EU I: Austerity and Labor Strikes

LETTER FROM THE DAIS

Dear Delegates,

It is my great pleasure to welcome you to the 5th annual Yale Model United Nations Taiwan. My name is Hanah Lee, and I am greatly looking forward to serving as your director for the European Union committee this year. Over the course of the next few weeks and during our conference itself, I hope that the mission of YMUNT to “Empower, Enrich, and Excel” truly shines in both your individual research and the productive, energetic conversation we will have in committee as we tackle the complex problems presented in this topic guide.

Just as I would like to get to know you better during the conference, let me share a bit more about myself here. Originally from Arcadia, California, I decided to make the big move to the East Coast for college, where I am a sophomore at Yale in Silliman College double majoring in Global Affairs and Ethics, Politics, and Economics. A die-hard fan of the Yale International Relations Association, I joined the YIRA community without model United Nations experience, but I cannot imagine a more formative college experience. Besides serving as your Director-General of Committees for YMUNT V, I have also worked on the secretariats of Yale Model United Nations (YMUN), Security Council Simulation at Yale (SCSY), and International Relations Symposium at Yale (IRSY). Outside of YIRA, you can also find me working with the Asian American Students Alliance, Korean American Students at Yale, Yale Undergraduate Diversified Investments, and Design at Yale. In my spare time, you can usually catch me binge watching rom-coms (Clueless!) and napping!

It is such an exciting time to be discussing the European Union. An unparalleled experiment in integrating nations of vastly different backgrounds and cultural values, the European Union has been tested time and again by various crises. Especially in light of the rise of eurosceptic parties in recent European elections and the tough negotiations currently taking place regarding Brexit, which you will learn are tied to a multitude of other factors relating to this institution, the question of complete European integration still remains relevant. As we discuss international cooperation both within and outside of the European Union, and the capacity and duties of different member states in this body, I look forward to seeing how cooperation within our committee can facilitate our progress towards addressing these difficult challenges.

Again, I cannot wait for the discussions and thoughts that lie ahead in the upcoming months. I highly encourage you to take advantage of the information laid out in this topic guide and to do research of your own to bring new and interesting thoughts to the table. If you have any questions at all, please feel free to contact me at hanah.lee@yale.edu. See you in March!

Best,

Hanah Lee

The founding goal of the European Union was to help the continent of Europe adjust after the devastation created by World War II, which had ended 5 years earlier, and to create lasting peace and democracy amongst members states. Before the European Union, there was the European Coal and Steel Community, formed in 1951 by France, West Germany, Italy, the Netherlands, Belgium, and Luxembourg. With the goal to make war “not merely thinkable, but materially impossible,” the ECSC pooled coal and steel production amongst the member states.[1] That is, by integrating coal and steel production and markets amongst members, each state had a vested economic interest in cooperating peacefully with the others. In 1957, the Treaty of Rome created the European Economic Community (EEC) which was more formal than the European Coal and Steel Community.[2] The EEC members states wanted to remove trade barriers in order to create a shared free market.

The 1960s saw a better period of economic growth for the EEC member states, which had stopped imposing customs tariffs on inter-EEC trade.[3] In 1967, the EEC joined with two other European communities—the ECSC and the European Atomic Energy Community— to create a single commission, council of ministers, and parliament called the European Community.[4]

This was followed by the joining of Denmark, Ireland, and the United Kingdom in 1973, the first of many enlargements of the European Community. In 1979, the first direct elections for the European parliament were held by universal suffrage.[5] Throughout the 1970s, the European community led a charge against pollution and climate change, introducing the idea of “polluter pays” laws for the first time.[6]

After the addition of more member states (Greece, Spain, and Portugal), the Single European Act was signed in 1986 to address the problems with free trade flow across member state borders and codify foreign policy provisions between members to ensure “European security.”[7] The 1980s also held a pivotal moment in European history when the Berlin Wall was pulled down, leading to the eventual reunification of West Germany and East Germany in 1990.

Finally, on November 1, 1993, with the passage of the Maastricht Treaty (led by Helmut Kohl and François Mitterrand), the European Union was formally established. The Schengen Agreement paved the way for open borders in the EU by allowing citizens of member states to travel across EU borders without a passport.[8] However, in light of recent terrorist attacks and the current refugee crisis, the EU has temporarily implemented passport controls across certain member states.

In 2002, the euro became the single currency of the union in 12 out of 15 nations of the EU.[9] However, following the global financial crisis of 2008, the European Union has had many economic troubles in the past decade. The EU responded to debt crises in some member states of the Eurozone with austerity measures but has struggled to effectively manage debt and respond to labor unrest. Furthermore, religious extremism in the Middle East and other parts of the world has left the EU faced with the dilemma of how to respond to terrorist attacks upon member nations and the increasing number of refugees, particularly how to balance the ideals of “European security” with free and open borders. Euroscepticism, or criticism of the main principles behind the European Union and European integration, has grown in the past few years—most clearly evident in the recent decision by the United Kingdom in June of 2016 to leave the European Union.

Note: Scholars differ in the spelling of this concept, sometimes using “Euroscepticism” and other times using “Euroskepticism.” Both spellings will be used in this topic guide and will be accepted in committee. It remains to be seen how the EU will manage Brexit, refugees, austerity, and other pressing issues in the 21st century.

