BY:
MUHAMMAD AIDIQ SUFI BIN MUHAMMAD RIDHWAN PANG
19 Mei 2016(Australia Date)
1.Introduction
The European Union was formed with many expectations. Despite closeness and
similarities, the various nations of the European continent fought bitter wars for thousands of
years within themselves. After the devastating World War II, finally, everyone saw the light
and decided to give a chance to a peaceful coexistence. However, the EU’s path has not been
smooth. Many critical economic and political problems have emerged throughout the last
decade, thus raising questions about its credibility. In this essay, I argue that the EU has
failed, given the controversial issues that arise at present; namely the viability of the Euro as
a common currency, the Brexit, and the migrant crisis from the Middle East.
2.The Euro as a Common Currency
I will first explicate the history of this common currency before demonstrating how it
could lead to a chained financial crisis in the Eurozone countries. Prior to World War II
(WWII), doing trade across borders was difficult. Countries were using different currencies
and they had to pay a certain tariff fee too. This eventually stifled the economic growth. After
WWII had ended, the situation among the European countries was so dire that they had to
call for an agreement to quickly patch-up their economy. They began to remove the trade
barriers like the steel and coal tariff so that the materials could be traded without much
trouble. In times, this gave them an idea to build a unified Europe, a union across the
continent that could work together to lower the trade cost and improve the development of
their countries (Cannon 2015). Consequently, the Maastricht Treaty that involved 27 of the
European Countries is signed on February 7, 1992. However, the feasibility of using different
currencies is questionable, as exchange fees has been debated to cause economic issue among
them (Chawla 2013). Therefore, on January 1, 1999, the Euro is introduced and is opted in
most of the European countries.
The European Central Bank (ECB) then forms new rules and monetary policy that
need to be followed by these Euro Area countries. Nonetheless, they still have the freedom to
construct their own fiscal policy (Elliott 2015). This is considered problematic as monetary
policy only control the flow of the money supply, while fiscal policy is the one that
determines how much they could spend based on the collected taxes. If they decide to spend
more than they could, this would then produce a deficit in spending. This usually happens
through borrowing processes.
Previously, a country with a small economy like Greece could only borrow a small
amount of money due to a high interest rate incurred on them. With the establishment of the
European Union and shared monetary policy, they are now able to borrow as much money as
Germany (Cannon 2015). ECB also believes that if a certain country could not repay its
loans, a country with a bigger economy like Germany would step in to help. This has
encourage countries to borrow more money than they could ever repay in order to escalate
the economic and developmental growth in their economy. Countries start to alter their fiscal
policy in accordance to their goals (Elliott 2015). They would not worry much because there will always another countries that could back them up. With that, their economy is now
tightly intertwined and their fate has also collectively tied.
Hence, a collapse in the US housing in 2000 has spurred credit crisis across the globe,
thus bringing borrowing to a halt (Arestis et al. 2010). Countries that involved with deficit
spending like Greece, Cyprus, and Ireland start to malfunction, as they could not borrow any
more money to satisfy the new jobs and benefits that they created (Alberto, Ardagna, and
Galasso 2011) (Lavdas et al. 2013). They start to seek help from countries that have a bigger
and stable economy like German (Cannon 2015). However, German necessitates a strict
Austerity measures to be agreed upon before it bails out the debtor countries. This is not an
easy decision as Austerity means that the governments need to cut off their spending and
reduce the allowance for their citizens. People may lose their jobs and this would decrease the
standard of living of the people. Although this method would help to reduce the accumulated
debts, a riot could possibly takes place among the citizens (Duval and Elmeskov 2005: 438).
Consequently, either they accept or not this measure, things would still worsen. Therefore, it
is arguable that the European Union has failed, as the Euro crisis has called for a serious
economics structural overhaul (Villaverde 2013: 66).
3.Brexit
In relations with the previous point, I believe that Brexit has something to do with the
financial crisis that happens in Europe. Although known to all that the possible exit of Britain
from the EU is actually one of the Prime Minister Cameron’s manifestos in gaining votes on
2012, it cannot be denied that the crisis has also pushed this idea forward.
