PAPER IS SUBMITTED TO THE FACULTY
EU - is the association of 28 European countries, united for the purpose of ensuring peace and prosperity on the basis of general economic, political and social goals. Since the very first day of creation – it has faced numerous problems, which have questioned the principles this organization is based on: “liberty, equality, fraternity”. The main ones are: the problem of economic equality, massive immigration problem, the problem of national language and the competition for the place in the European Parliament. But, the economic problem has been affecting a number of members of this union and is the key problem, that must be solved immediately in order to achieve the preset goals of this organization.
Euro area - the union of 17 European countries that are connected with the single currency. Recently, this “bond” has suffered a very severe test – a direct consequence of the global financial and economic crisis, which has revealed some weaknesses and contradictions of the European currency, which could, under certain conditions, cause a very significant problem for its operation and process of further expansion in the global economic space.
The problem is that the public debt of some countries in the Euro Zone has gone beyond acceptable limits. As a result, there was a threat of default, which would negatively influence the business picture of the single European currency. Euro started to fall. In order to prevent a currency collapse, it was necessary to take some action. In the mass media, as well as at the level of senior officials of the EU apparatus, discussions began on ways out of the crisis. The range of opinions was wide enough: the exclusion from the union economically weak countries or even the dissolution of the zone and the return of national currencies. In fact one of the main reasons that led to the financial problems is associated with international relationship and how currency union actually works. This system consists of contradictions which in their turn – create conditions for the emergence of financial imbalances, and hence the objective reasons of dismembering the countries with weak economy.
The essence of the controversy lies in the fact that this monetary policy is applied to countries that keep their financial and economic isolation. On the one hand - the functioning of the single monetary policy conducted by the ECB is carried out as if the union is a single state, which is used for the interests of the euro. But in fact, the Euro area is not a single state, furthermore, it consists of many individual public entities. And each of them has its own financial, tax and budget system, the results of operation of which is largely determined by the level of economic development. As a result of the usage of single currency and monetary policy can bring significant harm, rather than benefits, for some of the association members. Moreover, the model of the single currency policy has increased competition between companies of the zone, making it more rigid and destructive, as it abolishes the possibility for more economically weak states to use the protective strategy of the monetary policy, on the basis of real depreciation of the national currency.
It should be emphasized that the conflict is institutional, not external. It is a contradiction between the elements of the economic order, the basic structure of the current economic system. Consequently, it can be eliminated only by changing the order itself: aligning the elements and structures, either by moving forward towards a higher degree of integration, that is, above all to create a single budget, or to return to the national currencies with each state’s own monetary regulation strategies. But under the current circumstances it is possible to adjust the situation to the level, at which this conflict will not take sharp, negative manifestations, without any further increment in financial problems for the individual member countries of the Zone. In order to achieve this – the competition within the Euro zone should be less ruinous. It is possible under at least one of two conditions:
1) presence of sufficient compatibility and complementarity within the integrating economies of the zone;
2) absence of significant differences between the levels of economic development and competitiveness between the members of the union.
The malfunction of the euro area is present due to the fact that both first and second conditions are not fully met. The complementarity of production and high competitiveness are inherent to the large highly developed countries of Western Europe, with their economic integration that took place a long time ago, after the Second World War, and was carried out in stages from simple to more complex forms. For the countries that have recently joined the European integration processes (such states will include Greece, Portugal, Spain, as well as almost all the countries of Central and Eastern part of Europe, former Soviet Union members), they have comparatively low competitiveness, and secondly, still have not taken a worthy place in the system of the European labor division, in comparison with Western Europe. In other words, the European Union and the euro zone, accept economies that become a subject to significant transformations, and these countries are highly potential to become a candidate for default.
The level of debt of the euro zone is characterized by the following data: Greece is the principal debtor. Amount of Greece's debt to private investors, other countries and international financial institutions amounted to unreasonably high value of -125% of GDP in 2009, more than 2 times higher than the limit set in the Zone of 60%. In absolute terms, its debts totaled nearly 300 billion euros, of which 53 billion was required to pay in 2010 The problem is deepened by the fact that the debt problems of Greece are constant: starting from 2000, the country has always had an extremely high arrears in excess of 100% - level. And it indicates that the debt crisis in Greece has little to do with the global recession. It is caused by constantly changing causes. And these reasons are rooted in the relatively low efficiency and competitiveness of the national economy. According to some forecasts, the problem of debt default may face other euro zone countries, especially Portugal.
Hence the question arises: is it possible to change the situation in this region of the world? developed Theoretically, yes. Ireland has managed these issues quite well though not without the support of the American capital, by locating on its territory a number of high-tech industries. However, the quick implementation of the necessary changes in the near future does not seem to be possible, since this will not only conduct fundamental economic reforms, but in many cases, will change the traditional way of life. The modern conditions on global capital markets do not contribute to solving the problems as well. From all the mentioned previously we have the following conclusions. Participation in the euro area is particularly favorable for those countries that have a clear competitive advantage over other member states. For them the removal of barriers that restrict competition, contributes to the rapid conquest of markets of less developed countries, the displacement of the latter uncompetitive industries and the growth of their own economic power. This worsens the financial position of the peripheral countries, increases unemployment, which is an additional burden on state budgets as well as leads to the increment of emigration of the labor force, providing the needs of workforce in the expanding sectors of the economy in the leading countries of the Zone. Thus, the gain of some participants of the currency union turns losing to others, which, in my opinion, is a key factor that weakens the unity of the Zone, contributes to the inherent conflicts and increases the disintegration preconditions.
What can the European Union do in order to prevent the disintegration? To achieve this - the abolishment of the following points is mandatory: the financial and economic isolation of the individual countries of association, a unified system of finance, the appropriate use of the single currency. We are talking about turning the euro zone into a single state of a federal type (something close to the United States of Europe), in which a single currency would be supplemented by one full budget and the subsidized nature of the weaker national economies would be legal and practical, just like in the present backward regions of France, Germany which are subsidized by reallocating budget revenues. For such changes, however, the EU is not ready yet. Powerful countries are not willing to subsidize the slowly developing ones. They absorb the markets and income, which in the case of the protection of these markets could benefit the periphery, but the super countries are not intended to share their income with them. This is evident from the speeches and actions of many of the Western European leaders, as well as a very meager and, in fact, not increasing the total GDP of the combined budget of the European Union, which is about 1%. The development and improvement programs are not in the prospective to improve the situation.
The less radical way is to optimize the euro zone that would eliminate the participants with weak economic situations. But this is not an option in the nearest future for a number of reasons. First of all, there are no rules and procedures on how to quit from the Union, due to the fact that until now this was not necessary. Secondly, such a solution would mean the failure of the European Union policies, which has always been trying to unite as many European countries as possible, regardless of their economic development levels. Thirdly, the optimization is not economically profitable for the leading countries of the EU, it will result in increment of costs associated with trade expansion in the periphery.
Fourthly, the periphery countries themselves are not prepared to raise the issue of withdrawal from the Zone and the European Union.
Thus, it is reasonable to suppose that in the foreseeable future there will be neither "United States of Europe", nor the optimization of the euro area. However, the palliative measures will be (and are already in use, as it is known), on the one hand, they do not violate the financial and economic isolation of the member countries of the Zone, and on the other hand, they raise the issue of withdrawal of certain states. Such measures do not solve the root causes of imbalances, but only try to influence their effects in order to mitigate and prevent financial defaults.
Finally, the current situation of the EU is far from stable and balanced. Immediate actions must be undertaken in order to eliminate the possibility of dissolution of this highly influential body in the world.
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