Tension in the European Union: A Growing Geographic Divide

A recent spate of public disagreements in the EU have led some to question the future of the group. We explore these divisions and discover how they might not be so recent after all.

The E.U. is the largest economy in the world. With a GDP of more than $16 trillion dollars, it outpaces both the U.S. and China in terms of overall size. As an economic bloc, it has seen success over the past few decades that rival the fastest growing individual economies in the world. The E.U. however, is not a single economy so much as 27 and the financial crisis of 2008 has uncovered fissures between these member states. As Politics & Policy will explore, these divisions are more fundamental in nature than many would believe.

Coal and Steel to a Common Market
The origins of the European Union lie in the European Coal and Steel Community (ECSC) that was founded in 1951 to unite those industries in Germany, France, Italy, Belgium, the Netherlands and Luxembourg. The success of the ECSC led to further cooperation under the Treaty of Rome in 1957 and later the European Community (EC) in 1967. The EC contained an early model of what would eventually become the European Parliament. These six countries coordinated food production, had a common market, and consulted on atomic energy policy.

The first major change in membership took place in 1973 with the addition of Iceland, the United Kingdom and Denmark. The subsequent fall of dictatorships in Spain, Greece, and Portugal saw their integration into the E.U. in between 1975 and 1986. Market integration continued as Communism collapsed in Eastern Europe. The E.U. reached a new level of unity with the establishment of freedom of movement, which was codified in the Schengen Agreement of 1985 and the Schengen Convention of 1990. These accords began the process of dismantling the border controls between member states of the European Union.

Creation of the Euro and a Constitution
The 1992 Treaty of Maastricht created the European Union as it exists today and laid out plans for military, and legal collaboration. Importantly in regards to current tensions within the E.U, the Maastricht Treaty also created a monetary coalition that established economic guidelines that seventeen member states agreed to follow. These include inflation rate ranges, acceptable levels of government debt, exchange rates, and long-term interest rates. This policy has created a strong economic interconnectedness among participating member states. After the Maastricht Treaty, countries continued to join the E.U. with Sweden, Austria, and Finland in 1995. The majority of the E.U. adopted the Euro as their currency in 1999, binding together their monetary policies like never before. Various states continued to join the E.U. until the current membership of 27 was reached. An E.U. constitution was first defeated by popular vote in 2005, but many of its more significant components were salvaged in the Treaty of Lisbon, which entered force in 2009.

The Treaty of Lisbon was a major reorganization of previous agreements which had established the European Union. The Treaty had to be approved by all member states before going into effect. It faced opposition at several points, including a rejection by the Irish electorate and reticence on the part of the Czech government. The Treaty made various changes to the functioning of the European Parliament, giving national parliaments and citizens more input into the system.

The Global Financial Crisis and North/South Divide
The 2008 financial crisis hurt the cohesion of the E.U. as individual countries suffered radically different consequences. As the financial crisis hit, countries that owned large quantities of debt, a sustainable behavior during preceding years of growth, were forced to borrow heavily in the international debt market as their economic growth failed to keep up with expenditures. For countries in the North of the E.U, such as Germany, this was only a temporary measure that was paid for once economic growth returned. However, for many countries in the South, this growth did not return and the cost of servicing their massive debt burden began to strain governments. In early 2010, the interest rate Greece had to pay to borrow continued to skyrocket, and investors began to speculate that the country could default. Since Greece had joined the Eurozone, it no longer had control over its own monetary policy and could not stimulate its economy like the Federal Reserve in the U.S. might. On May 2, 2010, speculation about the collapse of Greece reached a fever pitch. In order to stabilize Greece and head off a default which would be disastrous for Eurozone economies, E.U. leaders, in conjunction with the IMF, announced a 110 billion euro loan to Greece.

Over the course of the next year, an 85 billion Euro rescue package for Ireland was approved in November, and a 78 billion dollar bailout of Portugal the next May. Both of these countries were similar to Greece, in that they had large structural deficits that paid for relatively lavish social services and government pensions. This is where the tension between the North and South of the E.U. manifests itself most clearly. Individual governments within the E.U. are still free to draft their own national spending policies. These policies vary by country; the government pension age in Germany and Denmark is 65 while in Greece, government workers can retire and receive their pension at age 58. Voters throughout Northern European countries have questioned why they should be forced to pay for a bailout of other countries whose governments spend less frugally than their own.

Moving Forward
The European Union represents a remarkable experiment in governance. 27 countries, all linked to some degree, with a common market, few travel restrictions and elements of a unified monetary policy. There remain however, serious distinctions between the member states in terms of natural resources, economic power and social spending policies. While the leadership of the E.U. would like to have the union act as one body, there are a host of internal divisions which become more readily apparent in times of uncertainty. The strain of supporting Portugal, Greece and Ireland during the aftermath of the 2008 financial crisis has brought some of these divisions between Northern and Southern European states to light. While it is uncertain how this divisiveness will affect the future of the E.U., it does much to demonstrate the inherent instability of a European community. The economy of a country like Germany is much distinct from that of Greece or Ireland, yet one is asked to rely on and indeed act in concert with the other. While the operation of a common currency has forced a degree of commonality among member states, the E.U. is still very much an experiment and the divisions exposed by this recent financial crisis may not be all that recent in origin after all.

Works Consulted
Lisbon Treaty http://europa.eu/lisbon_treaty/glance/index_en.htm
E.U. Economy http://europa.eu/pol/emu/index_en.htm
Treaties http://europa.eu/abc/treaties/index_en.htm
General Information https://www.cia.gov/library/publications/the-world-factbook/geos/ee.html
Maastracht Treaty http://eur-lex.europa.eu/en/treaties/dat/11992M/htm/11992M.html#0087000011
Freedom of Movement
History
Greece