Brexit is probably the biggest threat to the EU right now as the UK is one of the most
powerful nations and the major economies running the EU (Portes 2015). In addition, it plays
a major role in influencing the global economy. I will first clarify the pros and cons of Brexit
before giving a judgment either the EU has failed at this point or not.
On the positive side, Brexit may actually ease the decision-making process within the
EU and hasten the political reform. This is because the UK is known to throw around its
weight and elongate discussions with its reservations in most important topics (Witney 2015).
Brexit will also help the rest of the Union to be more efficient in passing resolutions,
especially on the current financial crisis (Schulz 2016: 98). On top of that, the UK has
constantly caused severe disagreements and delays in controversial topics like taxation and
social security (Buiter, Rahbahri, and Schulz 2016).
Many other countries have maintained cordial relations with the EU without
becoming full members. For example, Iceland, Liechtenstein and Norway are a part of the
European Economic Area (EEA), despite of its non-member states’ status. They benefit each
other by providing the free movement of persons, goods, services and capital within the
internal market of the EU (Koutrakos 2006: 385). Similarly, Switzerland is not a member, but
it is a part of the European Free Trade Area (EFTA) agreement that helps to commence
economies with strong per capita purchasing power. This means that Brexit does not reflect
the country’s decision to cut off any trading between them. Besides, any disagreement would not necessarily give bad impacts. To put into context, even the UK is not using Euro, they
still top the economy on 2014. As a proof, the EU has been able to generate a nominal GDP
of €14.3 trillion based on International Monetary Fund (Bryan 2015). Simply put, it has to be
seen what kind of relationship and agreements the UK opts for post its exit to get a clear view
of the positive consequences (Saunders 2016: 237).
Nonetheless, there is a negative side of Brexit that may cause several disputes. First of
all, it may cause a disturbance in term of the balance of power within the union. The EU itself
has started to part ways due to the ideology differences in dealing with the economy crisis. At
this moment, they need to stick together to make EU’s reformation possible. However, Brexit
would slow down and weaken the pro-reform group in the EU as they would lose one of their
most powerful members in the economy who supports it. This will tilt the balance of power
towards the EU countries that oppose the reformation. Secondly, with the exit of one of the
richest nations, there will be fewer countries remaining to bail out countries that are still in
the sovereign debt crisis (Sinn and Werner 2014). Thirdly, Brexit will be a telling blow to the
morale of the EU. It will encourage others who are considering an exit too. Consequently, it
can be expected to produce a chain reaction leading to many more exits. Fourthly, this will
also encourage separatist movements such as the Basque region in Spain or Corsica in
France. In addition, such opinions are also heard in the Netherlands (Alberto, Ardagna, and
Galasso 2011). Overall, we can see that Brexit may give both good and bad aftermath,
however, it could be clearly seen that the EU has failed, as it is powerless and is in no place
in controlling this issue.
4.Migrant Crisis
The migrant crisis is not exactly the EU’s fault, but nevertheless, it cannot avoid it.
The primary problem of the migrant crisis is the huge numbers of refugees that are in need of
settlement at once. They are coming in millions from the Middle East countries like Syria,
Afghanistan, Iraq and Eritrea, and this may affect the demographic of the EU nations
(Cockburn 2015). Contextually, the effect would be worse on smaller countries in the Eastern
Europe because the crisis will put a significant economic pressure on a region that is already
going through a downturn (Richter 2016).
First of all, this will increase social spending for the nations as they seek to provide
basic facilities and set up a good example in front of the world (Saunders 2016: 112). In
addition, the issue of ethical dimensions is raised up as the refugees are facing unimaginable
atrocity and devastation in their own homeland. Besides, the picture of a dead body of a boy
washed ashore has also heated up the issue (Smith 2015). The EU tries to extend their helping
hands at the border in accordance to meet their moral standards, but it is deemed to be
unsuccessful. This is due to the discontent of many native inhabitants in impoverished
countries like Greece on the employment factor (Marans 2016). Besides, countries that are
also tied up with the Austerity measure stated earlier will have to be watchful on their
spending. Thus, this help may significantly stress the local economies that are already
struggling to cope with the economic slowdown. In addition, internal strife and law and order
problems are rising in many such countries (Zimmermann 2016). Influx of refugees in high numbers will also alter the job markets as skilled refugees will compete with the locals for
jobs resulting in the increase of the rate of unemployment.
