Posts tagged ‘European Union’

01/03/2012

Britain Should Adopt the Euro

Many Americans have a hard time understanding the European Union (EU), because countries that do not use the Euro currency are nevertheless allowed to be EU members. They cannot relate, since every U.S. state is required to use the Dollar, with no option.

The Euro, which was introduced in 2002, is presently the official currency in only 17 of 27 EU nations.  Seven countries, who enlisted in the EU in 2004 and 2007, will convert between 2012 and 2014 under timetables adopted at the time of admission. Three small non-EU tax havens also use it: Monaco, and San Marino and Andorra. But three EU states have opt-out, including: Britain (Pound Sterling), Denmark (krone), and Sweden (krona).

Since the recent economic crisis, it is unlikely the UK will replace the Pound with the Euro in the immediate future. Although the Euro would make foreign trade easier, and the failure to adopt it will adversely affect international investment, jobs, and economic prosperity, 66% in Britain have opposed a monetary conversion, because they fear a decline in national sovereignty and a loss of control over their economy. They worry a transfer of power from the Bank of England in London to the European Central Bank would give Frankfurt the ability to control interest rates, inflation, and unemployment. For these political and economic reasons, the UK decided not to adopt the Euro and continued using the Pound.

The question now is whether Britain’s refusal to join the monetary union will harm the EU? In the event of an EU recovery, will the UK start to become irrelevant? Since the Euro was a major success in terms of European unification during its first ten years, my guess is the new currency will survive the current crisis and the EU will emerge even stronger. Old England may in the long run be held down by the weight of their own Pound. In regional circles over time, the English currency will start to be viewed as funny money, since Europeans will be using the Euro. If Britain does not officially convert, their people may start to do so in the ordinary course of business, as a matter of fact, and inevitably the Pound may be lost anyway. Just when most think the adoption of the Euro would be the wrong move, some intelligent future British Prime Minister should courageously advocate its adoption.

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11/29/2011

EU: Not Ready For U.S. of Europe

The origin of the European Union dates back to 1952, when six nations formed the European Coal and Steel Community. The Treaty of Rome (1957) broadened the relationship into a Common Market, known as the European Economic Community (EEC). A European Court of Justice (ECJ) followed to monitor compliance. A Customs Union (1968) was added to abolish duties between members, and to set a common tariff as to foreign goods.

The EEC grew to 12, as the UK, Ireland, and Denmark enlisted in 1973, Greece was added in 1981, and Spain and Portugal joined in 1986. The Schengen Agreement (1985) gave EEC citizens the right of free movement in and out of the other member states.

The EEC became the European Union (EU) in 1992, under the European Union Treaty. The EU soon grew to 15, as Sweden, Finland, and Austria signed up (1995). Questions arose as to how much power the EU should have, and what authority should be retained by the states. While customs and commercial policy were yielded to the EU, many other law-making areas remained national. Although the EU had a Parliament, questions arose as to the number of votes each state would have in the EU. To correct some of these issues, the Treaty of Nice (2000) was ratified.

At the same time, the EU created an Economic and Monetary Union (1999). A European Central Bank opened in Frankfurt, which issued the Euro (2002), and abolished national currencies. Britain, Denmark, and Sweden opted out of the Euro, as criteria were set for new EU states, before they could adopt the Euro. The states no longer governed monetary policy, as the Central Bank set interest rates. Although the Bank opposed deficits by national governments, members retained control over fiscal policy. Critics of this said the EU could not maintain tight monetary policies, while states were allowed to have expansive fiscal policies.

The EU states made an attempt to be guided by one written Constitution, in lieu of a series of treaties, but the effort failed when France and the Netherlands rejected it (2005). Nevertheless, 10 additional countries became members of the EU in 2004, and Bulgaria and Romania brought the number to 27 in 2007.

The states of the EU are currently administered by a 27-member Commission, which is their primary source of legislation. The Commission has the power to issue regulations and directives to states. The EU also has a 27-member Council of Ministers, which has the final say on most legislation. Since each state has one vote in the Council, smaller countries have disproportionate influence. The European Parliament is a 732-member elected body, but it has no general law-making power. It must base what it does on existing treaties. It may challenge the acts of other institutions and reject budget proposals, but the Council remains more powerful. Since the Parliament is relatively weak, issues of representative democracy have been raised. The EU also has a 27-member European Court of Justice which has the authority to review: EU treaties, the conduct EU institutions, and enforcement actions brought against the states.

While the EU currently has law-making functions, they are largely limited by treaty to common market issues. They have no authority to legislate regarding national pensions, or health care, for example. The EU has no general power to tax and spend. Under the current arrangement, it would be difficult for a majority of states to change the behavior of another country.

To complicate matters, it will be a real challenge in Europe to take benefits away, because people have rights to them under various Human Rights Treaties. Europeans enjoy the right to collective bargaining, and protection in the event of an unfair dismissal at work. They have a right to fair and just working conditions. They have a right to social security and health care.

