-owned enterprises. However, the EU disagrees with Trump's methods of addressing these grievances because the union fears that the trade war will further damage the remnants of the multilateral trade order. The EU must adapt its strategies to navigate these complex relationships, balancing economic interests with the need to uphold its values and protect its autonomy in a rapidly changing global landscape. Strengthening internal cohesion and building a more robust foreign policy framework are crucial steps for the EU to thrive in this geopolitical age.

Institutional Reforms

j)??????? Reform of EU Institutions: Reforms to make EU institutions more transparent, efficient, and democratic can enhance their legitimacy and effectiveness. Addressing the democratic deficit within the EU is crucial for gaining public support.

k)????? Eurozone Reforms: Strengthening the economic governance of the Eurozone, such as through the completion of the banking union and the creation of a fiscal union, can bolster the Euro's stability.

Crisis Management

l)??????? Handling Crises: The EU's ability to manage crises, whether economic, political, or social, is critical. The response to the COVID-19 pandemic, for example, showed both the strengths and weaknesses of EU crisis management.

m)??? Solidarity and Support Mechanisms: Mechanisms for mutual support, such as the European Stability Mechanism (ESM), are important for maintaining stability during crises.

Public Support

n)????? Citizens' Trust: The survival of the EU and the Euro depends on the trust and support of European citizens. Efforts to address citizens' concerns and to demonstrate the benefits of EU membership are essential.

o)????? Engagement and Participation: Increasing citizen engagement and participation in EU decision-making processes can strengthen democratic legitimacy and support for the EU.

While the EU and the Euro face significant challenges, their survival is not guaranteed but is achievable through careful management of political, Economic, social, and external factors. Institutional reforms, effective crisis management, and the fostering of public support are critical to ensuring their longevity.