The European Union Financial Struggle- The Possibility of full integration

By Arzu Karaaraslan /Mardin
UIUC, MS in Economics/ Development Expert

Official Eurostat data showed that industrial production decreased in August by alarming 1.8% with respect to previous year’s the same month. The EU is on the edge of another recession as Germany cuts the growth forecasts. Not only Germany but also other Euro Zone countries are still struggling with the economic problems. 

Many politicians and economists tend to think that core countries like Germany’s course action towards the EU has changed given extensive trade and financial links, a disorderly Euro Zone hurts not just the periphery but the core. And the only way of dealing with the current crisis is to achieve the full integration which consists of banking, fiscal, economic, and political integration along with GDP growth in the EU. However it isn’t easy task to accomplish with the differences among the member states.


My article discussing Is the full integration possible within the European Union? Could be useful to remember, looking at the experience of the United States can provide some insight about the possibility of full integration for the EU.

The United States with its 50 members is undoubtedly the most successful monetary union to date. One thing is clear: the success of the US monetary union is not an artifact of all states having to run balanced budgets each fiscal calendar. The truth of the matter is that even in the Post World War II era states have not balanced their budgets on a yearly basis. Another factor that some have argued is important for the US success is less regional differences compared to Europe.

However, this is not accurate; business cycles are not coordinated across regions of the United States. Still another explanation for the US success is a federal transfer system from regions doing relatively well to regions doing relatively poorer. This too is not the case however. According to a report prepared by Edwin M. Truman and Laurence Meyer for the HM Treasury, that although the US federal tax and benefit system provides some inter-regional insurance, it is no more than what individual member EU states provide to their citizens. (

Instead, the factors that seem to be most important to the US success according to Truman and Meyer are the lack of cultural and language differences that impede the movement of labor from depressed regions to vibrant ones, and more integrated financial markets that allow for greater risk sharing. These are features that are lacking currently in the European Union.

However, before any of us dismiss the European Monetary Union, we should not forget that the United States did not always look like the perfect candidate for a stable and long lasting monetary union. Some of the problems that are present in EMU member states arose in the US as well.

There were several episodes of individual state default particularly in 1841-1842 and in 1873-1884, and there were large structural differences and large per capita income differences between members. In fact, the structural differences between the industrial states and the agricultural states were so large in the 19th century that they brought on a great civil war between the North and the South.

Even by the first half of the 20th century income differences were substantial with some northern states being nearly twice as rich as the southern ones. And yet these differences and events did not derail the formation of the US monetary union. Perhaps, the European Monetary Union will be able to also adapt.



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