The introduction of the euro in 2002 as the single, official currency of the European Union was a big push towards affirming the European Union’s role as the largest economy and trading bloc in the world. However, beginning with the global financial crisis of late 2007 and 2008 onwards, the troubles of financial institutions such as the European Central Bank, as well as high sovereign debt, have threatened the stability of the Eurozone. The Eurozone crisis highlighted the “economic interdependence of the EU, while also underscoring the lack of political integration necessary to provide a coordinated fiscal and monetary response.”[10]

Under the Maastricht Treaty, which led to the formal European Union and the 1997 Stability and Growth Pact, states adopting the euro had to meet and maintain certain economic standards. Specifically, inflation had to be below 1.5%, budget deficits below 3% of GDP, and individual debt-to-GDP ratios below 60%.[11] However, in the years following the adoption of the euro, strict adherence to these rules was not enforced, resulting in weaknesses that would become evident during the Euro Crisis. For example, data from the IMF Public Debt Database displayed worrisome trends in countries such as Italy and Greece, which both had debt-to-GDP ratios above 90% since the early 1990s.[12] However, the low distribution of sovereign debt did not seem particularly indicative of a broad, Eurozone-wide fiscal crisis.

In fact, from 2003 to 2007, the European Union saw a great expansion of its economy coupled with unusually low, long-term interest rates. Part of this increase had to do with a credit boom, coupled with a securitization boom in international financial markets and a growing U.S. economy.[13] In countries such as Ireland and Spain, the credit and housing booms helped produce extra tax revenue; other fast-growing Eurozone countries saw boosted tax revenues as a result of inflation rates higher than the Eurozone average. However, this extra revenue was only partially diverted towards improving fiscal standing; most of the revenue was used to increase public spending and implement tax cuts.[14] The European Central Bank set a common interest rate that was both insufficiently high to combat economic stagnation in Northern Europe and historically low for periphery states (Ireland and Southern Europe), facilitating imbalances in borrowing and spending within these countries.[15] Without a central fiscal policy, capital freely flowed south from Northern investors seeking higher-yield returns, fueling asset bubbles (asset prices were severely artificially inflated) and public spending in the periphery.

August 2007 marked the beginning of the global financial crisis. Strapped for cash, the European Central Bank (ECB) had begun liquidation operations, making European banks more susceptible to losses in the U.S. market. In essence, the ECB had slashed short-term interest rates, provided extensive euro-denominated liquidity, and entered into currency swap arrangements to facilitate European access to liquid financial assets in US dollars.[16]

However, the 2008 global financial crisis, triggered by the collapse of the U.S. housing bubble, dried up liquidity and exposed deficits and large public debts across Eurozone countries. Public confidence in European financial institutions plummet, sparking banking crises all over Europe as citizens panicked and withdrew their assets from banks. As GDP declined in the majority of European countries, late 2009 ushered in the era of the sovereign (government) debt crisis in the Eurozone.

Peripheral eurozone member states, such as Greece, Spain, Ireland, Portugal, and Cyprus, found themselves unable to repay or refinance government debt or to bail out their national banks without the help of larger, third-party financial institutions such as the European Central Bank (ECB), International Monetary Fund (IMF), and the European Financial Stability Facility (EFSF).[17] The latter institution, the EFSF, was created in June 2010 by the European Commission, ECB, and IMF as a temporary crisis resolution for euro area member states through bond issuance and other debt instruments.

Note: The European Stability Mechanism (ESM) was started in October 2012 as a permanent rescue mechanism for requests of financial assistance by euro area member states and is now the sole institution for responding to new requests.[18]

In Greece, fiscal accounts for previous years and the 2009 budget were revised to show significantly larger deficits than previously reported. From May 2010-April 2011, Greece, Ireland, and Portugal were shut out of the bond market and requested official funding. The EFSF, along with the ECB and IMF, provided a three-year bailout package to the three nations with the stipulation that the three countries implement financial austerity packages and structural reforms to boost growth in both the economy and overextended banking systems.[19]

By the end of 2011, the Eurozone crisis had spread to larger European countries, such as Italy. Then-Prime Minister Silvio Berlusconi’s government was replaced with a more conservative government, which aimed to implement budget cuts and reforms for the pension and labor markets. Spain was also forced to request a bailout to recapitalize its banks; EU funds granted Spain $123 million in 2012 for their bailout.[20] Subsequently, conservative and pro-austerity Prime Minister Mariano Rajoy defeated Socialist leader Jose Luis Zapatero in 2011, reflecting a change in sentiment towards austerity.

While the 2008 financial crisis left many European countries struggling to rebuild their economies, Germany seemed to rebound much more quickly than its fellow EU-member states. A strong export sector, low unemployment, strong housing, and structural reforms that benefited the labor market helped place Germany in a prime position to recover from the economic crisis that wracked Europe. In large part, Merkel’s commitment to fiscal austerity helped reduce national debt and contributed to Germany’s first budget surplus since the 1960s. A boom in German exports, particularly amongst small to medium sized firms specializing in niche products, also helped contribute to Germany’s economic growth—in fact, these firms represent half of Germany’s output and over half of its workforce.[21]

Germany’s economic dominance has also translated into greater responsibility in stabilizing eurozone states and the euro. Because of its fiscal strength following the 2008 crisis, Germany agreed to take on a greater burden in the bailout of other eurozone states that were still struggling, such as Greece and Spain, so long as it was able to dictate the terms of the bailouts. In recent years, the continued lag of other eurozone states to recover economically and the backlash against the German-instituted austerity measures in other states have renewed labels of Germany as a hegemon and negative conceptions of Merkel. As EU members reconvene to discuss how to save the euro, discussion will be reopened on whether or not the German model should be followed and the implications of the decisions made.

As of 2014, periphery Eurozone countries, except Greece and Cyprus, have completed their bailout programs. There are signs of optimism—Ireland was designated the fastest growing Eurozone country in 2015 and Spain’s economy has been growing since 2013.[22] In 2014, the Single Resolution Mechanism (SRM) was also passed in an effort to manage future bank failures while the Single Supervisory Mechanism (SSM) established the ECB as a supervisory figure in the eurozone as well as for potential member states.

However, “structural problems persist, including stubbornly high unemployment, weak banking systems, huge debt, and rigid labor markets.”[23] For example, in Spain, unemployment remains over 23% while Ireland and Portugal have public debts that are over 120% of their GDP. Moreover, the European sovereign debt crisis has also given rise to Eurosceptic political parties, such as the National Front in France or the Freedom Party in Austria. These parties frequently speak out against the purpose of European integration, framing the European Union as a power-hungry institution drawing away from national sovereignty and pointing to severe problems like the eurozone crisis and migrant crisis as the EU’s failures.

Especially over the course of the Eurozone crisis, the use of austerity has sparked controversy. On one hand, many noted that austerity and the tough economic adjustment programs for countries receiving financial assistance were, in fact, the best policy option to protect German banking interests.[24] From this perspective, austerity measures can be seen as a protection measure for German and French banks, shielding them from losses by shifting the cost of rescue to the governments in need. But on the other hand, backlash against EU austerity has been widespread. For example, in July 2015, the Greek people voted against bailout and further austerity measures after the government almost defaulted the month before. Anti-austerity sentiment was not new in Greece, either. In May 2011, the Indignant Citizens Movement began major demonstrations and general strikes across major Greek cities to protest the government’s new austerity measures, which were necessitated by the bailout plan.

Like in Greece, public indignation of austerity has caused strikes sponsored by labor and trade unions, including those that involve transnational cooperation. For example, Europe’s major trade unions called November 14, 2012 the “European Day of Action and Solidarity” to speak out against austerity; unions attacked austerity for inducing the European Union into a recession, resulting in cut salaries, rising unemployment, and stagnant growth.[25] In Spain and Portugal, flights were cancelled, car factories stopped production, and trains barely ran during their coordinated labor strike. Work stoppages and demonstrations erupted across other nations, including Greece, Italy, France, and Belgium.[26]

Particularly, support of the general strike from the European Trade Union Confederation, which represents 85 labor organizations and over 60 million members, sent a strong message towards government leaders and IMF and EU policymakers about the strong sentiments against EU austerity measures.

The eurozone debt crisis significantly crippled many European economies, reducing GDP growth while raising unemployment rates. Currently, as a result of the austerity measures implemented to cut back on debt, there are some signs of recovery in the EU. For example, in 2015, all member states of the EU were expected to experience a positive growth in GDP, rising to 1.7% for the entire EU and 1.3% for the eurozone. In 2016, forecasts showed a 2.1% and 1.9% increase in GDP, respectively.[27]

However, despite its promising nature, the EU’s continued recovery has proceeded at a slow rate. While growth increased 0.5% in the first quarter of 2015 compared to the previous quarter (the fastest increase since recovery started in spring of 2013), the growth later slowed down to 0.4% in the second quarter and to 0.3% in the second half of 2015.[28] Overall, despite improved numbers, eurozone GDP remained below its pre-crisis peak in 2008.

Much of the growth that has occurred in the euro area can be attributed towards consumer spending, particularly after the recent fall in oil prices. GDP recovery has also been aided by quantitative easing procedures by the ECB, implemented in March 2015, and negative interest rates, begun June 2014 (since a weaker euro helps exporters). However, future recovery will be complicated by the falls in European stock markets that took place in early 2016 (especially in banking shares) that may decrease consumer confidence in spending. Additionally, a slowing economy in China could harm domestic exporting companies. Still, low oil prices, loosened ECB monetary policies, and a fiscal stimulus from refugee spending in Germany will continue to push recovery in the EU along.[29]

Looking forward, the euro area will have to continue to address citizens’ concerns for unemployment and public debt. In January 2016, for example, Greece, Spain, and Cyprus all reported unemployment rates above 15%, with the first two countries holding unemployment rates above 20%.[30]

Germany and Austerity

In large part, Germany, led by Chancellor Angela Merkel, played a central role in organizing the EU response to the eurozone crisis. Throughout the crisis, Germany’s strong economy—the fourth-largest in the world—helped provide a financial rock to help implement response measures. However, recently, the German economy has begun faltering. In August 2016, the German economy reported its weakest performance in the service sector in 15 months, andthe economic slowdown in both China and eurozone countries has hurt exports to these areas while also reducing return on investment.[31] The fate of the German economy is essential for Eurozone recovery and thus an important trend to follow.

