Important roles played by the European Union during the economic turmoils

By Indra Giri & Priya Chetty on February 9, 2017

The European Union (EU) is an economic unit envisaging the social, political and economic interests of its member nations, in a way that it benefits all on a common ground. The historic formation of the European Union dates back to the times when the world was experiencing the thrust of political and economic instability. This includes the First and Second World Wars. The integration process of the European sub-continent had started gradually in the aftermath of the Second World War in 1945 following the demands of its member states.

Reasons behind the formation of European Union

Three realities led to the necessity of an integration process that would in a new way, re-order the devastated European map. Firstly, the end of the Second World War had put a stop to the hegemony of the traditional European powers. The new emerging super powers; the U.S and the Soviet Union posed signs of threat to the heterogeneous group of the European States.

Secondly, the thought that a European integration will possibly negate the differences that aroused in Europe. Also the integration was expected to pave a smoother way for world peace and harmony. This was another big reason for the formation of European Union. The ashes of the Second World War had left Europe divided among communists, soviet, eastern blocs and highly dominated western democratic nations.

Lastly, the desire of the native population to live in an environment of peace, harmony and co-operation, necessitated the formation of the Union.

The post-war conditions in Europe were more than devastated. The nations were worried not only of the re-emergence of another civil war, but also searched for answers to the economic problems that lay before them.

For example, the availability of raw materials was in one country and the industry to process them in another. Industry and defence was greatly affected. Therefore, six nations, namely Germany, Belgium, France, Holland, Italy and Luxembourg, had to come in consensus on an agreement to form an area of free trade dealing in coal, iron ore and steel.

From Paris treaty to formation of European Union

The Treaty of Paris, led to the formation of the European Coal and Steel Community (ECSC) on 23rd July, 1952. Following the success of the community the Treaty of Rome gave birth to two new integrated bodies. First, the European Atomic Energy Community (Euratom) and second, the European Economic Community (EEC) in 1957. The economic community provided impetus towards the elimination of barriers to the movement of goods, services, labour and capital. It also prohibited the use and sanction of agreements that would disrupt market competition or would prove to be anti-competitive. The European Economic Community laid the foundation of a Common Agricultural Policy (CAP) and a common external Trade Policy.

With further course of time, the ECSC, Euratom and the EEC, collectively known as the European Communities became the founding stones of the European Union (EU). The EEC gradually expanded its membership. The UK, Ireland and Denmark flowed into the EEC diaspora in the year 1973. Similarly, Greece in 1981 and Portugal and Spain in 1986 joined the group. The process of European integration moved a step further with the formation of the Maastricht Treaty in 1992.

This treaty changed the face of European integration and the EEC, came to be more formally known as the European Union (EU). The formation of the EU conceptualized the thought of having a common monetary union, with a common currency in place; thus, abolishing all native currencies. The year 1999 saw the monetary convergence of all EU nations who adopted Euro as their common currency and thus relinquished all control over their exchange rates. Initiated only for the use of financial markets and businesses, the euro became open to the common public in 2001.

Demographic dividend of European Union

Today the European Union comprises of 28 member states. It is considered as one of the largest Free Trade Area (FTA) in the world. Having such a large number of memberships, the Union still lags behind in terms of population growth. There is a rapid decline in the population growth in the region. It is indeed worrisome to note that the region is undergoing the challenges of encompassing the highest percentage of old-age population. The Union is perhaps, entering a phase of reverse demographic dividend. In other words the number of senior-aged people is far more than the number of youth population in the country.

According to Eurostat projections, the European region will experience around 28% of the total population in the retirement age bracket by 2050. Also, the year 2060 will experience the dependency ratio at around 50% from current 27% (European Commission,2014). It is worth noting that this reverse demographic dividend shades off almost 0.2% of European economic growth every year.

increasing old age population with declining birth rate is a major problem for European Union countries
Increasing old age population in Europe

Even to keep its current ratio under control, the young population needs to increase by hundreds of millions more than the current rate over the arriving decades. Recent estimates also state that it is near to impossible to raise the young group population by 2020 to 47 million. Hence, the European Union is experiencing its worst ever demographic crisis, so to say. Therefore, the only plausible solution that can help the EU avoid its fiscal disaster is the welcoming of immigrants who can contribute substantially to the region’s economic growth.

