XXX XXXXX IRLS300 Final Assignment August 25, 2013

The Current and potential outcome of the European Union Since the birth of the European Union (EU) in 1950 there have been adjustments, growth in member states and a deeper integration of reliance between each. These shifts over the years have created a complicated system that make up the EU and have led to the current situation concerning the potential outcome of the EU. Currently the EU has been faced with the reality of an unbalanced system and has been left with the fallout of this mismanagement and corruption mixed into a system of economic reliance with little regulation on spending. The main issues needing close analysis and reform concerning the future of the EU are the gap of power fueled through debtor-creditor dilemma; the increased unemployment rate (particularly for youth); the imbalance of state regulation; and closely monitored governance. The main focus for any future of the European Union should be reforms of failed systems, a focus on monitoring compliance, and enforcement of regulations on checks and balances to recover through the prevention of second round of chaos the EU is now faced with sorting out. Although, the concepts presented are quite easy to state, the implementation will be a far greater challenge with the alternative a failed European Union. The Debtor-Creditor Dilemma According to the author George Soros the economic issues within the EU consist of the following: “This is the result not of a deliberate plan but of a series of policy mistakes that started when the euro was introduced. It was general knowledge that the euro was an incomplete currency—it had a central bank but did not have a treasury. But member countries did not realize that by giving up the right to print

XXX XXXXX IRLS300 Final Assignment August 25, 2013 their own money they exposed themselves to the risk of default.” (Soros, 2013). Understanding this and implementing reforms in the necessary areas will be essential for the future of the EU. Soros points into the issues, which stemmed from the very birth of the EU have created the economic instability plaguing the current system through negligence of consolidation without the essential checks and balances needed to operate functionally (such as a treasury). “The regulators in the various countries allowed banks to buy unlimited amounts of government bonds without setting aside any equity capital, and the European Central Bank accepted all government bonds at its discount window on equal terms...The guarantee that no other systemically important financial institution would be allowed to fail should be given by each country acting separately, not by the European Union acting jointly.” (Soros, 2013). Due to the inadequate policy and monitoring, states such as Greece have dug an economic hole so deep that without sacrifices through states such as Germany (potentially compromise their stability) have become the last hope toward recovery and maintaining their status within the EU. This new reliance has created a polarization of power within the EU compromising freedoms the EU represents, creating an awkward environment. Now more than ever does the EU need practical policy in order to stabilize and prevent an environment of inequality. This will ultimately be seen when the EU either begins monitoring the economic activity states much closer or begins to withdrawal for its demise. Youth Unemployment Rate

XXX XXXXX IRLS300 Final Assignment August 25, 2013 Another issue that has stemmed from the economic problems within the EU is the youth unemployment rate. “In June 2013, 5.512 million young persons (under 25) were unemployed in the EU-27, of whom 3.526 million were in the euro area. Compared with June 2012, youth unemployment decreased by 43 000 in the EU-27 and increased by 43 000 in the euro area. In June 2013, the youth unemployment rate was 23.2 % in the EU-27 and 23.9 % in the euro area, compared with 22.8 % and 23.0 % respectively in June 2012. In June 2013 the lowest rates were observed in Germany (7.5 %), Austria (9.3 %), the Netherlands (11.0 %) and Malta (11.2 %), and the highest in Greece (58.7 % in April 2013) and Spain (56.1 %).” (“Unemployment Statistics”, 2013). This data proves the current situation in the EU and the decrease in market stability, which has created an environment of government instability causing a negative reaction within hiring, particularly for younger age groups. High unemployment rates are one of many indicators that a states economy is struggling. Further, prolonged unemployment can negatively impact a states progression when those unemployed begin migrating out of the country for opportunities elsewhere. Fueling the current EU unemployment rates have been the poor policies and inexistent policies, which were detrimental to the fundamental structure within the EU and central bank as a whole. The Imbalance of State Regulation The imbalance of the EU was paved with the initial implementation of policy and within member states and the European Central Bank. The initial policy laid out for member states was detached from a central system of regulation of budgeting, spending and monitoring. The understanding at the time was that bonds could be used through each member state through investments and presented at the time as

XXX XXXXX IRLS300 Final Assignment August 25, 2013 a less risky and sure way of economic stability particularly for states with less GDP that states such as Germany or France. This concept made it easier for more states to join if they met the stipulations as a good candidate to become a member state. Although this theory quickly began to crumble shortly after the stock market crash and mortgage crisis in the United States. The EU began assessing their situation and began to realize the once though stability was being compromised through unaccountability and misuse of funds. Shortly after the crisis is Greece became hard to swallow reality, with no concrete plan for an approach Greece became more unstable with Spain, Italy, and Portugal following. This created a chaotic system for EU states and political leaders began difficult cause-effect analysis toward recovery and prevention. In a 2013 March Article titled The Sleepwalkers the Economist posted the following: “After years of crisis, the to-do list is clear. The urgent task is to sever the ties between banks and governments too feeble to support them. That was the aim of the banking union agreed on last year. But, as the pressure has eased, the union has become ensnared in technicalities and a fundamental argument about how much historic bank debt, if any, should be dumped on it—how much, in other words, Germans, Finns and Dutch should bear the burden of other people’s mistakes. This delay is highly damaging. Europe’s banks need funds by whatever means. America has recovered before Europe not just because it has been less austere, but also because it rapidly sorted out its banks so that they could lend again.” (“The Euro Crisis”, 2013). This imbalance of regulations and virtually nonexistent monitoring has been at the cost of member states citizens, which in states

