The Uncertain Future of the EU
When signing the Maastricht Treaty in 1991, Belgian Prime Minister Guy Verhofstadt announced his optimism for a powerful Europe, proclaiming that “the constitution is the capstone of a European Federal State.” The Maastricht Treaty not only created the European Union, but also led to the establishment of its common currency, the Euro. While the ambitious constitution elucidated clear criteria on inflation rates and government debt for member states, it failed to devise contingency plans or relief mechanisms for suffering states. Twenty-five years after Maastricht, the European Union seems more fragile and ineffective than ever before, with numerous financial crises and Brexit demonstrating the limits of supranational organizations.
The European Coal and Steel Community (ECSC) was the first such organization in Europe. It was proposed by French Foreign Minister Robert Schuman as a way to soothe relations between France and Germany. In the next few years, the organization grew beyond the coal and steel market. Attempting to create a stronger and less volatile Europe after World War II, several European states, including Belgium, France and West Germany, established the European Economic Community (EEC) in 1957. Initially, the union promoted economic integration by encouraging the reduction of tariffs and creating a common agricultural policy. When the Berlin Wall fell in 1989, the European Union expanded to include more countries and adopted a common currency, the euro. The sovereignty of member states was further put to the test when the European Court of Justice adopted the doctrine of supremacy, which declared that European law prevails over domestic law.
Most member states refuse to follow the European law and for good reason: the writers of the law are German, the banks are German, and—yes—the inflation rates are suited only for Germans. Pro-German fiscal policies and Northern banks ostracize Mediterranean states like Italy and Greece and exclude them from the policy-making process. Whereas Germany and the Netherlands run high surpluses in trade, states like Ireland and Spain have exorbitant deficits. For far too long the Bundesbank and the European Central Bank has stifled healthy inflation in the developing economies of Greece and Portugal, keeping the rate of inflation below two percent. The International Monetary Fund explains that the real exchange rate of German exports is much too low for the “long run sustainability of the foreign debt positions” of most member states. Although this low rate suits mature economies, it prevents struggling states from rising from recession and discourages public investment.
Trying to hamper corruption-prone states from profligate spending schemes, the European Stability and Growth Pact, signed in 1999, outlined expectations for fiscal discipline, demanding that government debt not exceed sixty percent of the country’s gross domestic product (GDP). These rules have not been followed, and even Germany and France have broken the regulations or exempted themselves from scrutiny. The austerity measures imposed on Southern European states have only perpetuated and worsened their economic solvencies. They produce a vicious cycle, whereby the austerity measures cast doubt about the country’s creditworthiness and permanently devastate its competitiveness in the European market.
This is not to say that Greece has done nothing wrong. On the contrary, an ingrained clique of oligarchs controls Greece’s political and economic institutions. These oligarchs have failed to dissolve the black markets and monopolies that plague the country’s private sector and have been accused for corruption. Yet the European Union has defined its course, its vision, in terms of the interests of its wealthiest states. Even more, Germany has molded the meaning of the word “solidarity” to mean support in the event of a crisis—but it has failed to take proactive steps to grant less affluent states more room to maneuver or to prevent these recessions from happening in the future. If the European Union is to survive, Germany will have to make sacrifices. Because it’s one thing to create rules and gain money, but it’s another thing to create trust and gain respect.