The EU is one of the most major actors in the World with nearly 500 million citizens and 15$ trillion total GDP which is the biggest in the World. Moreover, the EU is the most influential players for external trade in the World. Furthermore, it can be said that the EU is the most active promoter of trade liberalization but at the same time it is vulnerable to external or systemic shocks like the last financial and economic crisis. However, the last financial crisis is a perfect example to test the EU’s functioning of the EMU, its efficiency for policy coordination and its external economic role.
The EU’s Internal Economic System
Main Targets: Common policies and coordination through Single Market and EMU, further liberalization and more business friendly environment (Tsoukalis 2005).
Monetary policy capacity: Truly supranational.
Main Actor: European Central Bank.
Fiscal policy: Remains largely national.
The EU’s Trade Power
‘The EU is a formidable power in trade. […]. Its potential hegemonic power based on its capacity to grant or withhold access to its internal market has become as strong as the US’ (Meunier and Nicolaidis 2005, p. 265).
Summarizing we can say that the EU is ‘a powerful and expanding trade bloc which has not always been successful in translating internal integration into external common policies’ (Tsoukalis 2005, p.225).
Main Findings
What does the financial crisis tell us about the EU in external economic affairs?
A) The ECB’s international role is limited.
As Hodson and Quaglia state ‘The financial crisis has confirmed that the ECB has limited options available for enhancing the perceived benefits of the Euro during a period of heightened uncertainty over the economic outlook’ (Hodson and Quaglia 2009, p. 947).
B) There is a need for European and international coordination: Ad hoc coordination and burden sharing.
One of the most prominent features of the financial crisis is the extent to which it inspired ad hoc attempts to coordinate emergency responses internationally and among the EU member states (Hodson and Quaglia 2009, p. 949). The Financial Stability Board was the main forum for international coordination between IMF, WTO and World Bank.
C) The challenging role for European banks and financial institutions.
According to the Hodson and Quaglia (2009, p. 950) ‘Europe’s exposure to the crisis challenges our understanding of the role of the banks and financial institutions in European models of capitalism and the complex relationship between economic monetary and financial integration within the EU’.
D) The European and international financial supervision failed.
As European Commission (2009a, p.2) notes ‘Current supervisory arrangements proved incapable of preventing, managing and resolving the crisis. Nationally based supervisory models have lagged behind the integrated and interconnected reality of today's European financial markets, in which many financial firms operate across borders. The crisis exposed serious failings in the cooperation, coordination, consistency and trust between national supervisors’.
E) There are increasing fears for protectionism.
Rob de Wijk believes that ‘protectionist policies have already begun to mushroom in both the U.S. and Europe, with the "Buy American" requirement of the U.S. economic stimulus package raising worldwide concerns. Within the EU, there is anxiety that the Single Market will be threatened by national measures’ (Wijk 2009, p. 77).
F) The European Union is not able to wrest financial leadership.
According to Cohen (2009, p. 763) ‘The global economic crisis that erupted two years ago offered a golden opportunity for Europe to wrest financial leadership from the United States either on its own or in coordination with Japan, China and others. However, European governments have not proved equal to challenge, seemingly unable to co-ordinate initiatives even within their own institutions’.
G) The European currency has an ambiguous international role.
The European currency is a limited to countries with close geographical and institutional links to the euro area and as a result the internationalization of the European currency is ambiguous (Cohen 2009).
Conclusion
To sum up, the crisis revealed the inherent, institutional and economic deficiencies of the EU that they negatively affect its international role. However the European response was effective. Loukas Tsoukalis proposes that ‘the EU needs to be a major player on the new global architecture’ (Tsoukalis 2009, p. 92).
References
Cohen, B., 2009. Dollar Dominance, Euro Aspirations: Recipe or Discord?. Journal of Common Market Studies, 47 (4), 747-766.
European Commission , 2009a. European Financial Supervision. Communication from the Commission, COM 252 final, Brussels.
European Commission, 2009b. Economic Crisis in Europe: Causes, Consequences and Responses. European Economy 7, Brussels.
Hodson, D., and Quaglia, L., 2009. European Perspectives on the Global Financial Crisis: An Introduction. Journal of Common Market Studies, 47 (5), 939-953.
Meunier, S., and Nicolaidis, K., 2005. The European Union as a Trade Power. in Hill, C., and Smith, M., 2005. International Relations and the European Union. The New European Union Series, Oxford University Press, Oxford.
Tsoukalis, L., 2005. Managing Interdependence: The EU in the World. in Hill, C., and Smith, M., 2005. International Relations and the European Union. The New European Union Series, Oxford University Press, Oxford.
Tsoukalis, L., 2009. Overcoming the Crisis. Europe’s World, Summer, 76-107.
Wijk, R., 2009. The Consequences for Europe of the Global Crisis. Europe’s World, Autumn, 75-78.
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