However, this crisis is not without positive outcomes. To begin with, the refugees can
provide extra labour in the markets that suffers from labour shortage. They can also take up
low-end menial jobs that are otherwise not taken up by more privileged Europeans.
Furthermore, considering their huge numbers, they also represent a new market that will
increase the demand, at least for certain products. In Oberhausen, Germany, 21% of asylum
seekers on 2015, that is nearly 3000 refugees, have settled down there without much trouble
(Johnson and Bräuer 2016). So, if they are integrated properly, they can help enhance the
demand within the Eurozone economies.
Nevertheless, the EU starts to close their borders and decides to send back the
refugees that illegally reside on Greece Island by making an agreement with Turkey (Rankin
2016). In return, the dialogues on Turkey’s membership in EU will be re-negotiated. Both
IGOs and NGOs protest this action as it undermines Europe’s human rights and
responsibilities. The UNHCR and the International Rescue Committee (IRC) have all
withdrawn their support for the EU out of concern for the conditions and rights violations that
may surface. If more organizations pull out from this relief’s support, the EU will start to lose
its legitimacy and resources (Colett 2016). If the EU were to gain their trust again, it will take
some time for The Court of Justice of the European Union (CJEU) and the European Court of
Human Rights (ECtHR) to endorse either the action is lawful or not. In that, this migrant
crisis undoubtedly questions the credibility of EU to provide humanitarian support towards
the refugees without causing more complications.
5.Conclusion
In conclusion, given the controversial issues of the migrant crisis, the Brexit, and the
Euro as a common currency, it can be argued that EU has substantially failed in maintaining
its credibility. Although the EU has provided a safety net at times, especially to it smaller
members on the Eastern Europe, its existence has not much stabilized the situations. In this
case, the EU may have survived the economy crisis due to the support of the EU countries
with a bigger economy like Germany and the UK, but it does need stronger unification and
some serious strategic rethinking if it is to restore its subsistence and credibility as an
international organization.
References
1st ed. Vol. 2. Cambridge, MA: National Bureau of Economic Research, 2008.
Arestis, Philip, Elias Karakitsos, and Ebooks Corporation. 2010. The post 'great recession' US
economy: Implications for financial markets and the economy. New York: Palgrave
Macmillan.
Bryan, Bob. "Europe Is Bigger than the US." Business Insider Australia. July 1, 2015.
Accessed May 18, 2016. http://www.businessinsider.com.au/charts-eu-economy-isbigger-
than-the-us-2015-6?r=US.
Buiter, Willem, Ebrahim Rahbahri, and Christian Schulz. "The Implications of Brexit for the
Rest of the EU." VOX, CEPR's Policy Portal. March 2, 2016. Accessed May 18,
2016. http://voxeu.org/article/implications-brexit-rest-eu.
Cannon, Alberta. "The European Debt Crisis Visualized." YouTube. April 09, 2015.
Accessed May 18, 2016. https://www.youtube.com/watch?v=j4_tyEl84IQ.
Chawla, Ravi. "Eurozone Crisis Explained." YouTube. November 19, 2013. Accessed May
18, 2016. https://www.youtube.com/watch?v=aS6tNw3xi2o.
Christopher Schulz . “What Would Brexit Mean For the Rest of the EU?”, Citi Euro
Economics Weekly, (22 January 2016): 287-98
Cockburn, Patrick. "Refugee Crisis: Where Are All These People Coming from and Why?"
The Independent. September 8, 2015. Accessed May 20, 2016.
http://www.independent.co.uk/news/world/refugee-crisis-where-are-all-these-peoplecoming-
from-and-why-10490425.html.
Colett, Elizabeth. "The Paradox of the EU-Turkey Refugee Deal." Migrationpolicy.org.
March 2016. Accessed May 18, 2016. http://www.migrationpolicy.org/news/paradoxeu-
turkey-refugee-deal.
Cour-Thimann, Philippine. 2013. Target Balances and the Crisis in the Euro area. CESifo
Forum 14 : 5-50.
Duval, Romain, and Jorgen Elmeskov. The Effects of EMU on Structural Reforms in Labour
and Product Markets. Paris: OECD, 2005.
