The EU was supposedly set up to create a closer political union between the countries in Europe after the Second World War, in an attempt to avoid a similar scenario happening again in the future. The economic union was seen as a necessity to further fortify the peaceful relationship between the countries in Europe, so the introduction of a single European currency was a vision for many years before its implementation.
The first stage of the economic union came in the form of the Exchange Rate Mechanism (ERM), which required each participating EU member state to control their individual exchange rates within 2.25% of set parameters. Unfortunately many of the countries in the ERM could not maintain the rates within the guidelines set by the European Commission (EC), so either had to leave the ERM of faced economic hardship.
Difficulties were seen in the earlier attempts to introduce a single European currency, which seemed to be ignored when in January 1999 the euro was introduced. The euro completed the original plan of the EU movement to provide both political and economic union across the region. However after over a decade of use the euro and the many problems it has brought with it have put the European Union movement into contention.
The economic problems caused by the euro pose the potential to undo the political union, which seemed to work successfully for fifty years prior to the introduction of the single currency. Portugal, Italy, Ireland, Greece and Spain, which are collectively known as the PIIGS, have all entered into Sovereign Debt Crises forcing them to ask for financial help from the rest of the EU.
It has been argued that the economic difficulties in these states and perhaps the wider problems across the region have been created by the single European currency. I have previously written about the benefits the wealthier member states receive at the expense of the weaker states due to the effect the euro has on their ability to buy and sell goods outside of Europe. If you are interested you can read that article here.
The single currency seems to make some countries in the Union more economically viable than other countries depending on how their economy is set up and the market which they appeal to. This disparity in the financial benefits the EU brings, or at least is ‘supposed to bring’, is putting great strain on the European Union movement as a whole. Some of the countries which have been at the brunt of the economic difficulties are questioning whether they should stay in the Euro or even leave the EU all together.
The economic difficulties seen in the failing PIIGS member states have created growing support for anti-European Union political parties. Rather than providing greater union across Europe the single currency may have, or could, undo the work the political union did in the fifty years prior to the Euro’s implementation. The hardship seen by the PIIGS member states, Greece in particular, does not meet the EU’s agenda of providing a peaceful unified Europe.
Perhaps the European Commission should consider a back track of policy and only aim for a softer political union similar to the post war arrangement, scrapping the idea of a single European currency.
Courtesy Mindful Money via QFINANCE (EconMatters author archive here)
The views and opinions expressed herein are the author's own, and do not necessarily reflect those of EconMatters.
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