In the Economist article “The European Union in Disarray,” Claudio Munoz (2011) described the crisis that is occurring within the European Union regarding the euro zone economy. Despite the fact that European leaders (the British government in particular) are claiming that they are handling the situation, but the lack of progress that is being made in summit after summit shows an increasing lack of faith in the power of the euro. The euro itself is in dangers of making entire economies insolvent, and this latest summit is declaring a treaty be created to attempt to save the euro.
A central component to the article is Britain’s seeming unwillingness to make true changes to their policies to enhance and support the euro – this leaves the whole of the European Union ill equipped to handle whatever support the euro needs to succeed. The essence of the Brussels plan – which was the overall purpose of the summit – was to create fiscal rules that would make behaving well pay off for EU countries, including Britain. While there are some initiatives the ECB is taking to enhance the value of the euro, it is not nearly enough to reverse the losses some countries are experiencing. For example, the EBC providing support for euro-zone banks would provide them with unlimited cheap capital. However, banks are far too cautious to take that kind of large risk, so this kind of initiative means little.
As a result, the overall goal is to make law some of the fiscal disciplines and laws that have been created in recent summits, making the EU into something that would make excess something to be punished. However, with the recent downturns of the Spanish and Irish economies, the ability to discern which economies could provide sufficient models for sustainable deficits has been called into question. There is, in the article, a large tie between national constitutions and the inclusion of the EU and the euro itself – a large component toward integrating the monetary unit itself and the government it provides legal tender for. By the time that there was substantial issue to be taken with the way the euro was going, it was too late to make significant changes.
The Brussels summit itself has remained a strange and nonspecific method of providing any kind of security to the euro; its results were vague and nonconclusive, sending all 26 or 27 governments involved in the process into a lot of questionable actions regarding the euro. The provisions could be repealed or balked from at any time, especially on the part of the Slovakian and Czech Republics. In essence, David Cameron, is said to have united the rest of the European Union onto the side of Britain with the help of political expediency, making it impossible to not back whatever initiatives he opposed in favor of not making Britain one’s economic enemies. The rest of the European Union is simply skeptical of the euro’s plan to make itself successful, which has led to reduced efforts to look into its viability.
The whole of the European Union is in danger of the euro becoming extinct, or at least virtually valueless – entire economies could suffer at the hands of those who would do nothing to restore its value, including David Cameron. There are far too many people who wish to become the saviour of the euro, but too few of them want to sacrifice what value they would have to give up in favor to save it. Basically, too few people and countries are committed to the euro to make a real difference in its salvation to make it work, from the results of the Economist article.
When compared to the US economy, the whole of the European Union still has a chance however, as the US dollar has weakened substantially in the past decade. Due to Standard and Poor’s downgrading of the US credit rating, US credit has been poorer than it has ever been. This affects market confidence directly related to the salvation of the euro; as EU countries find it less profitable to invest in the American dollar and American business practices, the euro itself may find itself lessening in value.
In terms of supply and demand, there is really little demand for the euro to succeed, which is why the Brussels summit has worked so hard to create measures that would create this demand. Creating sovereign debt for the euro-zone is vital to the banks, making the Brussels summit force initiatives by the ECB to lend cheap money to euro-zone banks. This, in theory, would create a better ability for countries to borrow and use to build up infrastructure and offer money to businesses, attracting more foreign business to the Eurozone from America and other countries. In this way, supply and demand is a factor that is being used to attract further business to the Euro-zone; however, it is not happening fast enough.
In this article, there are several things that are happening. Interest rates are not being touched, but the money supply is being increased through arbitrary measures accorded by the EU; Britain opposes these measures, as they view it to be the assigning of invisible money to the rest of the Eurozone. However, this is how the rest of the EU wishes to increase the value of the euro, as opposed to taxing or interrupting public projects. As a result, the governments are trying to work together to create new initiatives to make their money mean more to the whole of the eurozone.
There is more that could be done, given the contents of the Economist article, to make sure that the euro increases in value. By increasing taxation and decreasing government purchases, there would be less of a demand for these things; therefore, the value of the euro could move to a more reasonable level so as to increase business. By lowering the number of government purchase, the euro would be required less and so less pressure could be allotted to it. At the same time, that could lead to a substantial loss in public services; this would necessitate the further use of a devalued euro to rebuilt and refurbish those services. With this in mind, it may make sense to accept the Brussels summits’ offers and initiatives to boost the value of the euro. With these efforts in mind, the monetary value would increase, and so would the profit of private enterprises that invest in these business enterprises.
Munoz C, 2011, The European Union in disarray: A comedy of euros, The Economist, Dec 17.