Thursday, November 18, 2010

Will the EU disintegrate?

With the massive economic woes of Greece, Ireland, Portugal, etc., pundits and journalists alike have wondered out loud whether the high debt levels and sluggish growth rates will lead to a collapse of the EU as a whole. I highly doubt it. The main reasons for this view are that there is too much political prestige and investments involved with the establishment of the EU, and that The Single Market is so well-functioning that it would be almost disastrous to dismantle it.

Herman von Rompoy, the first President of the European Council, says according to the BBC that the EU faces a risk of failing if the euro does so. But is this really a likely scenario? I doubt it. The euro is crucial if the desire to have a single European market is to continue. Although certain countries - Great Britain, Denmark, and Sweden - have opted out of the single currency, it is simply too established to go back. That procedure would be as absurd as it would for the US to adopt 50 different currencies. The logistical task alone illustrates the madness in such an idea. And I don't see how having different currencies across Europe would solve the problems relating to individual nation states' debt level. Sure, a country could devaluate its currency in order to boost exports and reduce the unemployment rate and thus improve the national budget, but - as all economists agree - that would only provide relief in the short term as it would at the same time make imports more expensive. For at country like Denmark, this would be disadvantageous since raw materials like steel and coal are all imported goods and would thus harm - not benefit - Danish exporters since their good would become more expensive on the market.

The Single Market in the EU was established in 1992, and it would take more than a relatively short financial crisis to bury a comprehensive programme that has evolved nicely since then.

So, no. The EU will - hopefully and probably - survive. It has contributed greatly to ensure security and prosperity in Europe after the Second World War. If it was to collapse, we would experience a decline in intra-European trade, higher unemployment, even more sluggish growth, and maybe even downright animosity among European neighbors. And - as European history has proven - we don't want that.

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