The euro, a currency born out of the economic hardships of World War II to urge a close knit Western European community, has come under a”shadow” of government debt.
Created through the merging of the European Economic Community and the European Steel and Coal Community in 1993 under the Maastricht treaty, the EU aims at the integration of the European system ensuring the free movement of all people, capitol, goods and trade. Operating through a hybrid system of supranational independent institutions and intergovernmental decisions, the lack of central control over fiscal procedures has created a financial disparity between nations such Germany and Greece, resulting in the current EU crisis. With another Greece rescue plan in the making in Brussels on Thursday, the IMF is skeptical on the ability of the EU to live up to its purpose: a capstone that would unify the major European powers further.
Admittedly, the immediate action taken by German and France at the beginning of the Greek crisis nearly 2 years ago, illustrated the dedication and support existing in Europe. European leaders have ruled an EU breakup as unthinkable as it would lead to the decline of the financially dependent nations of Greece, Ireland, Portugal, and possibly both Spain and Italy. The integration of the European community has led to wide growth prosperity and has succeeded in mending past aggressions, most notable that between Germany and France, but the recent developments have led to scapegoating and illustrated the fallibility of the EU structure.
The objective of globalization has run amok with the dilemma of sovereignty. The lack of central control over government budgets allows for the tax and spending decision in one nation, effecting their currency, to become the problems of the united ensemble of countries. Banks also have influence across national borders, but their regulation and oversight is limited to the control of the individual country. The EU has not delegated enough of their communal power to investing into euro-wide baking regulations and public budgets, administered by a centralized institution. This may come into conflict with national sovereignty but by joining the EU, these member countries have laid their trust into a community of fellow nations; therefore, the question must not be about sovereignty but about the longevity and prosperity of such a union. For instance, the division chief of IMF, Luc Everaert, stated that “it will be unavoidable to subordinate some sovereignty to the common good.”
Clearly, the European leaders must draft a durable fix that accounts not only for Greece, Ireland, and Portugal, it must also apply to the nations of Spain and Italy. The implications of not halting the the crisis in these “smaller” nations could lead to its spreading into core countries such as France, which would lead to global consequences. Heading the negotiations stands German Chancellor Merkel who recently talked to President Obama on Tuesday morning, agreeing that dealing with the crisis effectively was key to sustaining the economic recovery in Europe, as well as for global financial system.
The summit on Thursday is meant to form an agreement on a new emergency program for Greece, a relief package that may close to $100 billion in loans from neighboring governments. Current negotiations are requesting private investors to contribute more than $40 billion to maintain existing bond investments rather than withdrawing. Capitol Economic, a London-based consulting firm, has dubbed the Brussels summit as the euro zone’s “last chance saloon”. Undoubtedly, the last gasp of fiscal globalization is nearing as the EU continues its list of economic summits and the US approaches its August 2nd deadline.