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The European Union was formed under the idea that a unique economic and political partnership among European countries would promote unity and interdependence and would make another war like World War II unimaginable in Europe. However, it seems the noble dream is now facing some serious issues. Let us find out the answer to the question – is the EU is too big and broke?
The Fallout From Brexit
A member country leaving the European Union sets a dangerous precedent. It has been more than three years since the United Kingdom voted to leave the eurozone and the country is now set to leave on Jan 31.
Although the EU and UK have managed to strike a trade deal on Dec. 25, Brexit still has major repercussions for the EU, which will no longer be able to take advantage of the country’s considerable military clout. In addition, the EU is losing a major net contributor to its budget.
Inadequate Fiscal Policies
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With the exit of the UK, the EU has called on the remaining 27 countries to increase their payment so that they have an adequate budget till 2027. Discussions on the Multi-annual Financial Framework has been going on since 2019; however, major countries like Germany, Denmark, Sweden, Austria, and the Netherlands, who contribute a larger portion to the budget and do not get enough in return are asking it to be cut down to 1%.
Meanwhile, the EU wants the figure to be set at 1.3%; however, German taxpayers are not willing to support further integration if it means they have to foot the bill.
A Flawed System Design
The first overt signs of trouble in the EU emerged during the 2008 Financial Crisis when Greece, Spain, Ireland, Portugal, and Cyprus all went through a financial crisis. Each country had adopted the Euro as a currency and experienced long-term trade deficits.
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The issues highlighted the fact that the European Union did not have a satisfactory system of addressing the trade deficits in the bloc. This fundamental flaw in the systems is more than enough by itself to cause the EU to implode.
Aging Economic Model
One of the biggest problems of the EU is that it is an aging model that refuses modernization. The bloc consists of many world-class organizations; however, none of them were established in the past 25 years — unlike the United States.
During Europe’s golden era, Siemens remained a constant rival to General Electrics and Volkwagen was neck and neck with Ford. However, all the member countries lagged behind in emerging technologies and had no rival to Google, Facebook, or Amazon. In addition, when it comes to artificial intelligence, the eurozone is nowhere.
In fact, China is making quicker progress in artificial intelligence than Europe and many of its companies pose a threat to Silicon Valley — which is why it became a major target for President Trump’s tariff war.
Performance of the Euro
The answer to whether the EU is too big or broke ultimately comes down to how its currency performs. About thirty years ago, when plans for a single currency were being drawn up, it was under the assumption that the Euro would help the single market become more efficient and would help it to grow.
Unfortunately, this has not happened. The performance of the eurozone countries has mostly gotten worse, not better. Even so, so much investment has been made in creating a single unifying currency that even now the EU refuses to accept this unfortunate fact.
Perhaps the biggest way to tell whether the EU is too big and broke is by looking at the way it handled the mass immigration a few years ago. Although the number of migrants to Europe may no longer be as high as they were in 2016; however, it still exerts pressure on the entire EU.
In 2020, almost 36.3 thousand immigrants made their way to the Spanish shores alone. Italy reported the arrival of 32.7 thousand migrants, while the Greek coasts saw 9000 migrants.
In 2019, some of the member states’ representatives like the president of France Emanuel Macron insisted that all EU member states should accept their fair share of migrants, not just countries like Italy and Greece. However, member countries like Poland, Hungary, and the Czech Republic have kept their borders closed again to the migrants.
The European Commission announced its willingness to provide fiscal support to countries that would give over 30,000 resettlement places for migrants in 2020. However, the stubborn states oppose this proposal and are still against hosting migrants.
In March 2020, the World Health Organization reported that Europe became the epicenter of the novel coronavirus and saw new cases at a higher rate than anywhere else in the world. In response, countries like Italy, Spain, France, and Belgium closed their borders in a bid to prevent the further spread of the virus. Because of this, their economies were drastically hurt.
During that crucial time, the EU was unable to deliver fiscal stimulus relief to its member states, unlike the US. However, the member states were independently able to announce their own fiscal stimulus programs. For example, France deployed 45 billion euros to manage the effect of the pandemic on businesses.
However, this once again highlighted the inability of the EU to respond to a crisis in a quicker and coordinated way.
So, is the EU too big and broke, especially after Brexit? Although it will be challenging, the EU will be able to survive without Britain. However, its future will be more uncertain if there is a rift between the Central European and Eastern European states as well as the majority of the rest of the members over future integration and common policies. We will have to see whether the remaining 27 states are able to keep their bonds strong and work towards a common vision.