Problem of increasing dependency ratio and decreasing fertility rate

Some of the EU member nations are poised to suffer drastically in the face of increasing ratio of the aged-to-the young.

For example, Slovakia’s ratio of the old aged to the young population is only 13.9% currently, which  is one of the lowest in the region. However it is expected to reach 31% by 2050. Similarly, Hungary is expected to experience a rise in the proportion of retirees from 17.9% to 27.5% and hence, face a setback in its social system (Bershidsky, 2015).

Another problem for most of the European countries is of decreasing fertility rate. According to the data released by the National Statistics Institute, Portugal’s population could drop to 6.3 million from 10.5 million by 2060. According to a recent study by the Hamburg-based world economy institute, Germany has the world’s lowest birth rate i.e. 8.2 per 1000 population between 2008 and 2013. The regional government of Galicia in Spain is one of the few to have addressed the issue. In 2012, the government had rolled out certain initiatives to increase the fertility rate. This included providing home and transport subsidies for families and radio advertisements urging women to conceive (Ratcliffe, 2015).

For example, Spain has one of the lowest fertility rates in the Europe. There are provinces in Spain where for every single baby born, two people die. The nation’s average fertility rate is 1.27 for every woman of the child-bearing age as against EU’s average of 1.55. This indeed, calls for a query of concern in the Union (Kassam, 2015). Portugal has been facing a problem of declining population since 2010.

Given all these, the governments of the European nations feel alike. Agreeing to the hard reality of migration, it is indeed true that countries like Germany need to welcome and pull to 533,000 immigrants to boost the level of people in the workforce. With such a scaring statistics on board, it is indeed true that there is a dearth of young people, not only in the workforce but also in the social arena. There are very few young people who would make a place in the workforce in the least coming years. Similarly, there are not enough civilians to look after the old aged people.

Increasing problem of unemployment and initiation of social model

The EU also is facing a vast unemployment problem, despite having big industries in its economy. Some of the major industries in the EU include Manufacturing, Aerospace, Automobile and Cosmetics. Each of them contributes separately and significantly in the trade volume of the region. The European Union is facing tough challenges in its sustainable industry.

Rising prices and costs heavily impact the European industries, especially energy intensive sectors. The looming crisis has impacted the economy. Despite having plans for a sustainable and clean environment for its future population, the region required economically successful companies. It is important to develop improved products by way of improvised methods and techniques.

The European Union has started certain initiatives on a social platform to help address the issue of growing unemployment among the youth. One of the initiatives is the unemployment dole. Also, the European social model aims to improve the life of the unemployed youth. This model also helps in the burgeoning youth striving to drop a footprint on the sands of employment.

Under this model, not only is employment opportunities given a priority, but it emphasizes on making people employable by imparting education needed (Youth Forum Jeunesse, 2008). Despite a Youth Unemployment Policy as a Euro flagship program, more than a fifth of the European population in the working age group have been found to be jobless (Croucher, 2015).

Challenge of maintaining sustainable growth

The European Commission has planned out ways and means of implementing sustainability in the region. This is done by setting up industries conforming to the environmental and safety standards by way of internationalism. Also more through achieving targets laid down in the International Policy Dialogue (European Commission). Now more than ever, Europe needs new sources of growth and industries in the region to fully exploit the business opportunities that will be created in the transition to a sustainable economy.

Another step taken to promote sustainability and feasibility of the industries in European Union in the long run is the promotion of SPIRE (Sustainable Process Industry through Resource and Energy Efficiency). This is an initiative taken by 8 industry sectors namely, chemical, steel, engineering, minerals, non-ferrous metals, cement, ceramics and water.

The mission of SPIRE is to ensure the development of enabling technologies and best practices along all the stages of large scale existing value chain productions that will contribute to a resource efficient process industry. Through purposeful cooperation across all sectors and regions, SPIRE has developed a multi-year, strategic and dynamic roadmap. This will address research, development and innovation activities as well as policy matters towards the realisation of its 2030 targets. The ultimate goal is to promote the deployment of innovative technologies and solutions required to reach long term sustainability for Europe. