If one or more euro area countries were hit by setbacks, they could no longer strengthen the economy by devaluing (writing down) the currency – to strengthen the export industries – or to regulate their own interest rates – to influence demand. They were bound by the policies of the dominant countries that Germany saw itself benefiting from. The German export industry was particularly competitive and could earn a lot on a single currency.
When the international financial crisis quickly spread from the United States to Europe in 2008, euro co-operation helped to intensify the crisis in the economically weakest countries. Countries such as Greece had increasing budget deficits and were able to borrow in euros at low interest rates. With declining earnings and rising unemployment, it became impossible to service the loans. According to COUNTRYVV, leading EU countries have stepped in with support to reduce the loan burden and save the banks, but on the condition of savings and cuts in the state budget.
As a result, demand falls, economic growth stagnates and unemployment rises. This has led to a wave of protests with mass demonstrations in many southern European countries. If the countries in crisis had had their own currency, they could have devalued the exchange rate and changed the interest rate level. They could still have had problems, but with more leeway in economic policy.
It is technically entirely possible to withdraw from or dissolve a monetary union, but at great financial cost. Businesses and individuals have loans in euros, these loans will be difficult to service in a monetary unit with a lower value, the financial market would react negatively, and the political and symbolic setback for the cooperation would be large. Euro co-operation was premature, but it is far easier to introduce than to wind up a monetary union.
6: Crisis and regionalism
The rich regions of EU countries are also affected by the crisis. Value creation (GDP) is stagnating or declining in several euro area countries, and unemployment is rising. Some Catalan leaders think it is unreasonable to continue to subsidize the rest of Spain in such a situation. North Sea oil is an alluring source of wealth in Scotland. Flanders will not bear the burdens of a stagnant Wallonia. It is the revolt of the rich, but only in a relative sense. The rich regions themselves are experiencing setbacks and growing problems.
Separatism in many European countries is now primarily an economic separatism – a desire to keep more of the cake to itself. This separatism is reinforced by the long lines of a more independent past and then a marginalized political position. The dissatisfaction lies in the gap between what they are, what they once were, and what they believe they can become again. Regionalism is either the fringe’s struggle against the center, or the struggle from alternative centers of power, often with a more independent past in the rearview mirror.
7: Do we get many new states?
This question is impossible to answer. Regionalism is strong in many places, but the question of its own state has not been put at the forefront . Many will be able to consider if there really is a referendum. Opposition from the mainland will be strong. The constitution – the constitution – must be changed; Decisions on independence for regions in the central national assemblies will be very far-fetched.
It is also expensive to become completely independent. Not only riches but also debts should be distributed ; administration and foreign service to be built up; institutions must stand on their own two feet. Some ethnic groups will end up on the wrong side of the new border and oppose secession with beaks and claws. Northern Ireland has been torn to shreds over this issue.
Both Catalonia, Flanders and Scotland have signaled that they may consider continuing as members of the EU. It is not obvious that it will be possible. There must be negotiations about membership, and the terms can be disputed both within the EU and in the country that negotiates.
There is little reason to believe that the existing state borders in Europe will last for centuries to come, but will we get a new state or two in the short term? Even in the short term, all predictions can fail. Again, much will depend on the economic conditions. With the continuing crisis, the prospects for a strong majority for regional secession increase. In many places, the intermediate forms are probably more likely than full independence. As in Italy, where the main demand is more and more autonomous republics.
Euro cooperation and convergence criteria
To ensure that members align their economic policies with each other – necessary to implement Economic and Monetary Union (EMU) – EU countries have established some convergence criteria . These must be met by the Member States in order to adopt the euro.
– Low inflation
– Low government budget deficits: Maximum 3% of gross domestic product (GDP)
– Low government debt. Maximum 60% of GDP
As of January 2015, 19 of the 28 EU countries also participate in euro co-operation (the United Kingdom, Denmark and Sweden are excluded). The countries that have joined after 2003 have transitional arrangements until they adopt the euro. The 19 euro countries have a total population of 334 million.