Economic integration and the creation of a fiscal union
There are five levels of economic integration. These are the Free trade, customs union, common market, economic union and political union (Paul-Rodrigue, 2012). Free trade between countries allows for removal of tariffs in trade between member countries. Examples of free trade areas are North America Free Trade Agreement (NAFTA) and Association of Southeast Asian Nations (ASEAN). Customs unions are characterized by common external tariffs among member countries. In a common market, the factors of production move freely among member countries. Economic Unions are characterized by a common currency, common monetary and fiscal policies and harmonized tax rates (Paul-Rodrigue, 2012). Member countries in a political Union form a common government. The Euro zone is an Economic Union. Plans to create a fiscal Union will change relationships between member countries due to the existence of political differences and ideologies. Moreover, there are likely to be tensions between countries as taxpayers in strong economies such as Germany and France since their governments will compel their taxpayers to finance the bailing out of badly affected economies such as Greece.
Effects of the Eurozone economic crisis on Germany
Germany is ranked as one of the strongest economies in Europe, and its future is closely tied to the European Union and, therefore, it must take charge of fiscal coordination to normalize the economy of the Euro Zone. Germany’s growth has slowed down. The economy shrank by 0.3% in the last quarter of 2011 due to its reliance on its European market which has been badly affected by the economic crisis (Monaghan, 2012). According to Monaghan (2012) economic experts predict this year’s growth is likely to be 0.7% compared to the previous estimate of 1%. Germany exports two third of its product to European Union (40% to the Euro zone). Therefore, if the rest of the Euro zone is stagnating then Germany will also stagnate.
Creation of a fiscal union within the European Union
The European Economic and Monetary Union (EMU) have structural weaknesses and inadequacies that the European Union needs to be address. According to the director of the European Union Research Center, Scheherazade Rehman, when the Eurozone countries create a fiscal union they will form a unified council that will coordinate tax policies for corporations (PBSNewshour, 2011). Germany and France being the strongest economies in Europe will lead in the consolidation of fiscal policies and taxation issues to reduce volatility in sectors such as the stock market. Moreover, a fiscal union will not only enable strong economies in the region such as Germany to borrow at low costs but also periphery countries such as Greece, Portugal and Italy (PBSNewshour, 2011)0. If German taxpayers are willing to sacrifice their credit rating for the good of the union, then it will lead to mitigation of the Eurozone economic crisis. A fiscal union can be achieved in time to avert an economic disaster in the bloc since nearly all countries within the bloc are capitalist and most of the member countries have adopted the Euro as a common currency. The countries should iron out political and economic policy differences t avert an economic disaster in the region.
The crisis from the perspective of the United States
The financial crisis in Europe will affect the United States stock market. The political decisions made by governments in Europe and United States cause fluctuations in the stock market. The pension and investment funds of the United States tend to be a little more risky compared to those of the Europeans. Moreover, Europe represents 25% of American export and, therefore, the Eurozone economic crisis affects the production and the banking system ties between Europe and the United States (PBSNewshour, 2012). Undercapitalised European banks involved in trade between Europe and United States affect liquidity in US
References
PBSNewshour, (2012, August 16). 'No Clear Path Forward' for Eurozone as Economic Woes
Continue - YouTube . YouTube - Broadcast Yourself. . Retrieved May 22, 2012, from
< http://www.youtube.com/watch?v=5L4vOtf7uok&noredirect=1 >
Paul-Rodrigue, J. (2012). Levels of Economic Integration. Hofstra People. Retrieved May 22,
2012, from
http://people.hofstra.edu/geotrans/eng/ch5en/conc5en/economicintegration.html
Monaghan, A. (2012, February 19). Germany cuts 2012 growth forecasts as eurozone crisis bites
- Telegraph. Telegraph.co.uk - Telegraph online, Daily Telegraph, Sunday Telegraph -
Telegraph. Retrieved May 22, 2012, from
http://www.telegraph.co.uk/finance/financialcrisis/9023564/Germany-cuts-2012-growth-
forecasts-as-eurozone-crisis-
