ENU: European Non Union

Even for an observer like me, it is a big disappointment to see a debate whether EU would continue or not. The economies of scale which it brings, were not only considered profitable for Europe but also for the nations they transact with. But today when this discussion on continuity of EU has to be chastened, here are my thoughts on what went wrong.

The concept of economic union is quite slippery. Because every member wants to participate in it for an economic benefit and when there is an economic benefit, staying away they would rather prefer that. Thats what is now happening with Germany which does not want to help Greece because there is no potential benefit from helping a 'lazy' member. They are not very keen on concept of one currency now as it carries no economic sense in trading in a single currency. From Germany's side, out of all its peers, they are the only country which can have positive growth rates this year while rest of Europe wrangles to come out of recession. So why would they give all their money to a laggard economy and cut down their fruits of growth?

Next the fact that the economic union is headed by a powerless governing body, which has no authority to obligate or punish erring big boys, is a big pull back. The only aspects which the EU controls or rather overlooks are trade, research and some common activities. It has no power to dictate the governing finance laws. It has no defense body. It has no taxation authority. So how can it enforce a wealthy member subsidize a poor member? To analyse how this affects, I extend the analogy in the Indian context. India is formed from 565 princely states and a British Raj. The integration was possible because, the federal government, controlled the central taxes through which it can collect money from wealthier states, it had a standing army to punish erring states, it had the authority to control all incoming wealth into member states through foreign affairs policies. Because of this a state a wealth generator like Gujrat cannot prevent central government from using its money in a state like Bihar. Through this it can always improve the conditions in states like Bihar from the wealth generated in other states. This is also the same parent-child relationship pattern among the federal and state governments of United States of America. This control is absent in EU.

The cultural impact is apparent. Even with a free migration in between member states, the schengen visa, fast connecting infrastructure Europe cannot be considered one entity. The cultural differences are huge and langauge is surprisingly the biggest barrier. Here they should pick a few lessons from USA and India about cultural tolerance, acceptability, respect and non-racist behaviors. Until they feel that their neighbor is equally intelligent and capable, irrespective of their language they speak or the traditions they follow, they will not be able to accept the 'Others Europeans'. And until they start accepting 'Other Europeans' as their peers/friends they will not sacrifice to help them.

Last, but not least, countries like Greece rushed in to embrace Euro. Here UK has shown its maturity in maintaining the relationship with EU but sticking to its currency. The fact that there are countries within Europe which are not same in terms of transparency should have been given a better thought and worked upon. What remains to watch is, what happens when more countries start joining the union and shifting to Euro. There were already some apprehensions while discussing Turkey.

I am confident that Euro for all practical purposes will be continued as a single currency for atleast a decade. After all it took almost a decade to shift to a new currency they would not now shift back to their previous currencies (whose transition will take another decade). But for the future success of Euro all this should be factored in.

P.S: Some thoughts are borrowed from "Will Debt do them Apart" by Sanjaya Baru from today's Business Standard.