The immediate problem in the EU is national governments control their own fiscal policies, and the crisis of the Euro is without a mechanism to save it. The difficulty in creating a fiscal union, or a political union which would entail a loss of state sovereignty, is the strong sense of nationalism that exists in most European countries. A radical change in thinking will definitely be needed before the peoples of the EU could ever become a United States of Europe.

11/03/2011

Greek Referendum: Democracy 101

After Greece joined the European Economic Community (1981), ratified the European Union Treaty (1992), and adopted the Euro currency as part of the EU Monetary Union (2002), they gave up their sovereign right to print money, or to spend in excess of limits set by the European Central Bank.

Although Greece was required by the Central Bank to maintain a Balanced Budget, and to limit their National Debt to no more than 60% of GDP, the Greeks failed to control spending, and their Debt rose well beyond the EU limits, to a crisis level.

Under the recent Greek Bailout Plan, promoted by the leading EU powers Germany and France, Greece was required to cut their budget in consideration for loan forgiveness and other assistance.

There was one small problem with the bailout plan: someone forgot to ask the Greek people if they approved. In the birthplace of democracy, the EU attempted to dictate from the top down, ignoring the principle that consent must come from the governed.

If Greek Prime Minister George Papandreou had allowed the EU to proceed without submitting a referendum to the people, seeking their approval, and draconian spending cuts were made without regards to the wishes of the people, a revolt may likely have erupted in Athens. It is naïve to assume Greeks would simply allow the Central Bank in Frankfurt to reduce their jobs and pensions without a fight.

Papandreou wisely realized the only way benefits could be cut and taxes can be raised in Greece is with the consent of a majority of the people. While the referendum poses risks, such as a vote that disapproves of the EU plan, observers must recognize that the absence of democratic participation would have led to an even greater risk of civil war, and at the very least, the violent removal of George Papandreou and his government.

The absolute best case scenario is for the Greek people to approve of the referendum so the EU plan has the will of the people behind it. We should not criticize George Papandreou for resorting to time-honored Greek democratic principles to solve this crisis.

10/26/2011

Greece Limited By Euro Monetary Union

Although the U.S. Congress controls Fiscal Policy under an unlimited Constitutional power to tax and spend, and Monetary Policy through the Federal Reserve Bank and the ability to “coin money,” European Union states, such as Greece, who elected by treaty to adopt the Euro currency, are no longer able to use a national Monetary Policy to print money, or a Fiscal Policy to spend in excess of limits set by the European Central Bank.

European unification has been a work in progress since the 1950s when certain European states created a Common Market for the purpose of trading, under a system that allowed them to maintain their control of over national economics. A Customs Union was added in 1968 to abolish tariffs between the member states, and to establish a common tariff as against goods from the outside.

The existence of several currencies and a desire for a easier flow of capital led to a Monetary Union, which created a European Central Bank in Frankfurt, abolished German Marks, French Francs, and other currencies, and replaced them with the Euro in 2002, by making it the exclusive legal tender in Euro Zone states.

The problem with the Monetary Union is the lack of a Political Union to oversee it. Unlike the U.S., where all 50 states obey Washington DC on national matters, the EU is a collection of independent countries that happen to have a Central Bank. The EU Parliament cannot pass national legislation, like the Congress; they can only follow existing treaties, or propose new ones.

It is doubtful the recent European Monetary Union financial crisis will cause the independent countries of the EU to form one Political Union. It is more likely to have the opposite effect.

The problem is national governments like Greece already gave up aspects of national control under prior EU Treaties. When the Monetary Union was made, the EU Framers required the various national governments to coordinate their economies. National Debt, for example, was not to exceed 60% of GDP. Countries that previously used Monetary Policy were no longer able to do so, since these powers were transferred by treaty to the Central Bank.

National governments that previously spent their way out of recession, now had their Fiscal Policies controlled by the EU Central Bank, which imposed spending caps. Their Stability and Growth Pact (1997) required states to pursue balanced budgetary policies, and imposed sanctions against those that failed to adjust.

The European Central Bank has the authority under treaty law to restrict the democratic wishes of the Greek people and to operate without regard to political pressures. The risk is a renunciation of the EU Treaty by Greece, which may trigger others to follow, in a manner like South Carolina’s secession from the U.S. in 1861.

While the EU is not going to allow member states to default, the question is whether the Greeks will allow the Central Bank to reduce their jobs and pensions without a secessionist revolt, which Greeks may feel is their only option, since the Bank now controls their national Monetary and Fiscal policies, under the EU Treaty.

06/21/2011

European Union Needs More Power

Since 54% of the 483 million-member European Union (EU) come from Germany, France, Britain and Italy, too much is being made of the Euro Crisis, as only 2% of the EU population lives in Greece, 2% in Portugal, and less than 1% in Ireland. The Euro Crisis simply does not directly affect 95% of the European Union.

Britain, one of three to opt out of the Euro, with Denmark and Sweden, is now smirking on the sidelines and hyping the crisis, as the German Bank tries to craft bailouts for Greece, Portugal and Ireland. But British criticism of the Euro-zone is not the answer. The Euro instead needs more, not less power. What the UK could do to help and restore Euro confidence is to boldly abandon the Pound and adopt the Euro.

