The formation of the EU currency and the challenges they have faced.
The Formation and the Challenges of the Euro
This essay will seek to examine the formation of and the subsequent challenges to the Euro. In order to evaluate what is probably the EU’s most significant achievement, this paper will examine several key areas. First, Europe’s propensity for warfare prior to the establishment of the EU. Second, it will discuss the initial formation of the Euro and the economic integration brought about by it. Finally, it will examine recent challenges to the single currency. These will invariably lead to the conclusion that despite the challenges of the Euro, it remains one of the most important institutions to continued peace in Europe.
When examining the EU it is important to start at the beginning of the institution. World War II, the bloodiest conflict in human history, concluded only seven years prior to the founding of what would become the EU (ESC Treaty)(“World War II Facts and Figures”). This war was only the latest of what had been thousands of years of uninterrupted conflict on a continent that had not known anything even resembling peace since the Pax Romana of the Roman Empire in 180 CE. This desire to prevent war, or create a more enduring peace after the Second World War was the impetus for creating the European Union and ultimately the creation of the Euro. Winston Churchill described the process begun by this foundational treaty quite well, “We are asking the nations of Europe between whom rivers of blood have flowed to forget the feuds of a thousand years”(Bongiovanni 26). One method for reducing violent conflict between countries is to increase economic ties and the volume of trade. The argument is simple and has been confirmed through several studies examining the relationship between trade and war. Trade brings greater wealth to countries whereas conflict reduces the amount of trade and wealth. Therefore “commerce promotes peaces because violence has substantial costs, whether those are paid prospectively or contemporaneously”(Hegre, Oneal, and Russet 763). The goal of creating a greater European economic community, like the EU, is to bring about greater levels of trade by decreasing trade barriers in the hopes that it will reduce the likelihood of conflict.
The Euro emerged as the culmination of decades of gradually increasing ties and decreasing economic barriers between states. One of the earliest and most obvious was to create a “Single Market” by eliminating tariffs within the EU (“The European Single Market”). However, barriers to trade are often more than simply tariffs. Any traveler to Europe will likely have noticed this next feature. Within the “Schengen Area”, as it is called, passport checks do not occur with the goal of increasing the flow of people across borders (“The Euro”). Finally, perhaps the most well known has been the creation of a single currency, the Euro. This single currency eliminates the need for exchanging currency when traveling within most EU member states further decreasing trade barriers (“The Euro”). The combined effect of these features, along with many others, is the increase of trade within the EU.
The international agreement responsible for the eventual creation of the Euro was the 1992 Maastericht Treaty(“The Euro”). The name “euro” was not adopted for the future currency until two years later. Prior to the introduction of the Euro a considerable amount of economic work had to be done. Initially it was agreed that in order for member states to join the Euro they had to meet very strict requirements such as a GDP to Debt ratio of less than 60% and a yearly deficit of less than 3% of GDP (“The Euro”). This ended up being widely ignored by many members of the Euro which many have argued later contributed to the economic crisis. Prior to the introduction of the Euro, Europe had a single monetary unit of sorts called the European Currency Unit (ECU) which was a basket of the currencies of member states of the EU. The ECU served as a sort of base that the Euro was built off of and effectively replaced. The Euro was first introduced as being equivalent in value to one ECU. When it rolled out on January 1, 1999 the Euro existed only in electronic form. Currency exchange rates between all participants of the Euro became fixed. The paper currency itself was not brought out until January 2002. From there individuals were permitted two months of time to exchange their old currencies with the new Euro.
The Euro itself has faced significant challenges since its introduction. The most recent of which came about as a result of the 2007 financial crisis. Several members of the Eurozone had acquired a significant amount of debt. The debt to GDP ratio had been ignored by several members who teetered on the edge of bankruptcy. For them to declare bankruptcy would be disastrous. Furthermore, the changes they would have to make in order to fix their economy required devaluing their currency. This was a move which would have been possible before the introduction of the Euro but once a single currency had been established it became impossible (“The Euro”). Instead these members have had to receive massive bailouts from the better off countries and severely cut government spending. The solution has held the single currency together for now but it is unclear if it will be able to continue holding it together especially if another fiscal crisis were to hit the continent.
The Euro has brought a number of challenges with it but at the same time it and the institution that created it have transformed the continent in a way that has never been seen before in history. For example, in 2012 Greece elected a left-wing government. Other states have similarly elected political fringe elements to their higher offices. Yet interestingly enough with Greece, the fear was not that the Greeks would launch into a sort of internal purge but that they would leave the Euro. Previous economic crises like the Great Depression helped allow similar fringe parties to gain traction in states which many would argue contributed to causing the Second World War. Instead, this time there was no talk about the possibility of war because a European war was and remains so hard to imagine even with as large an economic crisis and challenges to the Euro as have been seen in recent years.
The Euro and the European Union are institutions that are totally unique. There have never been any like it in history prior to now. As such, it is difficult to predict how the challenges to the Euro will pan out over time. Regardless, the very fact that it exists at all is a triumph in its own right and has contributed to the most peaceful period in European history. The Euro and the European Union were created out of the ashes of the Second World War. So far they appear to have greatly contributed to the absence of a Third World War. For all its flaws, the Euro is an institution worth preserving.
Bongiovanni, Francesco. The Decline and Fall of Europe. London: Palgrave MacMillan, 2012. 26.
Hegre, Havard, John Oneal, and Bruce Russett. “Trade Does Promote Peace: New Simultaneous Estimates of the Reciprocal Effects of Trade and Conflict.” Journal of Peace Research 47.6 (2010): 763-74. Print.
“The Euro.” Europa.EU. EU, 2015. Web. 8 Dec. 2015.
“The European Single Market,” Europa.eu. EU, 2015. Web. 8 Dec 2015.
“The Schengen Area,” Europa.eu. EU, 2015. Web. 8 Dec 2015.
“Treaty Establishing the European Coal and Steel Community, ECSC Treaty,” 1951.
“World War II Facts and Figures,” wwiifoundation.org. WW2 Foundation, 2008. Web. 7 Dec 2015
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