However, backlash against the German-driven austerity policies has manifested from popular discontent with the sluggish pace of recovery. Though not a perfect representation, the Obama administration’s $787 billion stimulus fiscal bill, which involved tax cuts and increased government spending led to seemingly faster recovery in the United States which was compared with the results of austerity in the European Union.[32] Still, Germany remains unwilling to relinquish these austerity measures for greater bailout and increased spending to stimulate the EU economy; Germans fear increased inflation and a loss of their own economic stability through their actions preventing against instability in other eurozone countries.

Some economists claim that Germany should not be worried about inflation, but rather the opposite—deflation. Austerity measures could also lead to dropping prices which would reduce demand for good and services, subsequently lowering the willingness of firms to supply more and expand. The traditional response, these economists claim, would be for the government to intervene and subsidize production or supply some fiscal investment to give firms the incentive to expand and hire.[33]

Italian Prime Minister Matteo Renzi, especially, has been an outspoken critic of Germany’s austerity measures. In September 2016, Renzi told the Council on Foreign Relations at the UN General Assembly that “stressing austerity means destroying Europe. Which is the only country which receives an advantage from this strategy? The one which exports the most: Germany.”[34]

Anti-Austerity Alliances and Labor Strikes

Discontent against austerity has fostered the growth of anti-austerity alliances ranging from discussions between heads of state to more populist movements. In effect, anti-austerity sentiment has led to a greater divide between the northern and southern regions of the euro area, with areas in the north (most notably Germany) progressing further than those countries still struggling in the eurozone periphery.

On September 9, 2016, Greek Prime Minister Alexis Tsipras hosted a conference in Athens with the heads of four other Mediterranean EU member states (France, Portugal, Cyprus, and Malta) to discuss the possibility of forming an EU “southern front” to acquire more political capital in European policymaking.[35] In particular, Tsipras explored the idea of pushing back against northern-driven austerity measures by restructuring debt response and lowering surplus targets by creditors. However, the financial instability of some of these member states also poses questions about the actual resources they have to significantly influence EU decisions.

For workers, disappointment with the efficacy of austerity measures has resulted in continued labor strikes to protest EU measures. During the financial crisis, cut wages were justified as part of the budget tightening measures necessary to cut down on debt and increase exports. Discontent with the progress in post-austerity Europe, European workers across member states have taken to strikes to protest austerity, cut wages, and other labor laws. In summer 2015, workers echoed previous strikes when police workers in the Netherlands, airport staff in Spain, dock staff in France, and many other laborers across Europe began organizing serious strikes through their respective labor unions.[36]

Later that year, in November 2015, Greek labor unions held a general strike to protest austerity measures following the Greek bailout, blaming government cutbacks for Greece’s “economic woes and record-high unemployment.”[37] This was the first major union strike against Greece’s left-wing Syriza party government, which had promised to end austerity measures while preserving the euro.

However, despite the collective action both in and between European labor unions, some unions have also lost their power. An analyst at the European Trade Union Institute pinned such loss of influence over governmental restrictions on collective bargaining during the crisis years. In the absence of union power, discontent workers have begun to look towards more radical political parties that focus on dismantling austerity measures rather than combating wage and other labor issues.[38]

Rise of Nontraditional Parties and Euroscepticism

The effect of the Eurocrisis response on European politics is particularly interesting. As a Pew report puts it, the economic downturn in the eurozone has led to “rising public support for nontraditional political parties, fueled mostly by anti-EU, anti-austerity populist sentiments.”[39] The European Union’s slow and arguably weak response to the eurozone crisis cut public faith in the EU’s capabilities and mission, created public disillusionment with European institutions (both political and fiscal), and contributed to the rise of both left- and right-wing populist parties that expressed discontent with the European Union and its actions.

In European countries such as Finland, Hungary, Norway, and Switzerland, right-wing parties have shifted the balance of power away from the ideological center. Right-wing populists have also gained popularity in more powerful, centrist governments. For example, the United Kingdom Independence Party (UKIP) earned 13% of the vote in the 2015 parliamentary elections, making it the 3rd most popular party in the UK.[40] On June 23, 2016, the UK voted to leave the European Union, a move supported by the UKIP. The Eurosceptic, right-wing National Front party has also gained traction in France, supporting anti-euro and anti-immigrant policies. The National Front president, Marine Le Pen, is a primary contender for the 2017 French presidential election. Even in Germany, the rise of the Alternative for Germany (AfD) party has introduced some doubt towards the stability of Merkel’s control.