Here, in America, many are unable to follow the EU story, since the organization did not even exist when they were in school. The EU had its origins with the European Coal and Steel Community (ECSC) (1952), and the Common Market, also known as the European Economic Community (EEC) (1957). The EEC later became the European Community (EC) (1967), and finally the European Union (1992), which now has 27 member states.

The EU established an Economic and Monetary Union, which opened a European Central Bank in Frankfurt (1998), and circulated a Euro Currency (2002). Britain, Denmark and Sweden opted out of the Euro. The Central Bank controls Euro monetary policy and affects national spending, since Euro-zone states are now unable to print their own currencies and must make up for budget shortfalls by borrowing. The EU adopted a Stability and Growth Pact to limit national budget deficits, but Greece, Ireland and Portugal failed to comply. With no money to print, and none to borrow at reasonable rates, a crisis developed.

A European solution is not as easy as the one implemented in the U.S. during the recent financial crisis, where Congress and Federal Reserve Bank stopped things from spinning out of control. Although EU institutions look like those in the U.S., since they have an executive in Brussels (Commission and Council of Ministers), a 732-member Parliament in Strasbourg, and a Court of Justice, in Luxembourg, they are not as strong as their U.S. counterparts. The EU is not really a political union able to make its own decisions, but rather an organization which is dictated to by its 27 member states. The EU Parliament has no general lawmaking power and cannot tax and spend. All the EU can do is issue directives to member states and ask national governments to implement EU policy.

Some say the EU will never become the USA of Europe, but it’s just a matter of time. It took the U.S. 172 years to assemble 50 states in one union across North America, and it will take many years to complete the European Union picture.

For now, instead of Britain, Denmark and Sweden resisting the Euro currency, as they have in the past, they should courageously convert to it and give the EU more power. All 27 member-states should grant their EU institutions the authority they need to keep their currency strong, so they can correct the budgetary problems in the member states, such as Greece, Portugal and Ireland.

05/16/2011

Euro Currency Will Survive Crisis

The financial crisis in Greece, Ireland and Portugal would have been strictly national in decades past, but since the circulation of the Euro currency, the matter is now a European Union problem.

The European Union (EU) began when six nations formed the European Economic Community (1957). [1] After Britain, Denmark and Ireland joined (1973), Greece, Spain, and Portugal became members (1980s). Once the EU replaced the EC (1992), Austria, Sweden and Finland were added (1995), followed by 10 largely eastern European countries (2004). [2] Most recently, Romania and Bulgaria pushed EU membership up from 25 to 27 states (2007).

Unlike the U.S., where adopting of the U.S. Dollar is a condition to statehood, membership in the EU, and the use of the Euro, are separate matters. Three EU members opted out of the Euro. Britain stayed with the Pound Sterling, Denmark turned down the Euro in a referendum (2000), and Sweden also voted no (2003).

Britain feared the European Central Bank in Frankfurt would set interest rates, and their own Bank of England would lose control. They felt they could maintain better economic stability, lower inflation, and less unemployment, by continuing with the Pound.

Sweden’s vote against the Euro was based on a fear recessions would cause big states like Germany to take over their economy, and they would lose their welfare system. The issue was so hot Foreign Minister Lindh was assassinated for promoting the Euro.

Today, even though the EU has 27 members, only 17 have adopted the Euro, as their currency. [3] While five European states, that are not EU members, also use the currency, [4] there remain 10 EU nations that have not yet converted. Seven however agreed, when they joined the EU, to replace their currencies over time. [5]

Despite the recent crisis in Greece, Portugal and Ireland, it is just a matter of time before the Euro is adopted throughout Europe. Once all of those admitted to the European Union in 2004 and 2007 start using the Euro, more nations will join the EU, such as Macedonia, Croatia Serbia, Bosnia, Albania and Iceland, and they too will adopt the currency. Those not seeking EU membership, like Norway Liechtenstein and Switzerland will soon become isolated as to their money, and pressure will build to accept it, or people will simply start using Euros as a matter of fact.

The first near decade of the Euro has been a major success. Along with the U.S. Dollar, it is now the world’s most valued currency. One can reasonably predict that after the EU solves the crisis in Greece, Portugal and Ireland, the Euro will only emerge even stronger than it was before the recent economic troubles began.


[1] Belgium, France, Luxembourg, Netherlands, Germany and Italy

[2] Poland, Hungary, Czech Rep., Slovakia, Estonia, Latvia, Lithuania, Slovenia, Malta and Cyprus

[3] Austria, Germany, Luxembourg, Spain, Belgium, Greece, Netherlands, Finland, Ireland, Portugal, France, Italy, Slovenia, Malta, Cyprus, Slovakia, Estonia

[4] Andorra, Monaco, San Marino, Montenegro, Kosovo

[5] Czech Rep. (koruna), Poland (zloty), Latvia (lats), Hungary (forint), Lithuania (litas), Romania (leu) and Bulgaria (lev)