Will the European Union Come Through Crisis?
Sunday, September 20, 2009 at 07:58 AM EDT
Spain has passed from rating â€˜AAAâ€™ â€˜to rating â€˜AAâ€™, after Standard & Poorâ€™s, the 1st international rating agency (IRA), lowered its assessment of long-term debt; so she did with Greece, Ireland and Portugal. This is the first time that the S&P financial rating drops for Spain in 30 years.
What is under consideration?
From the French side, on the one hand, what is at issue is the
structural weakness of these economies. Beyond a snide comparison with the food
and the stars of the Michelin guide, this decision might have serious
consequences for the countries concerned and for the future of the European
Union. Because the differences between European states today are so important
that each country acts without consulting others, and in addition, the principle of subsidiarity seems more often invoked than
Alternatively, many well-informed specialists consider that the announced downturn due to the financial crisis is greatly exaggerated . Most of banking operators have dealt with serenity and the European Commission forced restructuring of banks that received state aid to encourage further integration of the sector within the EU single market.
A Special Report on the Euro Area  published in The Economist pointed how the Euro has brought however, an irrelevant achievement.
Even if the Euro has not made possible significant gains in productivity or GDP, it has unquestionably engendered greater stability.
What can the Europe Union do to face this?
Despite the bad omens of some analysts, the current crisis shows how the Euro area is not at a critical stage of its existence yet.
Then again and despite of a single currency, there is no economic policy, no budget, no solidarity. Spanish government on top and, to a lesser extent French as well, believe that, to be able to attest its usefulness, the EU might directly help the most vulnerable States by financing reflation plans mutually beneficial.
Oddly, countries that are now complaining of the burden of the Euro are those that once mainly benefited from their membership to it. Thus:
Too much at once, as the prosperity met with prices and unit wage costs getting higher, both of which are now particularly painful in the context of recession. Aided by a strong currency, its current account deficit has risen to 10% of GDP. Same for Greece, Italy, Ireland and Portugal. As the report  explains
The consolidation of the Euro area needs to move up a gear in terms of
political ambition and economic governance. Economic governance, the word is
dropped, and it is on everyoneâ€™s lips.
As indicated earlier, prestigious analysts point that the consequences of the so-called recession are important, but that its context has been exaggerated too. .
Alternatively, for The Economist, leaving the Euro zone is inconceivable:
Therefore, borrowing costs would increase considerably, which could induce a wage-price spiral. Inflation and currency stability would be precarious at best. Thus, it is not surprising that in most European member states, citizens surveyed remain strongly in favor of the euro. Additionally, those who are about to join, remain more convinced to do so:
Romania and most Baltic countries have already ask the EU and the IMF for help to avoid a loss of investor confidence. Poland is also vulnerable to exchange rate because many of its loans are denominated in foreign currency, and it should join the Euro in 2012.
 â€˜EU cross-border banking will survive crisisâ€™, Paul Taylor, The Guardian, July 27 2009.
 â€˜Holding togetherâ€™ â€“ A special report on the Euro area. The Economist, June 11 2009.
This article originally appeared on Second Nature (Zikipediq's Blog).