Meanwhile, in southern Europe, leftist populist parties have taken hold, promoting an anti-austerity agenda. For example, in Spain, the left-wing Podemos party received 21% of the votes for Parliament in the December 2015 elections. And in Greece,Prime Minister Alexis Tsipras’ left-wing Syriza party currently heads a coalition government with the right-wing populist Independent Greeks party.[41]

In the aftermath of the Eurocrisis, popular discontent with the responsiveness of established parties to the people’s issues have led to the rise of such populist movements. The irony of the situation is that “the continent’s problems can only be addressed through increased cooperation, but European electorates refuse to authorize any further transfer of sovereignty to Germany.”[42]

In the upcoming months, the European Union must focus on how to best address these challenges while maintaining unity within the EU. Already, the UK has voted to leave the European Union, a process still under discussion and negotiation. On December 4, 2016, Italy held a referendum for major constitutional change. While not directly tied to the European Union, the referendum, promised by Prime Minister Renzi as part of his campaign platform, is still largely a statement of rising populist sentiment. Largely, it was meant to address Italian concerns with government under Renzi, especially to combat the rise of smaller, populist movements such as the Five Star Movement under Beppe Grillo. A “yes” win for the referendum would have affirmed the populist goals of movements such as Grillo’s, which advocate leaving the eurozone and distancing from the EU.[43] However, on December 4, the majority of Italians firmly voted “No” (59%) on the referendum and Renzi stepped down as Prime Minister. While Italy’s future is still uncertain, it should be noted that the euro’s worth fell significantly (when compared to the dollar) before the vote but bounced back to a recent high after the referendum.[44]

A Closer Look: The Situation in Greece

The fiscal crisis in Greece was one of the first signs of trouble in the eurozone and the troubles that plagued the Greek government raised many questions about the stability of the European Union in general. However, while other EU member states have begun to show some signs of recovery over the last few years, Greece has continued to struggle to recover from the aftermath of the financial crisis.

Though Greece received bailout packages from European fiscal institutions and continued to increase taxes, cut spending, and reform its banking system, Greece’s economy continued to remain in a rocky position. In short, the bailout programs had failed to do as well as hoped. Even the International Monetary Fund, which had originally declared the first bailout (May 2010-March 2012) “a firewall to protect other vulnerable members and [avert] potentially severe effects on the global economy,” later revised its optimistic report. In 2012, Greece faced 25% unemployment while GDP was 17% lower than it was in 2009.[45]

Growing resentment amongst the Greek led to talk that a “Grexit” would occur. In the first half of 2015, the left-wing Syriza party took control over the Greek government under an anti-austerity platform. While the Syriza government pushed for easier austerity measures, it also respected its creditors’ wishes that Greece remain a part of the Eurozone. However, on July 5, 2015, Greek voters shocked the world by voting “no” to bailout conditions proposed by the EC, IMF, and ECB. This vote sent a strong message that Greek voters would not accept further austerity measures and only reinforced talks that Greece would leave the Eurozone, or even the European Union.[46]

Throughout the Grexit crisis, European leaders, such as Angela Merkel, have maintained that they wish for Greece to remain in the Eurozone. However, there is still debate over whether or not Grexit would have allowed Greece to restart its economy or if it would only dig Greece further into ruin.[47] A week after the July 5 referendum, Syriza party leaders struck a deal with Eurozone leaders that agreed to more austerity measures and continued membership in the Eurozone in exchange for a revised economic bailout plan.[48]

However, following the Brexit decision in June 2016, concerns for the possibility of a Grexit rose again. In late May of 2016, Eurozone leaders agreed to implement more progressive debt relief measures in Greece; however, these are conditional upon Greece’s completion of its current economic reform program and most measures will not take effect until 2018.[49] A survey by the Pew Research Center in June 2016 found that 71% of Greeks viewed the EU unfavorably.[50] While Greece has not left the Eurozone or the EU, it remains to be seen if the question of Grexit will rise up again in the future.

Pro-Austerity

Austerity measures, while controversial in some eurozone states, still have strong backing by some countries in the European Union. These countries include Germany, the Netherlands, Austria, the United Kingdom (which is not part of the eurozone and currently negotiating exit from the European Union but still an influential European country), and Finland. For these states, austerity (including policies aimed at reducing pay and benefits for public sector employees, constricting government services, and increasing taxes) represents the best approach to combat sovereign debt and restore public confidence in their country’s fiscal stability.[51]

The core austerity supporters in the Eurozone—Germany, the Netherlands, and Finland—also represent some of the few eurozone countries left with relatively high credit ratings from Standard & Poor (Germany and the Netherlands—along with Luxembourg—have the top-ranked AAA designation while Finland was recently brought down to the second best AA+ rating). These states are more aggressive in pushing domestic cutbacks over stimulus packages throughout the failing periphery states, acting defensively to protect their own credit ratings while also attempting to stabilize the eurozone.

Rhetoric from pro-austerity nations has been sharp and resolute when concerning the eurozone periphery states. A growing sentiment amongst voters in austerity-supporting states is that debt problems result from less prudent action and irresponsibility in handling financial matters. The Finnish have described sovereign debt crises as a result of “moral decay” while Dutch newspapers have characterized the Greeks as “wasteful.”[52] During the negotiations for further Greek bailouts, Germany was backed by not only the Netherlands and Finland, but also Austria and Belgium, to push for Greek cooperation with these fiscal hardliners. According to Finland’s former Finance Minister Alexander Stubb, “Negotiations can only be resumed when the Greek government is willing to cooperate and commit itself to measures to stabilise the country’s public economy.”[53]

Anti-Austerity

As feedback from austerity measures from the onset of the eurozone crisis in 2008 begins to materialize, anti-austerity movements have taken control of states on both sides of the bailout plans. Anti-austerity sentiment has been most prominent, naturally, amongst debt-ridden states who have had to comply with the terms of their European creditors to varying degrees of effectiveness. These states include Greece, Ireland, Portugal, Spain, Italy, and Cyprus. In particular, growing resentment amongst these states towards pro-austerity states have compromised the effectiveness and authority of core austerity states in negotiations with struggling countries. Portugal’s foreign minister, Augusto Santos Silva, references such antipathy amongst anti-austerity states towards the stern caretaker role their creditors have assumed when he announced, “There are no professor-states or student-states in the EU.”[54]