Elliott, Larry. "Greece's Problems Are the Result of the Eurozone Having No Fiscal Policy."
The Guardian. February 02, 2015. Accessed May 18, 2016.
https://www.theguardian.com/business/2015/feb/01/greece-problems-eurozone-fiscalpolicy-
germany.
Fernández-Villaverde, Jesús, Luis Garicano, and Tano Santos. "Political Credit Cycles: The
Case of the Eurozone." Journal of Economic Perspectives 27, no. 3 (2013): 145-66.
doi:10.1257/jep.27.3.145.
Habermas, Jürgen. 2012. The Crisis of the European Union in the Light of a
Constitutionalization of International law. European Journal of International Law 23
(2): 335-48.
Johnson, Howard, and Tobias Bräuer. "Migrant Crisis: Changing Attitudes of a German
City." BBC News. April 28, 2016. Accessed May 18, 2016.
http://www.bbc.com/news/world-europe-36148418.
Koutrakos, Panos. EU International Relations Law. Oxford: Hart, 2006.
Lavdas, Kōstas A., Spyridon N. Litsas, and Dimitrios V. Skiadas. 2013. Stateness and
sovereign debt: Greece in the european conundrum. Lanham, Md: Lexington Books.
Marans, Daniel. "Greece's Economy Is Getting Crushed Between Austerity And The Refugee
Crisis." The Huffington Post Australia. February 6, 2016. Accessed May 18, 2016.
http://www.huffingtonpost.com.au/entry/greece-refugee-crisiseconomy_
us_56b12f1de4b04f9b57d7b7d4?section=australia.
Michael Saunders. “Brexit Risk – Implications for Economies and Markets”, Citi UK
Economics Focus, (5 February 2016): 237-112
Modern service on behalf of the labour market -- the political logic of the hartz-laws. 2006.
Leviathan: Zeitschrift Fuer Sozialwissenschaft 34 (4): 514.
Palier, Bruno, and Claude Martin. 2007. Editorial Introduction from ‘A Frozen Landscape’ to
Structural Reforms: The sequential transformation of Bismarckian Welfare Systems.
Social Policy & Administration 41 (6): 535-54.
Portes, Jonathan. "NationalInstitute OfEconomic AndSocial ResearchNational Institute of
Economic and Social Research." After Brexit: How Important Would UK Trade Be to
the EU? November 2, 2015. Accessed May 18, 2016.
http://www.niesr.ac.uk/blog/after-brexit-how-important-would-uk-trade-be-eu#.Vzx-
E_l9600.
Rankin, Jennifer. "EU Strikes Deal with Turkey to Send Back Refugees." The Guardian.
March 19, 2016. Accessed May 18, 2016.
http://www.theguardian.com/world/2016/mar/18/eu-strikes-deal-with-turkey-to-sendback-
refugees-from-greece.
Richter, Konstantin. "Germany's Refugee Crisis Has Left It as Bitterly Divided as Donald
Trump's America | Konstantin Richter." The Guardian. April 01, 2016. Accessed May
18, 2016. http://www.theguardian.com/commentisfree/2016/apr/01/germany-refugeecrisis-
invited-into-my-home-welcoming-spirit-divided.
Sinn, Hans-Werner. The Euro Trap: On the Bursting of Budgets, Bubbles and Beliefs..
(London: Oxford University Press, 2014)
Smith, Helena. "Shocking Images of Drowned Syrian Boy Show Tragic Plight of Refugees."
The Guardian. September 03, 2015. Accessed May 18, 2016.
http://www.theguardian.com/world/2015/sep/02/shocking-image-of-drowned-syrianboy-
shows-tragic-plight-of-refugees.
Witney, Nick. "Brexit to Nowhere: The Foreign Policy Consequences of "Out"" ECFR.
November 5, 2015. Accessed May 18, 2016.
http://www.ecfr.eu/article/commentary_Brexit_to_nowhere_4094.
Zimmermann, Klaus F. "Europe's Migrant Crisis Could Turn into a Jobless Crisis." Fortune
Europes Migrant Crisis Could Turn into a Jobless Crisis Comments. November 10,
2015. Accessed May 18, 2016. http://fortune.com/2015/11/10/europe-migrant-crisisgermany
