General overview of the Euro Zone
Developments from Failure of Referendum on EU Constitution until Euro Zone Crisis of late 2011-2012
The period between 2007 and 2011 has been a challenging one to the European Union (EU). As a response to the increasing pressures on Greece imposed by the international financial market, the Union extended a loan of 110 billion Euros to save the nation from sovereign default.
After that, a huge fund amounting to 750 billion Euros was established to halt the contamination of Greece’s debt crises to other weaker European economies in the south. This was a deliberate move by the EU to signal to the international markets that the union would cover the debts of its member states. In addition, the European Central Bank began to buy euro-dominated sovereign debts to assist in stabilizing the markets.
Consequently, member-state governments decided to allow Eurostat (European statistics agency) to review the accounts of member states as well as vetting the annual budgets of member states. Moreover, other EU member states all over Europe started a calculated move to cut their spending so as to reduce deficits and clear public debts. Towards the year 2011, Ireland was compelled to seek a loan from EU while similar pressures were experienced in Portugal and Spain.
Currently, the Euro Zone is in an existential crisis. This crisis include but not limited to weak fiscal policy; intense disparities in labor market and housing associations; failure in fiscal regulations and general interest rates have resulted in unsustainable internal discrepancy in the common currency zone (Muellbauer 1). These are evident in the disagreements on unsustainable government, competitiveness and private debts to gross domestic production (GDP) ratios and in other signs like relentless deficits in balance of payments.
As many scholars and commentators talk, the Euro Zone crisis appear to have a myriad of casualties that relate more to the economic dimension ignoring the significance path of democracy (Black 1). Despite the conception of the Euro Zone being based on creation of a common market and monetary union, EU has failed on its constitutional mandate during the crisis which further heightens the democratic deficit debated by scholars. This statement leads to a number of questions:
Does the Euro Zone crisis contribute to Democratic Deficit?
What is Euro Zone?
What Accounts as “Democracy?”
What is Democratic Deficit?
Why should Democracy be valued?
History of the Euro Zone
Start of the Euro Zone
Euro Zone was established through the signing of the treaty of Maastricht in 1992 by the fifteen member states of the European Union (Horst 229). According to the agreement, all EU countries were to use the euro currency by 1999. Denmark, Sweden and United Kingdom fulfilled the requirements of the agreement, but decided not to participate. In addition, Greece had not met the requirements of the treaty by the designated year, but did join the zone one year later.
Therefore, in theory, eleven countries were using the euro by 1999. However, the transition was slow and by the designated year the single currency was for computerized transactions only until 2002 when the currencies of the twelve nations participating were replaced by the euro. The countries currently using the single currency are: France, Germany, Spain, Greece, Belgium, Luxemburg, Portugal, Italy, Slovenia, Ireland, Finland, The Netherland and Austria.
The Euro Zone was established in an effort to create a common market as well as a fiscal and economic union, and executing common activities or initiatives to promote throughout the zone a balanced and harmonious expansion of economic activities, sustainable and non-inflationary development (Moravcsik 58).
This was to be done in respect of the environment, a high degree of employment and a socio-economic protection, improving the standards of living as well as quality of life. The creation of the Euro Zone was also an effort to bring social and economic solidarity and cohesion amid the member states.
Standards of Legitimacy
The internal legitimacy of the EU
The scheme of European integration obtains its enduring attractiveness and weight mostly from two steering forces that operate in harmony: the forces are the manifest interest of the nations involved in reaping benefit from the creation of a common market as well as the gracious ambition to defeat the convention rivalry and conflicts among European nations via peaceful cooperation.
Throughout its continued widening and deepening, the Union successfully has set more extensive goals, which might roughly be split into two types: economical and political objectives (Archer 60). In this case, the political goals include but not limited to the maintenance of peace, the safeguarding of human rights, the conservation of democracy, liberty and the rule of law, endeavoring for common security policy and cooperation in fighting criminality.
Amid the continually expanding number of economic goals include establishing free-trade structures, conserving rural regions, developing a common economic market, attaining a balanced and sustainable growth of all member states, stimulating employment, enforcing gender equality, ensuring social security, increasing competiveness, nurturing economic growth, protecting the quality of life, safeguarding the environment, nurturing solidarity among European citizens and enhancing education and research (Gerven 237).
The external legitimacy of EU
In this context, EU has constantly understood itself as an enlarging peace project which is intended to warrant security and stability on Europe due to its effort to reinforce democracy, legality and liberty in the continent and in so doing contribute to global peace (Zweifel 133).
Other demanding goals of international security policy have been away from its reach since it lacks both the power and means to pursue them. However, currently there are increasing trends to reinforce this policy of EU, its cornerstone, which is mostly directed towards attaining these goals: to protect the common values and basic interests of EU, to reinforce its security as well as global security, to support internal cooperation, to create and strengthen democracy, respect of human rights and the rule of law.
All these objectives of the Union’s policies, including international trade policy, seem defensible as much as their appearance is concerned. They might be even regarded as a model of justifying the legitimacy of other large communities. When the EU policies are judged in the light of their practical impacts on the two orders, it appears that the external policy deserve a positive assessment. Its most significant accomplishment is that it has added to the sustenance of global peace and safeguard of human rights (Koller 321).
The Democratic Deficit
Standard of the Democratic Deficit
The term “democratic deficit” has been widely used yet there is no consensus on its definition. In most case, the term is used to describe the weakness or pitfalls of democratic legitimacy of EU. There is also a standard version of the expression, which is closely related to ‘federal state’ theory of democratic legitimization. This version asserts that the fundamental problem of EU lies in the fact that there is a change of political governance from the democratic parliamentary structures of government to executive-centered structure of government (Majone 15).
