Troubled European Union---Ding Yuanhong

Ding Yuanhong     Previous Ambassador in European Union and Senior Researcher of Peace and Development Research Center

Battered by financial crisis and sovereign debt crisis, the European Union is plunged into the trouble which is even rare to see in those decades since the establishment of such Union. European Commission President Jose Manuel Barroso said that the economic crisis swept away the achievements the Europe reached for the past decade. Chancellor of Germany Angela Merkel proposed that current situation was the most severe test for the Europe in over decade and the bankruptcy of Euro meant the failure of whole Europe. At present, it seems that the Euro crisis is the symptom of financial problem but in fact, it fundamentally reflects the major political problem, concerning the integration process of the Europe. The root cause of the trouble of the European Unions is the deepening conflicts in the European Union since 1990s, the cohesiveness decreasing with the rapid increase of the members. The outbreak of the financial crisis not only lands the European Union the “worst victim” but also becomes the potential last straw for overwhelming the European Union.

I. Slowdown in Economic Development and Decrease of International Competitiveness

Currently, the member countries of European Union lack strength in economic increase, falling behind such developed countries as the United States and Japan in economic situation and even lagging far behind some emerging developing countries. According to the statistics, from 1990 to 2006, Germany, France, Italy, three major economies in European Union, whose economy accounted for 70% of the total Euro-zone, were with the average annual growth rate of 1.1%, 1.4% and 0.1% respectively. In 2007, the situation tuned better but the Euro appreciated against the US dollar, and under the influence of the U.S. Subprime Crisis, its economic was plunged into the slowdown again. The outbreak of financial crisis in 2008 hit the EU economy worst. It was estimated that the accumulated loss of gross domestic product reached 5%. Among the major economies in the world, the prospect for the survival of EU economy is dimmest. It was estimated in the 2010 World Economic Situation and Prospects of the United Nations that the speed increase of gross domestic product globally in 2010 fell by 7% over that before the financial crisis, with the growth rate of 2.4%, among which the United States reached 2.1%, Japan 0.9%, EU 0.6%, Euro-zone 0.4%, China 8.8%, and India 6.5%. The outbreak of the sovereign debt crisis made the EU economy worse. Owing to the lack in strength in developing the economy and failure to make ends meet, the EU had to massively float loans and retrench the expenditures for paying back the debits, which further dampening the survival and increase of economy.

II. Monetary System Maybe Collapse with Such Risk

The European sovereign debt crisis is caused by the global financial crisis. It is estimated the EU introduces economic stimulus and financial rescue plans of over 3,000 billion Euros in coping with financial crisis, landing each member countries enormous increase in financial deficits, failure to make ends meet and insolvency. From 2010 to 2013, such five countries of European Central Bank as Portugal, Italy, Ireland, Greece and Spain will have a total of over 1,500 billion Euro principal and interest to pay back, far beyond the sum of rescue plan of over 800 billion euro arrives at among member countries of European Union hurriedly. Juergen Starke, chief economist of European Central Bank, held that with a huge sum of rescue plan “we buy nothing but time”.

The root cause of the Euro Crisis is the EU’s establishment of so-called “single currency” in which the European Union pieced up countries with huge difference in economy, development and finance together. In order to close the difference between member countries in economy and finance, the EU entered into and concluded Stability and Growth Pact at the time of establishing single currency, expressly stipulating that the financial deficits of the member countries should be controlled within the 3% of gross domestic product and the public debt should be less than 60% of the gross domestic product. However, in 2009, the financial deficits of the whole Euro-zone exceeded 6.4% of the gross domestic product and it was estimated such number would be increased to 7% in 2010, far beyond the upper limit of 3%.; the public debt in Euro-zone reached 79.3% of the gross domestic product, far beyond the upper limit of 60%, making Stability and Growth Pact existing in name only. The severe financial situation would definitely shatter market’s confidence in Euro fundamentally. The addition of speculative activities of international speculators would absolutely result in the sharp fall in credit of Euro internationally.

The Euro Crisis was becoming worse and the fatal weakness of the Euro was exposed that “Euro-zone” is only a “monetary union” and its financial policies was still controlled by its member countries. The monetary policies were out of line with financial policies, which checking the means of member countries to cope with financial and economic problems. Additionally, in Stability and Growth Pact, it was stipulated that the European Central Bank was banned to offer assistance to member countries after establishing the single currency. Such defect of inner mechanism impacted the single currency and its due role, making member countries at a loss facing the crisis.