However, struggling states are not the only ones who have expressed concern and doubt over the effectiveness of austerity. Though historically a German ally, France has adopted a more conciliatory tone towards handling bailout issues. In this sense, the French have acted as an intermediary between strongly pro-austerity and anti-austerity states, though they are sympathetic towards struggling nations. Yet France is also a peculiar case domestically because the Hollande government has vacillated between increasing and cutting austerity measures. In October 2014, the French government announced a budget that, while making cuts, slimmed down government spending much less than EU requested. In a statement, the government announced that, “The government—while taking the fiscal responsibility needed to put the country on the right track—rejects austerity.[55] However, in April 2016, French President Hollande reversed his decision, announcing that the government would increase austerity measures for the next two years to stay on track with budget targets.[56]

Peripheral European States

The periphery states are those that mostly line the southern border of the eurozone area and formed a majority of the eurozone countries whose economies were brutally devastated by the financial crisis of 2008. This bloc includes Greece, Portugal, Spain, Cyprus, and Ireland (western periphery). While they are geographically located on the periphery of the Eurozone and the EU, the term “peripheral” can also refer to the perception of these countries as less developed or advanced than the EU “core” countries, which includes European powerhouses such as Germany, France, and the Benelux (Belgium, the Netherlands, and Luxembourg).

In response to the eurozone crisis, all of the periphery states have instituted some sort of austerity measures, resulting in varying degrees of success. Some countries, such as Ireland, Portugal, and Spain, have been able to restabilize to a point where they were able to leave their bailout programs—though they still face extremely high levels of unemployment and have large debts to repay.[57] Others, most notoriously Greece, have not responded as well to previous bailout programs and are still deeply mired in economic ruin.

Thus, while all of these states have experienced economic trouble and the burden of harsh austerity measures, the subject of Greece and further bailout plans is divisive throughout the periphery. For some countries, they are now financially able to provide some sort of assistance. Some, such as Ireland, are more sympathetic to the Greek issue: following the 2015 Greek referendum for another bailout, Prime Minister Edna Kenny commented that Alexis Tsipras was “doing the right thing” by lending new proposals for debt reform to the EU.[58] On the other hand, Spanish Prime Minister Mariano Rajoy announced, “We’re inclined to help Greece but Greece must follow European rules.”

The “Big Three”

Though the United Kingdom has voted to leave the European Union, it has traditionally been joined by Germany and France to form the Big Three, which references the fact that the three countries are the three political and economic powerhouses in the EU. While the European Union is intended to represent a collective bloc of action composed of the 28 member states, there is a tacit recognition of the dominance of these three states in influencing EU action.[59]

Though these three European leaders often work together to represent the European Union on the global stage, the eurozone crisis has affected each of them in different ways and has led each state to respond differently. It would be interesting to analyze the strength of the ties between the Big Three and the shifting dynamics of their leadership in the EU throughout the course of the eurozone crisis to today as Germany faces backlash for its aggressive push for authority, France responds to the rise of nationalist sentiment, and the UK navigates its exit from the European Union.

1. Would a Grexit damage the credibility of the European Union? Why has Greece had such difficulty with recovering despite strict austerity measures and generous bailout packages, unlike other member states?

2. Why is Germany so focused on austerity measures? In the long run, will austerity help or harm the economic stability of your country? How, and to what extent, are your country’s economic interests tied to that of the Eurozone?

3. How has the refugee crisis in Europe affected the populist movements within your country and throughout the EU member states? What effects does it have in post-crisis, post-austerity Europe?

4. How can the EU continue working towards an “ever closer union”? Do the political alliances of periphery Eurozone countries or member states in southern Europe encourage disunity or give them additional bargaining power against Germany?

5. Should Greece be treated differently than other eurozone countries that have been bailed out before and have successfully completed their bailout programs?

6. Should Greece temporarily leave the Eurozone?

7. How will Brexit impact the stability of the Eurozone?
Think about the political dynamics of the UK within the European Union and also note that the UK was not part of the Eurozone prior to the referendum.

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The Euro - European Commission http://ec.europa.eu/economy_finance/euro/index_en.htm

EU Response to the Crisis - European Commission http://ec.europa.eu/economy_finance/crisis/index_en.htm

The Eurozone Crisis Explained in 5 Simple Graphs - Christian Science Monitor http://www.csmonitor.com/World/Europe/2011/1202/The-eurozone-crisis-explained-in-5-simple-graphs/Deficit-spending-as-a-percentage-of-GDP

Why did the Crisis Happen? - European Commission http://ec.europa.eu/economy_finance/explained/the_financial_and_economic_crisis/why_did_the_crisis_happen/index_en.htm

European Economic Guide - The Economist http://www.economist.com/blogs/dailychart/2010/12/europes_economies

Explaining Greece’s Debt Crisis - The New York Times http://www.nytimes.com/interactive/2016/business/international/greece-debt-crisis-euro.html?_r=0

