22nd January 2015
The euro: an impediment to recovery
As the integrity of the euro, the EU Single Currency, is once again being brought into doubt by the forthcoming Greek Parliamentary elections and the anti-austerity movement this latest Bruges Group research looks at three countries and how they have fared since the financial collapse of 2008.
Through examining how EU out Iceland, EU in but not until recently part of the euro Latvia, and EU and Single Currency member Ireland, have fared since the onset of the Great Recession in 2008 we have found that there is reason to believe that Greece, if they reject EU-led austerity the euro and EU centralisation then they can exit what has become for them a Great Depression.
There is already a basis for the argument that degree of integration in the EU negatively impacts success of recovery from the economic problems facing the Mediterranean-Rim nations. The impact of the crash on the majority of the citizenry, as opposed to select creditors, was much less in Iceland than in EU member-states that are subject to the European Commission and part of the euro. Iceland, which never passed the 10% mark of unemployment, protected the public from private bank losses.
Europeanization had an undeniable influence in some of the factors leading to each state’s vulnerability to the global crisis. EU integration was also influential in hampering recovery. The European Commission’s pressure on Ireland to maintain the bank guarantee at all costs was also influential in its deepening of Irish government debt.
The very assumption by the Commission and ECB that fiscal ‘austerity’ is an inevitability, as no other possibilities exist , is an ideological force that has compelled crisis-stricken EU states to adopt its prescribed responses, rather than explore other possibilities permitted by all of the potential options available to them that would exist outside of the Single Currency and the EU. Full EU membership is in a large part attributable to the poor response to the economic shocks shown by those countries that have adopted the euro.
This conclusion has strong implications for other recovering European states, such as Spain, Greece, Cyprus and Portugal, all of which have followed similar paths to the Irish one, and whose populations will be paying for the mistakes of the crisis for generations to come.