The banks are open again in Greece but withdrawal limits remain in place. Bridge loans have provided temporary relief to a bankrupt country.
What’s next for the European Union?
Let’s look back and then forward through the lens of four parameters: the EU itself, its Member Nations, its Institutions and the Euro.
European Union (EU)
The origins of the EU were both political, to attenuate the aggressiveness and frequency of war and conflict among neighbors in the region, and economical with the creation of the European Coal and Steel Community in 1950. The six founding members were France, West Germany, Italy and the Benelux countries (Belgium, Luxembourg and the Netherlands). In 1957, the Treaty of Rome created the European Economic Community (EEC), or “Common Market.”
Gradually, custom duties disappeared among member nations and there was shared planning of food production. Business, cultural and student exchanges became more commonplace in the 1960s, especially between France and West Germany.
Denmark, Ireland and the United Kingdom joined the EU in the 1970s.
In 1981, Greece became the 10th member nation of the EU.
Spain and Portugal followed five years later. Free trade flow of goods & services was enacted by the Single European Act in 1986 and the EU member nations formed a “Single Market.”
In 1993, The Single Market is complemented with the ‘Four Freedoms’: movements of goods, services, people and money which were sanctified by the Maastricht Treaty (1993) and reinforced by the Amsterdam Treaty (1999).
In 1995, three new member nations gain entrance into the European Union: Austria, Finland, and Sweden. The Schengen zone was created and passport controls within the member nation territories was gradually eliminated.
With the break-up of the Soviet Union, 12 new countries mainly from Eastern Europe joined the EU in the mid-seventies. The Treaty of Lisbon (2009) modernized the EU institutions and tightened up the rules, duties and privileges of being a member nation of the European Union.
EU Member Nations
Today, the European Union is comprised of 28 Member Nations. Notable exceptions who are not EU member states are Norway, Switzerland, and of course, Turkey who has formally applied to join and, if admitted, would be the first Muslim nation in the EU.
To become an EU member, there is an ardent and complex application process and formal due diligence. The applicant country must meet the conditions for membership known as the ‘Copenhagen Criteria,’ which include having a free-market economy, a stable democracy and the demonstrable rule of law rather than arbitrary authority.
EU Member Nations must implement the EU rules and regulations in all areas of the treaties, accept EU legislation alongside (sometimes superseding) their own laws and customs, and abide by all the EU institutional requirements.
Concerning the specific case of Greece, the problems are deep and have been building over many years. The 2004 Athens Olympic Games pushed the financial decision-making processes within the Greek and EU governments further out.
The EU has just now agreed to the third round of bail outs for Greece since 2010. Some pundits would argue that this is not a Greek problem but a European one.
In any case, the financial crisis of 2007-08 has placed tremendous pressure on EU Institutions to put forth acceptable solutions for the proper functioning of the EU itself and all its Member Nations. Austerity is not popular among the political left.
EU Institutions
The European Union has seven institutions:
- European Parliament – 751 MEPs, elected every five years on the basis of proportional representation ; they sit according to political groups rather than nationality ; this is the legislative branch of the EU
- European Council – defines overall political direction and priorities ; interprets discussions, records, implements and measures action plans
- Council of European Union – represents the executive branch of each member nation governments (president or prime minister) ; each EU President sits for six months then rotates leadership to the next one
- European Commission – carries out the executive tasks of the EU
- European Central Bank – governs the monetary policy of the Eurozone
- Court of Justice of the European Union – ensures the interpretations and applications of EU law and treaties
- European Court of Auditors – oversees the EU budget
One of the key issues to a healthy European Union has been the continuing evolution of EU institutions, tying to avoid additional layers of bureaucracy.
Euro
The euro, as a name, was officially adopted in 1995. It was introduced to world financial markets as an accounting currency in 1999. The physical money (bank notes and coins) were introduced into circulation in 2002 as the official currency of the EU.
Today 19 of the 28 member states use the euro exclusively as their official money. One notable exception of non-use by an EU member nation is of course the UK who have never surrendered the Pound Sterling to the Euro.
Furthermore, Great Britain has committed itself to hold a national referendum next year to ask its subjects to determine – yes or no – its continued membership in the European Union.
To avoid financial duress or crisis after entering into the monetary union, each EU member nation had to ratify the Maastricht Treaty, agreeing to fulfill important financial obligations, apply standard accounting and reporting procedures, and most importantly agree to budget discipline, limiting government debt or be held in non-compliance.
Several member nations who adopted the euro as their currency were almost immediately in violation of these agreements and have had to be financially supported with emergency rescue funds, mainly from the International Monetary Fund (IMF) and European Central Bank (ECB).
Non-compliance and debt restructuring has been a huge problem in Greece, Ireland, Portugal, Cyprus and Spain, and throughout southern European countries. In this sense, the current Greek situation is indeed a European problem.
What’s next?
The European Union is often presented as old, tired and economically stagnant.
The EU’s economy measured in GDP – is larger than the US’s. The EU exports more goods & services than China. The EU’s trade with the rest of the world accounts for nearly 20% of global exports and imports whereas it represents only 7% of the world’s population.
The EU covers over 4 million km² and has over 500 million inhabitants making it the world’s third largest population after China and India. The EU also has the largest portion of net worth in the world, estimated at 30%.
But there has been little or no growth in the EU countries over the past ten years and the German engine, refueled by the reunification, cannot carry the EU economy by itself.
This situation has created a creditor-debtor two-tier European Union. At the extremes are Germany and Greece and many economists are worried about the sustainability of the current model.
The EU has a common central bank but not a common treasury. There still is no euro bonds. Germany certainly does not want to tie its finances even closer to the Greek economy. Furthermore, existing treaties do not allow countries in the Eurozone to finance directly other governments.
So, here we are. And here we will stay for the foreseeable future.
The votes and referendums, loan restructuring and evolving financial instruments, the healthy debates about the construct of the European Union and its Euro currency will continue at an accelerated rate.
The term ‘Grexit’ refers to the exit of Greece from the Euro (and possibly even the EU). Some are pushing this solution as the only viable long-term solution. Others are desperate to do anything to keep Greece in the EU and maintain/expand the use of the Euro as a major world currency.
As an EU citizen and a staunch proponent of the European Union and the Euro, I am unabashedly pro-European Union and support tighter integration. After two world wars, mutual distrust, historical aggression, Europe has indeed come together in a fragile alliance framework to live, work and make a global contribution as a single entity with shared values and vision for the future.
But as an expert in strategic alliances and member firm organizations, it is painfully obvious that much more flexible, open, creative solutions will be required to meet the overall needs of the EU itself, and the specific needs of each Member Firm Nation and their citizens. One size cannot and will not fit all.
The EU motto is “United in Diversity” and the EU anthem is “Ode to Joy” (Beethoven’s Ninth Symphony) and EU Day is 9th of May (the day Robert Schuman put forth the initial idea of the European Union in 1950).
The European Union has been a remarkable success but the challenges are growing. The EU design and implementation is a bold and ambitious program.
The ability to make it work as a standard framework is eroding at the base. We need a more open, flexible, agile European Union, module in design and able to fit within the European construct and treaties.
Collaboration and cooperation are more important than compliance as key drivers going forward. We need to stop applying 19th century thinking to 21st century problems and embrace a more fluid model of European Union membership.
The question is not “in or out” of the EU and the Euro but the ability to live and work together to create value for citizens and enterprise, without imposing one standard model for all. To be continued…