Timeline: Greece’s Debt Crisis - Council on Foreign Relations http://www.cfr.org/greece/timeline-greeces-debt-crisis/p36451

Euroscepticism Beyond Brexit - Pew Research Center http://www.pewglobal.org/2016/06/07/euroskepticism-beyond-brexit/

Key TermS

Accede: to accept a demand or request

Affirm: state confidently as true

Antipathy: a strong feeling of dislike, hatred

Attribute: connect one trait or effect to something else

Austerity: economic policy where public spending is minimized to reduce debt

Debt servicing cost: the money that must be paid to cover a debt (principal+interest)

Deflation: decrease in the price of goods or services

Divert: to distract or change direction or something

Efficacy: ability to produce what you want

Eurocrisis/Eurozone crisis: also known as the European sovereign debt crisis; a multi-year debt crisis since 2009 in the European Union where countries can’t pay back their debts

Euroscepticism: criticism of the EU, objection and/or rejection of the EU

Eurozone: the group of European Union members that use the single euro currency

Fiscal: related to money (especially in government and business)

Inflation: increase in prices and fall in purchasing power of money

Liquidation: process of closing an institution by selling all assets and distributing sales; converting your assets into easily-exchanged forms (i.e. cash)

Mired: to be stuck in something

Periphery: on the edge

Quantitative Easing: creating money to purchase financial assets

Securitization: consolidating assets into securities (like bonds) for resale in market

Sentiment: attitude, feeling

Stipulation: condition or requirement that is part of an agreement

Stringent: strict, harsh

Traction: (in this context) attracting and accumulating more power

Vacillate: alternate, move back and forth

Endnotes

[1] “The Schuman Declaration- 9 May 1950.” Europa.eu, n.d., https://europa.eu/european-union/about-eu/symbols/europe-day/schuman-declaration_en.

[2] “The History of the European Union.” Europa.eu, n.d., https://europa.eu/european-union/about-eu/history_en.

[3] Ibid.

[4] “A Brief History of the EU.” NPR, 8 July 2010, http://www.npr.org/templates/story/story.php?storyId=128389419.

[5] Ibid.

[6] “The History of the European Union.” Europa.eu, n.d., https://europa.eu/european-union/about-eu/history_en.

[7] Ibid.

[8] Ibid.

[9] “A Brief History of the EU.” NPR, 8 July 2010, http://www.npr.org/templates/story/story.php?storyId=128389419.

[10] Christopher Alessi and James McBride. "The Eurozone in Crisis." CFR Backgrounders. March 11, 2015. http://www.cfr.org/eu/eurozone-crisis/p22055.

[11] Ibid.

[12] Philip R. Lane "The European Sovereign Debt Crisis." Journal of Economic Perspectives 26, no. 3 (2012): 49-68. doi:10.1257/jep.26.3.49.

[13] Ibid.

[14] Ibid.

[15] Jeffrey Frieden and Stephanie Walter. “Understanding the Political Economy of the Eurozone Crisis: A Political Scientist’s Guide.” Annual Review of Political Science 20 (2017).

[16] Ibid.

[17] "European Sovereign Debt Crisis." Investopedia. 2016. http://www.investopedia.com/terms/e/european-sovereign-debt-crisis.asp.

[18] "European Financial Stability Facility (EFSF)." European Financial Stability Facility (EFSF). http://www.efsf.europa.eu/about/index.htm.

[19] Philip R. Lane "The European Sovereign Debt Crisis." Journal of Economic Perspectives 26, no. 3 (2012): 49-68. doi:10.1257/jep.26.3.49.

[20] Christopher Alessi and James McBride. "The Eurozone in Crisis." CFR Backgrounders. March 11, 2015. http://www.cfr.org/eu/eurozone-crisis/p22055.

[21] Trevir Nath, “Is Germany Carrying the European Economy?” Investopedia, April 15, 2015, http://www.investopedia.com/articles/investing/041515/germany-carrying-european-economy.asp.

[22] Ibid.

[23] Ibid.

[24] Federico Fabbrini. "Austerity, the European Council, and the Institutional Future of the European Union: A Proposal to Strengthen the Presidency of the European Council ." Indiana Journal of Global Legal Studies 22, no. 2 (2015): 269-334. doi:10.2979/indjglolegstu.22.2.269

[25] “14 November 2012: European Day of Action and Solidarity.” ETUC. 11 May 2012. https://www.etuc.org/press/14-november-2012-european-day-action-and-solidarity#.WB5AcuErLq0.

[26] Carlos Ruano and Andrei Khalip. "Anti-austerity Strikes Sweep Europe." Reuters. 2012. http://www.reuters.com/article/us-spain-portugal-strike-idUSBRE8AD00020121114.

[27] "Current Economic Situation in the EU - Delegation of the European Union to the United States." Delegation of the European Union to the United States. February 5, 2015. http://www.euintheus.org/what-we-do/policy-areas/macroeconomics-and-finance/current-economic-situation-in-the-eu/.

[28] "European Economic Guide." The Economist. February 18, 2016. http://www.economist.com/blogs/graphicdetail/2016/02/taking-europe-s-pulse.

[29] Ibid.

[30] Eurostat.

[31] Mauldin Economics, “3 Signs Germany’s Economy is Falling Apart,” Business Insider, June 4, 2016, http://www.businessinsider.com/3-signs-germanys-economy-falling-apart-2016-6/#german-trade-patterns-have-shifted-1.

