McMaster Debating Society
Q: Do the risks associated with membership in the EU outweigh the benefits?
Amanda: The European Union, as it functions today, was formally established in November 1993. It is an economic and political alliance between twenty-seven member states originally created to foster economic cooperation, allowing for the free movement of goods, people and services. The Eurozone consists of seventeen of the European Union member states that are united by the common currency of the euro. The European Central Bank controls inflation and implements the Eurozone’s monetary policy. The risks associated with membership in the EU far outweigh the benefits. This is evidenced by the current financial crisis involving Greece. A nation with a previously closed economy in need of structural reforms when it joined the EU, Greece was able to take advantage of low interest bonds (loans) due to its EU membership. For years, the Greek government spent more money than it had and borrowed money to cover its deficit. It was revealed in 2009 that the Greek government’s deficit was actually 12.7% of its GDP rather than the 6% that had been purported. Spain, Italy, Portugal and Ireland have also faced financial troubles since the 2008 recession – Ireland is currently being supported by the IMF. There is a lack of cohesion among EU members in terms of their long-term interests, a lack of fiscal cohesion, and a lot of disagreement among member states as to how much power individual countries should have over their own economies. Also, there is currently no mechanism in place that allows for a Eurozone member to leave the Eurozone, one of the many structural flaws of the EU.
Sumeet: Amanda worries about the current situation in Greece, and rightly so. However, there are two things to keep in mind. First, the bail-out package produced by the EU has the potential to mitigate a lot of the harms that Amanda alludes to, at least in a reactionary sense. The European Foreign and Social Policy pools capital in order to allow member banks of the European Central Bank (ECB) to start buying government and private debt securities. Second, investors still have remarkable confidence in European markets, and we’re not seeing a “domino-effect.” Why? Because investors know that even though the Euro may be at the centre of financial panic, the consequences of this panic may negatively affect other currencies, like the US dollar, and result in a relative stabilization of the Euro in the long-term. A parallel can be drawn to the 2008 financial crisis, where insecurities in the dollar caused a ripple-effect that paradoxically made the dollar rise in value. Moreover, government investors are still buying euros to hedge against risk that can be found in the U.S. and their own economies. Amanda does highlight some key structural issues with the EU, but EU is also uniquely armed to prevent its own economic meltdown.
A: Membership in the EU does have its advantages, as Sumeet has pointed out; however, the risks of EU membership for the weaker nations from this point on due to the financial debt crisis far outweigh the benefits. Not a single EU member nation has offered to put money forward to solve the debt crisis, though many of them have the capital. Instead, they are currently in negotiations with outside nations such as China and Brazil who have made it clear that any contributions that they make will not be to an EU operated rescue fund but will instead be channelled through the IMF. What purpose does an economic union serve if the member states act in terms of their own individual interests instead of working towards unified economic goals? – In particular, the strongest nations such as Germany and France, who have benefited immensely from the competitiveness afforded to them by the weaker Euro. Can such an arrangement even be referred to as a Union? As Sumeet mentioned, the proposed solution is a reactionary one, essentially a band-aid solution. The current proposed plan doesn’t deal with the structural problems of the EU and is not a long-term solution. The plan doesn’t address the economic imbalances that exist within the EU or the feasibility of the austerity measures that will be put into place on the citizens of the countries in debt crisis.
S: Agreed. The issue of sovereign interests conflicting with the collective stability of the EU is a systematic problem, but there are two options by which it can be address. One is that the EU can simply ex-communicate irresponsible countries like Greece in order to keep investors attracted to EU member markets. The second option is for the EU to impose tighter regulations at the fiscal level to avoid over-spending in member states, which is an attractive idea. Fiscal unity is beneficial to all EU members when managed properly, and without the EU, individual members lose the benefits associated with a shared economic zone. In terms of purchasing power, the Euro still stands strong relative to its implementation. The European labour market has created 14 million jobs in the past 12 years, as opposed to 8 million created in the U.S.. The current budget deficit in the U.S. is 10 per cent. It’s 4.5 per cent of GDP for the EU cumulatively. So as easy as it is for critics like Amanda to denounce the EU as a failed project, let’s not lose sight of the promise it holds.
A: The EU has benefited European citizens in the past, but membership within the EU has also been detrimental to many of its member states due to the internal imbalances that exist within the EU. Spain, for one, has an unemployment rate of 21% overall and of 40% among youths. Germany, however, has gained export competitiveness from a weaker euro. The structure of the EU is fundamentally flawed and this has been made clear recently by the economic crisis in Greece. The member countries are intertwined to the extent that an economic crisis in one country negatively impacts the other countries, but they are not close enough that they can control each others economies in order to prevent economic crisis (as evidenced by the fact that Greece successfully hid the true amount of their debt for years). There is too much disagreement among EU members as to how much control each country should have over its economy. The EU should have been more integrated fiscally from the beginning, with less power attributed to individual nations. There should have been more cross-boarder infrastructure development. Instead, many of the EU countries have consistently acted in their own interests, without thinking of how their actions will impact the rest of the EU members. It does not make sense that there are so many countries in the EU that are struggling (Italy, Portugal, Greece, Ireland, Spain etc.) and yet others are powerhouses. These internal imbalances are detrimental to all members. The EU powerhouses are reluctant to contemplate restructuring the Euro or the break-up of the EU, but it may be the best solution for the weaker nations.
S: Amanda argues that weaker countries are subservient to the interests of stronger countries; however, the EU has no mandate that all countries become equally wealthy. To validate her claim, Amanda would have to prove to us that Greece or Italy would be better off without the EU, which I don’t think is the case given that their problems stem from internal conflicts. Second, the fact that greater fiscal unity is even being considered is a mark of progress. Finally, Amanda forgets the reason the EU was established in the first place. It wasn’t to evenly distribute wealth to its member states, but instead to create opportunities for those states to prosper in circumstances that they wouldn’t be able to otherwise. Common polices on trade, agriculture and fisheries harmonized industries that had been inefficient for decades. Further, the creation of a single market that allows for the free circulation of goods, capital, people and services within the EU is a net benefit to every member if its privileges are not abused. The EU is the first entity in history to fully realize that nations are interconnected with each other regardless of whether they belong to a larger union, and so it makes more sense to engage with the global market as a collective bloc. We cannot dismiss the EU wholesale; it has largely been a success, and the union is flexible enough to accommodate for change.