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Multi-speed Europe is the idea that a core group of European states should move ahead with certain aspects of monetary union, operating under the assumption that the others will catch up eventually (Cini 231). The result is that some countries desire and push for more integration than others, which creates uneven compliance with EU integration, as in the case of the UK not accepting the Euro as currency. Some countries, like Bulgaria and Romania, were allowed to enter the union despite “evidence that they had not fully met their obligations,” (Cini 231). This practice, made acceptable by the idea that different countries may move at different speeds, led the EU to accept applicants that exaggerated its financial issues.
The presidentialization of euro area governance refers to the increasing role of heads of state in economic matters. The decision-making, previously in the hands of finance ministers, is moving more toward heads of state, due to biannual euro summits that bring together euro government heads. At first, these summits were held in the event of emergencies, but have, with the fiscal compact, become a mandated activity, with an elected president presiding over the whole summit. This both moves the economic decision-making out of the hands of those with technical expertise in economics and increases deliberative intergovernmentalism among heads of state (Cini 374).
An advantage of the Euro for Europeans is the price transparency it provides; after the introduction of the Euro, the price of vodka, which was three times more expensive in Ireland than in Spain, dropped drastically in Ireland (Reid 68). Because citizens can now see price discrepancies, such discrepancies are reduced. The Eurozone also allows small countries to band together to compete with the massive economy of the United States; while Switzerland or Italy could never on their own wield economic power against the US, their membership in the EU gives them a larger community of which they can be a part (Reid 47). Additionally, the Euro allows citizens to save money; previously, currency exchange fees cost an average of $15 per border crossing. This saves an estimated .4% of GDP per year (Reid 67).
First, the potential for a single European currency was hampered by the fact that there was no single European state. Thus, some states were included which could not support themselves economically. Initially, nations with debts at rates more than sixty percent of their GDP were barred from entry into the EU (BBC).
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Second, “some governments were using derivative transactions to reduce their public deficits,” according to Italian economist Gustavo Piga (BBC). Though these deals helped governments hide their borrowing and deficits, they were set up in a way that greatly increased deficits in the future. Many countries used shady methods to gain entry into the EU, but Greece did so quite dramatically, and entered the eurozone severely lacking in its economy, a major contributing factor to the EU financial crisis.
Finally, France and Germany proposed weakening the rules of stability and growth pact, which required that annual deficits be less than 3% of GDP (BBC). This rule, which had helped to keep deficits low, was important in keeping financial stability. Killing this rule caused greater deficits to build among EU members, and weakened the EU just before its impending crisis.
In order to repair the financial crisis, all members of the Eurozone would have to become competitive, by reducing costs. Wages and public services would have to be cut, and the people would lose income. Essentially, they must find a way to “devalue within the Euro” in order to afford to get rid of deficits (BBC); this process cannot be done painlessly, and is the reason for the austerity measures involved in the Fiscal Compact.
Countries outside the Eurozone could, in the case of a financial crisis, may devalue to make their exports cheaper. Alternately, they might, print money (BBC). However, without a national currency, a single nation in trouble does not have the authority to make either move, and is thus dependent upon the larger European Union for their future. Essentially, greater autonomy over pricing and currency value allows nations with a merely national currency the agency to respond to their own financial crises, while the Eurozone's finances are managed as a whole.
National governments contributed to the creation of the compact; the influence of France and Germany was significant in the beginnings of the Compact, and the Euro summits featuring heads of state are a prominent factor. Additionally, the European Commission is charged with being “referee in deciding whether eurozone members were breaching the new rules” (Traynor), and is a part of the biannual summits (European Council). The EU Court of Justice also possesses the “jurisdiction to take a decision” (European Council). The European Parliament, along with national Parliaments, work together under the compact to arrange budgetary procedure (European Council).
The Fiscal Compact aimed to “codify [nations'] commitment to the pursuit of balanced budgets...and to agree to a closer coordination of economic policies in other areas” (Cini 373). The two primary means through which this was done were “stringent budgetary rules” and the “formalization of Euro summits” (Cini 374). These take form in various austerity measures imposed upon European nations and in the discussion of budgetary measures by national leaders at the Euro summits.
Increasing powers over state governments is the result of a commitment to strict budgetary and fiscal rules; this is intended to ensure that states like Greece and Italy stop hemorrhaging money. Strict control over budget and reduced spending on public services results in fewer annual deficits, and the ability to pay back national debt. Control over budget allows for greater control over markets and wages, for instance, the unstable Irish housing market as seen in the documentary; austerity measures could have the capacity to keep prices stable.
Euro summits have the ability to coordinate nations and allow leaders to discuss policy and present their own nation's success or failure. They present an opportunity for nations to see what words and provide a form of accountability. The idea is that by creating a unified forum in which heads of government may discuss finance, Euro finance will become more of one mind, unified in its creation of policy.
No, not all members of the EU participated in the contract. The Czech Republic and United Kingdom both decided not to sign the compact. Czech Prime Minister Petr Necas said that he chose not to sign for three reasons: non-euro countries were barred from eurozone summits, lack of treaty attention to debt, and because “it would face ‘complicated examination’ back home” (Pop). And David Cameron chose not to sign because he believed the compact would “not solve the crisis because it does not say how to boost EU competitiveness” (Pop).
This article from The Guardian discusses reasons the author believes the Fiscal Compact will be unsuccessful. By comparing the various accounts involved in balancing the national budget and discussing how each will be affected by the changes caused by the fiscal compact, from which Irvin states that governments will be unable to balance their national budgets. He also compares the cases of the United States--whose economy is growing again after an economic stimulus package--to Germany, whose strong exports helped it maintain growth. He explains why Germany’s practice of using “debt brakes” will not work across the board for the EU, and that “cutting public expenditure at a time when the private sector is trying to rebuild its balance sheet makes things worse” (Irvin). Finally, he says that the EU financial crisis is related in nature to balance of payments, and requires stronger institutions.
BBC News. “The Great Euro Crash.” BBC. 2008. Retrieved from https://www.youtube.com/watch?v=t5fPz9DX2ts
Cini, Michelle; Borragán, Nieves Pérez-Solórzano. European Union Politics. OUP Oxford, 2013. Kindle Edition
European Council. Fiscal Compact to Enter into Force on 1 January 2013. European Union, 2013. Retrieved from www.european-council.europa.eu/home-page/highlights/fiscal-compact-enters-into-force-on-1-january-2013
Irvin, George. “Why Europe’s fiscal compact is bound to fail.” The Guardian, 11 May 2012. Retrieved from http://www.theguardian.com/commentisfree/2012/may/11/europe-fiscal-compact-fail
Pop, Valentina. “Czechs Abandon EU Fiscal Pact, For Now.” EU Observer, 31 January 2012. Retrieved from http://euobserver.com/economic/115080
Traynor, Ian. “David Cameron in U-turn over fiscal policing of eurozone.” The Guardian. 27 January 2012. Retrieved from: http://www.theguardian.com/politics/2012/jan/27/david-cameron-eu-institutions-eurozone