European union and Eurozone: structural challenges and vulnerabilities for international trade and finance

Abstract

In our project work, we have tried to analyze the current situation with the EURO. Going back to the origins, with the failure of the Bretton woods system, leading to a concerted effort to work towards the formation of the EMU, how the 2008 global financial crisis opened the underlying structural flaws of the EMU. We also looked at how the recent crisis of BREXIT and the Ukraine war has affected the sentiments within the EU about a unified monetary union and whether it can sustain with the current policy framework or not. Through extensive research on past studies about the EURO and the monetary union, we found that the founders of the EMU never envisaged (any stress test) a situation like the financial crisis (a market-induced crisis) of the magnitude of 2008, and they never really experienced the great depression of 1929 while formulating the underlying assumptions for a monetary union. The regional disparities in development, income levels, GDP, and culture were only a matter of time before the cracks would begin to show in this fragile union. Vested interests, mainly of political nature, have led to the Maastricht treaty framework criteria being largely overlooked. The fractures developed post-2008, and the EU's proposing austerity rather than fiscal stimulus has led to widespread unemployment and resentment among the citizens of the member states. The latter hold the EU and the EURO integration responsible for their present plight. The EU must first win its legitimacy back, which would require both a short-term and long-term solutions. Many issues have their genesis in the 2008 financial crisis; however, it is not the only cause of the present turmoil. With slow economic growth, substantial sovereign debt the EU has seen a rise in populism harden opposition into a rejection of the very goals and accomplishments of the EU. A cohesive and all-inclusive policy needs to be developed jointly by all nations (not restricted to major countries like Germany & France). Monetary union coupled with some fiscal targets which are diligently monitored and adhered to is the need of the hour. In a widely diverging landscape, it is essential to inculcate a feeling of “one Europe” among the nation-states for any long-lasting solution, which will require solidarity from the more powerful northern members and a high level of morality and strong governance from the southern states.