    IIII. Development Pattern Increasingly Troubled in Difficulty

After World War II, economic and social development pattern featured “high salary and high welfare” gradually come into being and prevailed over Europe and proves to be conducive to economic development and social stability in Europe for some time. However, at present, such pattern becomes increasingly unfit to the change in situation. First, it weakens the competitiveness of European products in the world and shrinks its share of global market. According to the statistics, three major EU countries, Germany, France and Italy bear the spending of welfare as high as 35% or so of their gross domestic products. Since 1970, the annual working hour per capita in the United States has been increased by 20%, reaching 1,840 hours while the annual working hour per capita in EU decreased by 20% during the same period, reaching 1,550 hours. The expensive labor costs force the EU to the unfavorable position in the international competition. Next, the high welfare policy and aging of population made the EU fail to make the ends meet. In order to lower the labor costs and improve the labor productivity, the EU has to reduce the welfare and cut down the number of employees, unavoidably influencing the personal interests of the public and further triggering the social turmoil. Currently, the wave of strikes and protests in Greece and other EU countries can be set as the best examples. The European sovereign debt crisis prominently exposes the root defects of Europe that continued its high welfare system by making loans.

     IV. Encountering More Resistance in Promoting Integration Process

Firstly, “decentralization” is exposed more obviously. With the elimination of outside threat and participation of greatly differentiated member countries, member countries place their own interests above the whole interest of the EU, making the coordination more difficult. The stipulation of Constitutional Treaty has been procrastinated for nearly a decade and finally the compromised product Lisbon Treaty is concluded, with little meaningful effects in improving the cohesiveness and influence of EU. On the contrary, it facilitates the fights for the distribution of power of leading organs and further weakened the confidence of the public in the integration. In order to respond to the financial crisis, the leaders of the EU fail to propose an agreed response solutions. Member countries accuse each other and put blame on each other on the issue of Greek debts. Such response is nothing but an unsatisfactory plan for any member country and arrives at under the pressure of market and the United States. The diversification of their interest intensifies their inner differences, which will prove to be an insurmountable obstacle for further promoting the integration.

Secondly, the leading role of France and Germany is growingly censured and challenged. France and Germany suffer more and more prominent economic and social problems so they find themselves fall short of their desires for advancing the European integration and moreover, obvious diversification in such major problems as European integration emerges between these two countries. Germany is censured and blamed by France and other countries for its refusal to enter into EU unified economic rescue plan and procrastination to rescue Greece. However, in fact, there is no ground for blame on Germany’s deeds in its own interests. Just as previous President of EU Commission, Delors pointed out that EU “drained out its strength” for unification of Germany and eastward expansion of EU during which Germany “bought the bill” all through the way. With the member countries increasing, the EU is loaded with heavier and it is difficult for Germany to continue to “pay the bill”. The German people have complained at the availability of Euro instead of mark so it is understandable that they are reluctant to rescue those “poor members” at the expense of their own interests. The masses of Germany begin to use mark again and their requirement for quitting from Euro-zone can not be neglected. This movement exerts great influence on prospects of Euro-zone and even the EU.

Last but not the least, there is diversification in EU on the development of European integration process. The agreement is not reached yet between political elites and masses in Europe as well as the big and small member countries of EU and the new and old member countries of EU on the way and speed in advancing the integration process as well as the final goal and geographic marks. France adheres to the union of sovereign states for the purpose of “including” the most powerful Germany into the integration and checking it. German performs even more active in establishing a more intensified integration mechanism and made an attempt to convert the “European Germany” to the “German Europe”, seeking the dominant right in the integrative European affairs. The UK does not agree with the political integration of EU and compelled by the situation, it joins the EU. In essence, it attempts to benefit itself by setting up a “big free trade zone”. At present, these member countries’ different ideas on the prospect of EU can be revealed from their attitudes and suggestions to respond to financial crisis and resolve the sovereign debt problems.

Different estimations are made based on the current troubles of EU. The optimistic group holds that just as the EU’s performance coping with past setbacks and difficulties it will overcome these problems one by one and regain its impetus. The pessimistic group regards that the Euro-zone would collapse and the integration will be stopped shortly. Various problems suffered by the EU at present are inseparable from the situation inside and outside the EU. Keeping up with times and making incessant innovations are the only choice for EU. In some way, the global financial crisis reveals that all social systems need the reform and the monopolistic capitalism system is no exception. The research group, initiated by former Spanish Prime Minister Gonzales, makes the warning based on the research report on the strategic challenges faced by EU before 2030 that without major reform, EU and its member countries “may be marginalized and become a more insignificant western peninsula in Eurasia”. European debt crisis takes a toll on integration of Europe. It is the right time that the Europe should urgently need to reflect the past experience and lessons to make fundamental reforms.