While this blog is not about politics per se, the question of whether or not the European Union will manage to survive and thrive is very much on the mind of investors in the stock and Forex markets. That's because Europe as a whole is an important market and is one which is necessary to maintaining a healthy world economy. However, the recent Euro shocks have meant that people are once again asking whether the experiment of an integrated Europe can survive. Here's what you need to know:
The Articles of Confederation
In order to understand Europe, I like to look at American history. Technically, the 50 states are in fact separate countries bound together by a very strong central union. We don't tend to think of them that way anymore because America has for so long been considered to be a single country. However, when the original 13 colonies broke away from Great Britain, they were all independent states and they banded together under the Articles of Confederation – a very loose connection of independent states which is quite similar to today's European Union.
The articles of confederation were an abject failure however since the 13 newly independent states squabbled amongst themselves and refused to compromise on many key issues (if this sounds like Europe today, you've hit the nail on the head). The solution was to create the United States Constitution, which was put into effect in 1789, some 13 years after the former colonies declared their independence. The big difference between the new constitution and the old articles of confederation was that decisions for the whole group didn't require the consent of the whole group. In other words, if 11 states liked an idea but 2 of them didn't, the idea would still become the law of the land.
New Rules Need to Be Created
In the wake of the recent Euro crisis, new mechanisms are being put into place to try to find ways to make decisions which don't have to be unanimous amongst the 27 members of the EU. This started with the effort at an actual EU constitution a few years ago, but that idea was shot down when the people of Europe decided they weren't interested in creating the USE (United States of Europe). However, the need to find ways to make things happen in a large and diverse grouping such the EU remains and as such, efforts are being made to change things.
The Current Rules
Now to be fair, the current rules do allow for non unanimous arrangements. In spite of the widely held notion that everything must be done by consensus, the fact is that nine or more members of the union can agree to arrange for a specific rule of their own making which the other members don't have to agree to. The catch is that the rule must be put through a rigorous committee process where the entire bloc needs to try to find a way to agree on it and only afterwards can a rule be implemented for less than the full EU.
An Attempt to Get around the British
The new rules are being designed specifically in light of the fact that British have often played the spoiler in various negotiations, most recently with the efforts to prop up the Euro zone (where the 17 Eurozone members were forced to agree amongst themselves when Britain balked at a bailout). The thing that is new in the current effort is to try to write the new rules in a way which doesn't allow Britain (or any other country for that matter) to benefit by staying out of the agreement. Specifically, new tax codes are being designed which will help to strengthen the Eurozone and which will at the same time allow Britain to stay out while also not giving them the same benefits they might get by simply being spoilers.
Will it Work?
That's the question – we saw already that the Euro crisis exposed the fragile underbelly of the EU when richer northern countries balked at supporting the weaker southern nations. As things go forward, we can expect more such divisions to take place. Thus the need arises to find a way to make the union flexible enough to respond to crises while at the same time open enough to prevent the EU from being a European USA arises.
I'm not sure if ultimately they will be able to make this happen though. I'm reminded of what happened when America tried to make such a compromise back in the 1860s. The bloodiest war ever fought on American soil was the result – the Civil War. Hopefully Europe can avoid such problems. Then again, perhaps the effort at integration was just too much, too soon"¦