With the trend of globalization in all aspects, economic integration is also becoming more and more popular among the regions. Economic integration refers to trade unification between different states by the partial or full abolishing of customs tariffs on trade taking place within the borders of each state. So, economic integration means that one country can better boost its economy. There are now several major economic integrations in the world, such as EU, NAFTA, ASEAN, WTO, etc. WTO is a global economic integration while others are the major regional economic integration.
EU is the most influential regional economic integration in the world. In fact, EU is not only an economic integration, but also a political integration. Countries in Europe are highly integrated in nearly all aspects. EU is an economic and political union of 27 member states which are located primarily in Europe. The EU traces its origins from the European Coal and Steel Community and the European Economic Community, formed by six countries in 1958. So, although EU has officially been established for less than 20 years, it has a quite long history of integration.
In the following article, I will only put emphasis on the economic integration of EU. Talking about its economic integration, EU has one prominent feature that other economic integrations in the world do not have. EU is so highly integrated that some of the EU member states use the same currency called Euro. So these countries form a special economic zone called Euro zone. The Euro zone is actually an economic monetary union of 17 European member states that have adopted the euro as their common currency.
The Euro zone currently consists of Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia and Spain. The same currency these countries adopt means that these countries use the same monetary policies. It is a great innovation in the economic integration. No other regions have tried such economic integration patterns before. No one is sure about the credibility of such monetary policies. However, it seemed that it is a good choice for European countries to boost their economy by adopting Euro.
Since its launch, the general European economy has developed much faster and the value of Euro has increased a lot compared with other currencies in the world. Some people even hold the opinion that the strong economy in the world is to some extent attributed to the adoption of Euro. However, no one has expected EU would face the serious economic crisis. The superficial prosperity has covered some weaknesses and disadvantages in the European economic integration. Nowadays, the whole EU is facing the terrible.
European debt crisis.
People are now eager to find the root causes and attributes to this crisis. European Debt Crisis Since the financial crisis outburst in US in 2008, the general economic situation became worse and worse. The European economic integration seemed not strong any more. In 2010, European debt crisis outburst in Greece. On 27th April 2010, Standard& Poor’s slashed Greece’s sovereign debt rating to BB+ or “junk” status amid fears of default. The yield of the Greek two-year bond reached 15. 3% in the secondary market. Stock markets worldwide and Euro currency declined in response to this crisis in Greece. Since then, the whole EU had spared no effort solve this problem.
However, it seems not effective at all. Because the EU is an integration of high level and Greece belongs to the Euro zone, the crisis of Greece hugely influenced other countries. Five countries called “PIIGS” suffered from debt crisis. PIIGS refers to Portugal, Italy, Ireland, Greece and Spain. The economic condition of Europe became worse and Euro continued to devalue. Member states held a lot of meetings and coordinated with each other to solve the problem, but debt crisis continued to terribly affect the whole EU as well as the world. Although so many meetings were held, no actual effective solutions were given.
On October 26th, the European Union and euro zone summit opened and several solutions were given, including the expansion of EFSF and the cut of Greece debt. This summit was finally held after it was postponed for several reasons. The whole world hopes that the European debt crisis can be quickly solved and the economic integration in Europe can be always strong and powerful. Nevertheless, no one knows about the consequence.
Weaknesses of European Economic Integration
Since the start of EU and Euro zone, people have always assumed that EU would be a strong economic integration forever. However, people neglected some weaknesses of such integration pattern. A lot of reasons contributed to the outburst and aggravation of European debt crisis. As far as I am concerned, weaknesses of European economic integration contribute most to the debt crisis. The most serious weakness of European economic integration is that member states of Euro zone have no same fiscal policies although they have the same currency policies. Such system can be regarded as the root cause of the crisis and the most obvious flaw of this economic integration.
The same currency member states of Euro zone adopt means these countries have the same currency policies. The same currency policies do have advantages. It can promote the speed of cash flow and eliminate some financial barriers among different countries, thus promoting the whole economic development. However, the same currency policies also have disadvantages. This means that one single country is not able to effectively adjust its economic condition on its own by the currency policies. It also means that member states can make their own fiscal policies, which can have serious consequences.
When one member country meets the external economic impact like the financial crisis, it is difficult to make the corresponding currency policies. Take Greece as an example. When facing the financial crisis, Greece could stimulate its export by devaluing its own currency if Greece had its own currency policies. The same currency is just like the burden for countries to independently control its financial condition. Moreover, member states do not have the same fiscal policies. They are able to adjust fiscal policies to improve the economic condition. So every country will make the new fiscal policies for its own benefits.
These fiscal policies may hurt other countries’ benefits. The same currency policies will definitely cause the chaos in the economic integration and damage the interest of whole EU member countries. The second weakness of European economic integration is that such integration is based on the European countries. Europe is one of the wealthiest and most prosperous areas in the world. Some countries offer their people high standards of life. People can live very happily without making much effort. The society offers people high welfares. However, such high welfares will have a very bad influence on the general economy of one country.
High welfares can give pressure to the country’s fiscal budget. Its ability to deal with the debt becomes very poor, too. When facing the financial crisis, these countries are more likely to be seriously hurt. As a result, high welfares are also a major cause of European debt crisis. The third weakness of the European economic integration is that every country will seek its own benefits rather than the benefits of the whole integration. The reason why the EU could be established is that such integration could be very helpful for the development of European countries. However, time has changed very quickly.
With the development of the economy in the whole world, the situation every country faces is becoming more and more complex. Every country wants to gain more benefits and take advantage of the current situation. There is not only the cooperation but also the fierce competition among countries. The competition among European countries is even much fiercer, as these European countries share a lot of resources which are very limited and rare. As a result, the common interests are fewer and fewer among these countries. The base for the cooperation does not exist anymore.
When making the decision, every country is also seeking its own benefits. They even want to seek benefits when the whole economic integration faces the financial crisis. That is why EU cannot solve the debt crisis effectively. When the European debt crisis first took place in Greece, EU actually did not take any action. Though EU is highly integrated in all aspects, other countries are not willing to help Greece to solve the problem. Just like I said before, one of the reason of Greece crisis is the high-level of its high welfare. No country wants to use their own benefits to help people of other countries.
So the crisis is becoming worse and worse. As far as I am concerned, this weakness can even lead EU to be destroyed if not well handled. Certain laws and regulations should be adopted to encourage countries to cooperate during the crisis.
EU is the most influential economic integration in the world. Nevertheless, three main weaknesses are rooted inside. These weaknesses also contributed to the outburst and spread of European debt crisis. Doing deep research on these weaknesses can help us quickly solve the crisis as well as prevent the potential financial crisis.