XXX XXXXX IRLS300 Final Assignment August 25, 2013 like Greece have paid a high price that stemmed from corrupt spending habits initially. The issue appears to be one of domestic regulations and accountability with reforms and implementation on a greater scale to encompass and highlight states, which have failed to uphold the stability and agreements within the EU. Although the more recent change in tone has been set within the Union that has been reflected in the pending reforms. The breakup of the EU does not seem likely at the current time and if taken place would have likely created more instability than good. States such as China have extended options of buying debt but without changes in policy the issues will not subside: “...the euro zone needs growth-boosting reform. The EU should extend the single market further into services. Instead of thinking up red lines, it should pursue a free-trade agreement on offer from the United States, its biggest trading partner. And it should ease austerity by slowing the pace of budget cuts and using cash from the core euro zone to pay for schemes to boost youth employment and investment in small and medium-sized firms in the periphery.”(“The Euro Crisis”, 2013). Closely Monitored Governance Monitoring the EU should be a well thought out process to reinforce stability while keeping accountability in order to meet collective goals. States that cannot meet the goals should be evaluated through budgetary balances and spending to create cuts where needed or add additional percentages on borrowing. Reserves are needed for each state and should be met through the budgetary balances putting aside a small percentage yearly to prevent another crisis from compromising the EU

XXX XXXXX IRLS300 Final Assignment August 25, 2013 in the future. There should be a limit on the amount of debt which can be borrowed with regulations on paying off loans to prevent future debt being paid off with more loans creating a risky and poorly managed system from mismanagement. States which fail to meet the required budgeting and management should be sanctioned until the state has met the requirements; if the state fails to meet the requirements within a reasonable timeframe then separation from the EU should be proposed and if needed carried out. Coordination through a system of more functional communication of all member states and not just the top economic states should be done quarterly with annual reviews of state figures toward progression or regression throughout the year prior. Guidance for emergency corrective actions and guidance for state with single source management should be maintained in order to help manage objectively issues any state may have. This single source system should be audited with all employees subject to random investigations to maintain a level of integrity needed to avoid corruption or political-economic advantages for one state over another. The initial plan for states should be a default plan where single states are able to help themselves but if needed have a EU main source, which is able to assist before an issue becomes a potential disaster. The Future of the European Union “The current economic narrative in Europe is unsure, fragmented, and does not provide the necessary political foundation for extensive institutional capacity building. For now, the lack of consensus about the correct macroeconomic formula for Europe seriously compromises any further progress in integration. The most

XXX XXXXX IRLS300 Final Assignment August 25, 2013 advanced area, perhaps, is agreement on the need for more robust financial regulations, and the EU has been developing rules and institutions addressing this issue over the past eighteen months. However, price stability and austerity still have a stranglehold on policymakers, despite the risks of deflation and continued high unemployment.” (McNamara, 2010). The situation within the EU is not as potentially devastating as in once was but is still teeter tottering toward stability. With pending reforms, which appear promising the longevity of the EU boils down to the member states themselves and a more manageable system for regulating all member states to avoid corruption and to maintain budgets. Yet, the conflicting policy can wear on negotiations particularly with disagreements when the stakes are as high as they are within the EU. If member states can figure out a method for working collectively to create a system that creates an environment of compromise for the best interest of the EU then the future of the EU may not be as bleak as some analysts have feared. The future of the EU is one of cooperation or one of deterioration. For the sake of all that is invested cooperation appears to be the better route. Brick by Brick Currently the EU is still faced with the reality of an unbalanced system and has been left with the fallout of this mismanagement and corruption mixed into a system of economic reliance with little regulation on spending. Yet there has still been progress through the fog of economic crisis and single currency implementation. The EU has taken the information of what went wrong during the crisis and has begun to shift toward

XXX XXXXX IRLS300 Final Assignment August 25, 2013 reforms in recovery and security as a collective union. Perhaps the time line was a bit delayed but the outcome can be one of a stronger and more functional Europe than before. With attention paid to fix issues concerning creditor-debtor dilemma, youth unemployment rates, imbalance of states, and closely monitored governance. The survival of the EU and the future of a functioning system rests on member state cooperation, reformation and the current changes underway.

XXX XXXXX IRLS300 Final Assignment August 25, 2013

Work Cited

McNamara, Kathleen. 2010 “The Eurocrisis and the Uncertain Future of European Integration”. Council on Foreign Relations. http://www.cfr.org/world/eurocrisis-uncertain-future-europeanintegration/p22933 (Accessed August 22, 2013) “The Euro Crisis: The Sleepwalkers.” 2013. The Economist. http://www.economist.com/news/leaders/21578386-euro-zonedesperately-need-boost-no-news-bad-news-sleepwalkers. (Accessed August 22, 2013) Soros, George. 2012. “The Tragedy of the European Union and How to Resolve It.” The New York Review of Books. http://www.nybooks.com/articles/archives/2012/sep/27/tragedy-european-unionand-how-resolve-it/?pagination=false. (Accessed August 22, 2013). “Unemployment Statistics - Statistics Explained.” 2013. http://epp.eurostat.ec.europa.eu/statistics_explained/index.php/Unemployment_st atistics. (Accessed August 22, 2013).