A Union for Self

The European Union is essentially in a crisis – not for the euro, but for the fact that it was relatively poorly constructed. It was an attempt at international collaboration marred with myriad fundamental flaws in its planning, including blinded vision, self-interests, lack of commitment, willingness to sacrifice, foresight, broken promises and method of termination. More succinctly, the EU rushed into creating a union for the sake of it, not for the sake of its member states; they did not consider the holistic factors of planning, and did not see this impending exit coming.

The ECB Building in Frankfurt, Germany. Source: Wikimedia

George Soros, the billionaire hedge fund manager, lamented that the way the EU system has been built is essentially the reason for its failure – that the plans would go on and leaders of member nations would play-by-ear, there was a central bank which did good policy but lacked a treasury to provide funding and also the absence of a proper exit mechanism in the case a country fails to maintain KPIs to stay in the union (Financial Times, 29 September 2011). Soros, in my opinion, has put it together well enough.

Any multi-party cooperation has to has a good foresight and sound planning to counter all possible problems – i.e. laying down the rules from the on-start. Some of which, as mentioned by Soros, are clearly lacking in the EU and the Eurozone.

If we were to put the imbalance in fiscal policies in the military context, it could very well fit the situation:

Image Source: http://farm4.static.flickr.com/3037/3886865186_2c60d51eb7.jpg

• The ECB is like a combat military HQ; it provides all the direction to fight the enemy. It forms to ‘brain’ of the military and is manned by generals and admirals. However, the central bank could not work without a Treasury or Reserve, which might be represented as the logistical support command – providing the supplies (in this case funds, guarantees, and write-offs) to fight the battle.
• The various member states can be analogised as different military vocations (e.g. artillery, engineers, etc.) Each has their own unique combat capability and tactics, but in this case refuse to keep in accordance to HQ direction, causing the inability of the troops to fight collectively.
• The EU and its relevant political structure (e.g. the European Parliament) works as the Defence Ministry, above the forces themselves (ECB and the member states) in the governmental hierarchy. It has to give go-ahead signals to approve war plans, but the mechanism of doing so is inefficient with multiple veto-layers and the Ministry is hence unable to approve war plans on a unanimous or majorly favourable agreement.

Another issue of concern is the increasing disparity in progress between Germany and the rest of the EU. Germany, being the de facto leader of the EU, with Chancellor Angela Merkel calling many of the shots on the continental level, had refused to pump in additional funds for bailouts and EU-wide stimulus packages, which essentially did themselves good – the government’s financial health remained in pink; and as US was to the world in the 1990s, so was Germany to Europe today.

Predicted growth levels of various EU and developed countries. Note that the Euro area’s GDP is expected to shrink for every forecasting month in 2012, with the forecast figure significantly lower with Germany. Germany has felt the pinch as well, with expected GDP growths of 2% slashed to less than 1% in a year. Source: The Economist | Graphic Detail

With only Germany showing favourable levels of economic growth, unhappiness has to ensue in the rest of the EU, further impeding the already rusty ability of the EU to move out of debt. Germany has been dragged down as well, and doing far below expectation, and that has to irate their people as well. Germany was moving very much in a selfish mindset, but that is not to be blamed – they rejected massive Keynesian injections for fear of a Euro inflation – learning well from the lessons in history in the Deustchemark hyperinflations.

The EU’s member states are committing the very basic mistakes that exist in any kind of multinational organisations, and that has lead to the fatal crumble of the union, further given that the EU is not simply an international body like APEC or the OECD; it is one with a shared currency. Vastly different courses of action and behaviour are required by the union as a whole, and its member states, for it to succeed – many more sacrifices, very much those on the economy, have to be made. And countries tend to feel the pinch here – it is the reverse tipping point – no government in the right frame of mind would be happy with a stark 20% cut in GDP in name of the union.

Hence, it is summative to conclude that the EU’s member states are not yet ready to commit and share enough of their prosperity. After all, we all live for a living – no rich nation would simply give up growth just to help others in need; as with “every man for himself”. With lessons to be learnt from the Euro crisis, it seems like international organisations such as ASEAN has to rethink its common market, or even common currency plans.