For democratic deficit, there is a concern that EU has distanced itself from citizens such that its processes of decision making do not involve the public and its institutions are doing nothing to pass on its decisions to citizens (Koller 319). Another observation is that the uneven strength of lobbies who exercise an influence on the Union institutions behind the scenes have led to biased predilection for the interest of business people, enterprises and elite groups when compared to ordinary people and workers.
The casualties of Euro Zone financial crisis are indeed many: the instant economic depression led to continued output losses and cleared a large share of wealth, specifically in the most developed economies; a sequence of social reverberations aggravate widespread huddles of poverty and pressures in the labor market as well as pension system; and expensive bank aids have left public finance in a depressing state and partly eliciting a disturbing sovereign debt crisis.
These have apparently steered the common currency (Euro) and the entire continent into a political void. However, there is a developing feeling among people that the long-term injuries to the societies are claiming another casualty: democracy and representation- one on which many things depend on.
This trendy anxiety is steered by the discernment that the burden of adjustments to the crisis remains factually jagged. According to Grygiel, the international influence of political financiers, bankers and regulators, who triggered the financial crisis in the first place, has not changed in any way, yet many ordinary victims find themselves constricted to unbearable levels (1). Among the emerging social unrest, especially in Greece, discrimination is set to increase across much of the European continent.
Actually, anger has also been directed to the broader institutional arrangement which is blamed of involvement and worsening the situation. At the international realm, the International Monetary Fund has come under augmented examination, especially from the emerging economies.
Crucial questions regarding its ability to ensure financial solidarity across the world and respond to different fears of its stakeholders are being asked. A debate is opening out in Europe about the disorderly concentration of control that is held by big multinational firms and their effect on local businesses and communities. However, this debate is restricted to both the economic and policy making realms.
Against this milieu, recent talks about EU’s perceived, suspected or real democratic deficit is not new. Researchers have been debating about the issue for years. On one side, it is debated that EU activities are usually just democratic like those in its members and that for example, low participation of European electorates, the negative referenda in some member states (France, Ireland and the Netherlands), and the technocratic of politics expose the legitimacy issues (Follesdal and Hix 535).
This observation is somehow supported by information from Eurobarometer, asserting that confidence in European institutions is usually much higher than trust in state governments.
In another perspective, the increasing influence of non-political players such as the European Central Bank (ECB) and European Court of Justice, the emergence of anti-EU political parties, or the common weaknesses of parliaments are proposed to underscore the questionable state of representation and accountability for Union affairs.
Moravcsik observes that with outstanding policy problems such as demands for tax synchronization and immigration steadily taking the center stage, the lenient accord on European integration appears to be opening up fast (348).
Prior to Euro Zone crisis, as long as the EU relied on the resultant metrics of its legitimacy, this discussion in spite of a reasonable level of public acknowledgement, elicited just limited reaction.
In essence, ambivalence towards this dilemma is demonstrated by studies which disclose that many people are both cynical towards the union and would like it to work more on several policy areas especially foreign affairs and environment change. Thus, it can safely be argued that EU by proficiently getting on with its key business of securing wealth in its member countries was somewhat success at disregarding any vital concern about its democratic principles.
However, the emergence and subsequent implications of Euro Zone crisis have substantially challenged this postulation. There are great doubts regarding whether EU’s democratic politics can deal with the key socio-economic problems at stake. The crisis management which is dominated by the goal of saving the common currency instead of assisting the countries in need is apparently impacting on the room for democratic politics within the Euro Zone.
A whole collection of EU tools and initiatives have been tailored to lift policy conditionally and union to new levels. All the reformed strategies such as EU-2020, the Euro-Plus-Pac and the European Semester attempt to press on member state to take a more practical path of monetary policy by tightening budget rules and coordination dealings, while supporting deeper reforms on the supply side to make the economy of Europe more sustainable and competitive (Muellbauer 1).
As a matter of fact, the previous efforts along these dimensions have failed due to weak or ambiguous enforcement rules: there was no likelihood of a member state punishing another in the council or imposing fines on members under pressure.
ESM designed as a fiscal fund parallel to the IMF, its main purpose is to protect the stability of the common currency as a whole. Even though, the ESM privileged task is the ability to provide emergency funds to members under pressure in case of liquidity issues, its consent strongly incentivizes the application of direct leverage on national economic policy by providing sober evaluations when the stability of the Euro Zone is actually under pressure. Formal competences are therefore replaced by widespread informal ones which might generate a new momentum. This means that the ESM is designed to become the backbone of EU economic control.
This reinforced conditionality organization as well as the demeanor of current bail-outs will impact deeply on European democracy. The Union has gone into unchartered political environments in its effort to clear the sovereign debt crisis and evade disintegration. It is not clear whether such a discipline will be considered appropriate by the people. Much depends on whether the political mainstreams can efficiently occupy the changing room for EU politics by offering important choices with reference to European integration.
The referendum on EU constitution appeared justifiable legitimate and in particular for the internal and external policies. However, the union failed and adverse developments accumulated resulting in the Euro Zone crisis.
The zone which was started with a purpose of creating a common market and currency union experienced a crisis that added to the Democratic Deficit that was associated with EU. These developments have compelled the Union to reinforce its policies and take stern measures which could contain the situation once and for all.
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