The Euro Crisis- a Case Study

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The Euro Crisis- A Case Study

By Subhayan Mukherjee:

The economic and political success of the United States of America, since the end of the Second World War had prompted their cousins across the Atlantic to dream of an entity that could be called the United States of Europe. But between this vision and its implementation lies a plethora of political, linguistic, financial and nationalist borders that cut up and divide Europe into small nation states, many of which are similar in physical and economic size to the states of America. This proliferation of borders in Europe has had a crippling effect on its economic wellbeing, especially after the European states lost the colonial hinterlands in Asia and Africa whose natural resources were the bedrock of their economic health. To compensate for the loss of the colonies, European nation states have been dreaming of an economic and political union that would rival the Russian confederation of the East and the United States on the other side of the Atlantic.

The path to this final union was supposed to lie through three steps. The first is the European common market that would dissolve trade and customs barriers across Europe and convert it into one economic entity. The second step was to give this economic entity a common European currency called the Euro. And the third step which has not been fully implemented is the creation of a European parliament in Strasbourg which would create an entity where individual European nationalities will be subsumed.

Europe suffered a major slip, or rather, stumbled and fell flat on its face, precisely because the economic union was not supported by the underlying political union. The behavior of a currency, in terms of its valuation with other global currencies is closely governed by the nature of the economy, which in turn is governed by underlying political decisions regarding government spending, fiscal deficit and public indebtedness. If governments behave with...
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