Euro symbol near European flags 311.
(photo credit: REUTERS/Francois Lenoir)
Economic crises seem to be the order of the day in Europe. Greece is
leading the charge toward collapse, and Italy, Slovenia, Slovakia, Estonia and
other countries are also struggling. Meanwhile, stalwart Germany stands
by, hoping not to have to continue picking up the pieces and pay for the whole
A serious question shadows Europe: will the European Union fail?
Not yet 20 years old, the EU faces perhaps the most challenging circumstances
since its birth. While many people feel that the Union’s dissolution is
inevitable, others believe equally strongly that it will not only survive, but
emerge all the stronger for having weathered the storm.
Let’s take a look
at the rationale behind each of these opinions.
First, what is the main
reason for believing that the European Union will dissolve within the next few
One popular opinion hinges on the idea that the European Union is the
“United States of Europe.” This “United States,” the theory goes, was
doomed to failure from the beginning because of the historical bad feelings and
difficult relationships between the countries of Europe over the past 2,000
These animosities, the theory goes, may be buried under the
surface of “civilized, modern” government, but they remain alive, simmering and
smoldering. Even modern education and a profoundly interdependent global economy
cannot erase age-old ingrained nationalism and patriotism (think Arab-Israeli
conflict). This may explain the posturing by France and Germany as each
strives to be the leader of Europe.
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A second factor as to why the EU
might collapse deals with its newest members. The newly admitted eastern bloc
NATO nations pose a challenge to the European Union. Their admittance
requires them to follow the EU’s constitution and laws. According to some
opinion leaders, countries that are new to democracy and capitalism may not be
ready for free elections, free markets and free trade.
intra-European conflicts and challenges form the basis of one opinion about the
European Union: European nations simply cannot get along well enough to form a
union, even an imperfect one. On the other side of the coin is the belief
that despite current turmoil, the EU will not fail.
In part, this belief
is based on the “too big to fail” concept applied to American banks. According
to this argument, the national interests of the countries involved will finally
come into play, and the European Union will be saved. In most scenarios,
Superhero Angela Merkel and Germany will save the day, simply because that
country is the only one capable of saving the EU and the euro due to its
relatively massive economy.
But why, in the minds of these thinkers, will
Germany step up to save the EU and the Euro? In some ways it is a matter of “too
big to fail,” but the primary reason is the euro itself.
consensus is that the individual European countries want to hold onto the
Euro. Returning to individual national currencies would devalue all of
those currencies. Some countries, such as Greece and Portugal, would see a
complete collapse of their financial systems, far worse than the difficulties
they currently face.
In fact, the comparative strength of the euro may be
the superglue holding the EU together. Though it has weakened compared to other
world currencies, compared to how the individual European nations’ currencies
would look if they became independent again, the euro seems like a better
What’s more, a breakup of the euro and a return to national
currencies might rip the global economy apart. Stock markets around the world
would crater, a global banking crisis would ensue, and the United States and
Europe would plunge into recession. And that, according to the opinion of a
large number of people, is why the euro will survive. It must survive, therefore
Which of these opinions is correct remains to be seen, but both
deserve careful consideration.The writer is an international investment
adviser, financial planner, and president of Profile Investment Services, Ltd.
He can be reached at email@example.com.
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