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The EU Despite Red Flashing Warning Signs

February 25
16:00 2012
MICHAEL J BLAIR

Blairgowrie, Scotland

The Euro crisis is currently making headlines across the world. Here I try to make some sense of the mess.

 

1945-1959. The original aim of the union was the ending of wars between European countries.A very noble idea which was begun by six countries: France, Germany, Belgium, Italy,Luxemburg, and Holland. This was the era of the “cold war” between the “Eastern Bloc.” Comprising the USSR and its allies, and “The West”:  America and its allies. The threat of invasion from the east also hastened the need for European union.

Remember, this was also a time when Hungary was invaded by its “friend” the USSR, in order to crush its fledgling uprising against communism. USSR had also gone ahead of America in the space race by launching Sputnik 1. The Treaty of Rome in 1957 created the “European Economic Community” (REC). “The Common Market”.

 

1960s. This was a time when youth culture started to gain ground. Pop music widened the generation gap. EU countries stopped charging custom duties when crossing the borders. Joint control over food production soon brought large surpluses.

1970s. The first enlargement took place on 1st of January, 1973. Denmark, Ireland and UK joined EU. Huge sums of money were transferred to create jobs in the poorest areas of the expanded union. The European Parliament began to increase its influence in EU affairs. 1979 saw all citizens able to vote to elect members directly.

1980s. Greece became the 10th country to join the EU (bet they wish they hadn’t). 1986 sees Spain and Portugal join the party. The same year the EU Act was signed. This treaty paved the way for a vast programme aimed at the free flow of trade across EU borders and so to create a single market. The hated Berlin Wall came down on 9th of November, 1989. This meant that East and West Germany were united for the first time in 28 years. This led to unification between the two in October 1990. With the collapse of Communism, Europeans became closer neighbours.

1990s. In ’93, the Single Market was completed with “Four Freedoms”: movement of goods, services, people, and money. The 1990s was a decade of two huge treaties. “Maastricht”, also known as the Treaty of the European Union, was signed in 1992 and established two new areas—justice and home affairs—to the European Community. The “Treaty of Amsterdam,” was put into force in 1999. It emphasized the rights of individuals and citizenship, and prepped the Union for expansion. Austria, Finland, and Sweden joined in 1995. The “Schengen” agreements allowed people to travel without passport checks at borders.

Credit: Lars Aronsson

2000s. The Euro was introduced in 2002, with huge fanfare and promises of wealth and stability for all citizens of the twelve countries who adopted the new currency. Over 80 billion coins were put into circulation. On the 1st of May, 2004, ten more countries joined the Union. New member states included, Cyprus, Estonia, Latvia, Lithuania.


By 2007, twenty-seven countries signed the “Treaty of Lisbon”, which amended the Maastricht Treaty and The Treaty of Rome. The aim of the Treaty of Lisbon was to complete the process of the Treaty of Amsterdam and enhance the democratic legitimacy of the Union. Opponents of the treaty argued it would centralize the EU’s power, therefore weakening its democracy.

 

The first public signs of the global financial meltdown started to appear in September, 2008. US government supported mortgage specialists “Fannie and Freddie” with a financial bailout of $124billion. Big European banks became aware of enormous liabilities, due to exposure to “toxic” mortgages. Governments took over some of the banks. Nationalisation in all but name! Banks in all major nations were exposed to massive losses.

 

25th February 2009. The deLarosiere Group called for tightened financial supervision to try to prevent another financial crisis.

April -May 2010. Greece officially requested bailout after initially turning down €30bn aid package, but admitted it needed around €45bn instead. Less than one month later, the EU and IMF agreed to a €110bn package over 3 years.

November 2010. The EU agreed to support the Irish economy to safeguard the stability of the Euro. This looked bad. Whole countries could be going bust!

1st of January 2011. Estonia joined the euro zone (you couldn’t make this stuff up). They were the 17th country to pile onto the sinking ship. Greece, by this time, was slowly drowning in a very deep sea of debt. They’re debt is downgraded by Moody’s, the S&P, and Fitch to “junk” status.

Their economy was never on a par with the likes of Germany and France. The Greek government basically padded their books to gain entry to the Euro! A blind eye was turned by the rest of Europe to the fragility of the Greek economy.

30th of June 2011. Greek Parliament passed swinging spending cuts, sparking street riots and bloody violent fighting. The Greek people were not prepared to lie down to EU dictates. They felt badly let down.

2012. Euro zone finance ministers put together €132 billion bailout for Greece to avert an imminent default, but forces the country to make deep cuts, which ignited further protests and riots from an already harried public.

When the Euro was proposed, all countries had to have economic parity. A child could see that countries like Greece, Portugal, Ireland, etc, could never have economies level with Germany and France or Sweden. Typically, the EU just ignored these blindingly obvious problems.

They were desperate to complete the project, despite the bright red flashing warning signs! A single currency means a fixed exchange rate within the monetary union.Even if some countries would benefit from changes in relative values. If a country has its own monetary policy, it can respond by lowering interest rates to
stimulate its economy.

The way things are now, Germany, with its massive economic strength, can dictate to the rest of Europe. When Ireland, Spain, Portugal, Italy, and Greece got in over their heads, they didn’t have the ability to help themselves. Years ago these countries would have been independent and able to respond to their own
needs!

Banks who had loaned massive amounts of money to these countries had no ability to have these loans serviced. Now these countries cannot get credit. The money markets are charging them very high interest on
any lending.

These banks who loaned money like drunken sailors to tramps now found there was not a hope in hell of being paid back! There are lessons to be learned. Banks are not meant to be casinos. Countries do not have equal economies. There is not a one size fits all solution to this mess. Oh, and never trust a government to do the right thing for their citizens. They only do the things which are right for maintaining and expanding their
own power!

Be vigilant. Be alert. Let them know we are watching.

Michael Blair can be reached at: michaelblair43@googlemail.com

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