The Crisis of European Integration in Historical Perspective

George Ross

in Political Science

ISBN: 9780199756223
Published online April 2013 | | DOI:
The Crisis of European Integration in Historical Perspective

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Today’s Eurozone disaster is often called the worst crisis in the history of European integration. The EU’s initial response to financial problems imported from America was coordinated national bailouts, stimulus plans, and financial re-regulation helping to stop downward spiraling toward depression. Its costs, however, included lower growth, rising deficits, debts and unemployment, and diminishing tax revenues, and they fell disproportionately on poorer Eurozone countries with large sovereign debts. In later 2009, after the Greek government announced that its predecessor had lied about budget deficits, bond markets, concerned about repayment, started raising interest rates on Greek bonds. Leaders of the Eurozone and the larger EU then had to decide whether and how to protect the Euro. Getting started took very long, as Germany, the most powerful EU member, announced that Greece had caused and should solve its own problems and that other Eurozone members had no obligation to help. After several months, in May 2010, with the very existence of the Eurozone at risk, Economic and Monetary Union (EMU) members and the IMF created a €750 billion European Financial Stability Fund (EFSF) to provide loans to threatened EMU members as long as they accepted tough austerity programs. The EFSF first helped Greece, then Ireland and Portugal, but this did not stop market agitation. When Greece needed more money in 2011, Germany insisted on debt restructuring to force bondholders to take “haircuts” (i.e., not be fully repaid). This prodded bond markets to focus on Spain and Italy, whose economies and debts were much greater. Saving them and northern European banks holding their debts was too much for the temporary EFSF, and thus it was replaced by a permanent European Stability Mechanism (ESM) in July 2012. The ESM was insufficiently funded to stem market contagion, however, largely on German insistence, while Germany also refused “Eurobonds” to mutualize EMU debt and make access to funding easier. Massive loans to Eurozone banks by the European Central Bank (ECB) brought brief calming in early 2012, but Spain and Italy eventually fell under market siege, leading to new proposals for a Banking Union to Europeanize regulation of Eurozone banks, for decoupling EMS loans to banks and states, and new promotion of economic growth. With no end to the crisis in sight, the Eurozone and EU remained in deep uncertainty despite new legislation and a proposed new EMU Treaty to enhance EMU intervention in national budgetary practices. Over nearly three crisis years, bargaining among member states has been too slow and has not produced real solutions. Insistence on austerity policies stifled growth that troubled countries needed to recover. Leading governments, Germany in particular, sought to buy time and minimize costs. It may take years before the crisis is resolved, leaving then a legacy of new political problems.

Article.  5125 words. 

Subjects: Politics ; Comparative Politics ; Political Institutions ; Political Methodology ; Political Theory

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