[32] Peter S. Goodman, “Europe May Finally End its Painful Embrace of Austerity,” The New York Times, Oct. 7, 2016, http://www.nytimes.com/2016/10/08/business/international/europe-economy-budget-austerity.html.

[33] Ibid.

[34] John Follain, “Austerity Only Benefits Germany and Destroys Europe, Renzi Says,” Bloomberg, Sept. 20, 2016, https://www.bloomberg.com/news/articles/2016-09-20/austerity-only-benefits-germany-and-destroys-europe-renzi-says.

[35] Kerin Hope and Jim Brunsden, “Tsipras Seeks Influence for Mediterranean States,” Financial Times, Sept. 9, 2016, https://www.ft.com/content/aa9a3e9e-76a7-11e6-b60a-de4532d5ea35.

[36] “Our Turn to Eat,” The Economist, Sept. 5, 2015, http://www.economist.com/news/europe/21663272-trade-unions-are-trying-find-their-post-austerity-voice-our-turn-eat.

[37] Stelios Bouras and Nektaria Stamouli, “Greek Workers Strike Against Austerity,” The Wall Street Journal, Nov. 12, 2015, http://www.wsj.com/articles/greek-workers-strike-against-austerity-1447317828.

[38] “Our Turn to Eat,” The Economist, Sept. 5, 2015, http://www.economist.com/news/europe/21663272-trade-unions-are-trying-find-their-post-austerity-voice-our-turn-eat.

[39] Bruce Stokes, “The Rise of Nontraditional, Eurosceptic Parties,” Pew Research Center, June 2, 2015, http://www.pewglobal.org/2015/06/02/chapter-4-the-rise-of-nontraditional-eurosceptic-parties/.

[40] Ibid.

[41] Michael Broning, “The Rise of Populism in Europe,” Council on Foreign Relations, June 3, 2016, https://www.foreignaffairs.com/articles/europe/2016-06-03/rise-populism-europe.

[42] Ibid.

[43] Adam Taylor, “Italy’s Brexit Moment? The Complex Constitutional Referendum That Could Rock Europe,” The Washington Post, Nov. 30, 2016, https://www.washingtonpost.com/news/worldviews/wp/2016/11/30/italys-brexit-moment-the-complex-constitutional-referendum-that-could-rock-europe/?utm_term=.56318a730ccc.

[44] Matthew Weaver, et.al. “Italy Referendum: ‘Period of Uncertainty’ Predicted After Matteo Renzi’s Defeat-As It Happened,” The Guardian, December 5, 2016, https://www.theguardian.com/world/live/2016/dec/04/italian-referendum-and-austrian-presidential-election-live.

[45] “IMF Admits Mistakes on Greece Bailout,” BBC News, June 5, 2013, http://www.bbc.com/news/business-22791248.

[46] Suzanne Daley, “Greeks Reject Bailout Terms in Rebuff to European Leaders,” The New York Times, July 5, 2015, http://www.nytimes.com/2015/07/06/world/europe/greek-referendum-debt-crisis-vote.html.

[47] Kristin Archick, The European Union: Current Challenges and Future Prospects (CRS Report No. R44249) (Washington, DC: Congressional Research Service, 2016), 1-16, https://fas.org/sgp/crs/row/R44249.pdf.

[48] Ibid.

[49] Ibid.

[50] Richard Galpin, “Nervous Greeks Worry that Brexit May Lead to Grexit,” BBC News, June 26, 2016, http://www.bbc.com/news/world-europe-36629145.

[51] European Union Center of North Carolina, “Policy Area: The Politics of Austerity,” Network of European Union Centers for Excellence, http://europe.unc.edu/wp-content/uploads/2013/09/Brief1308-austerity.pdf.

[52] Ibid.

[53] “Greek Debt Crisis: Where Do Other Eurozone Countries Stand?” BBC News, July 8, 2015, http://www.bbc.com/news/world-europe-33408466.

[54] “Fudging the Revolution,” The Economist, Feb. 20, 2016, http://www.economist.com/news/europe/21693250-italy-and-portugal-are-leading-revolt-against-eu-austerity-sort-fudging-revolution.

[55] Liz Alderman, “France Produces a ‘No Austerity’ Budget, Defying E.U. Rules,” The New York Times, October 1, 2014, https://www.nytimes.com/2014/10/02/business/international/france-produces-no-austerity-budget-defying-eu-rules.html.

[56] William Horobin, “France Ramps Up Austerity to Hit Budget Targets,” Wall Street General, April 13, 2016, http://www.wsj.com/articles/france-ramps-up-austerity-to-hit-budget-targets-1460530226.

[57] Jonty Bloom, “How Has Austerity Worked Out for Eurozone Countries?” BBC News, July 10, 2015, http://www.bbc.com/news/business-33470220.

[58] “Greek Debt Crisis: Where Do Other Eurozone Countries Stand?” BBC News, July 8, 2015, http://www.bbc.com/news/world-europe-33408466.

[59] Stefan Lehne, “The Big Three in EU Foreign Policy,” Carnegie Endowment for International Peace, July 2012, http://carnegieendowment.org/files/eu_big_three1.pdf.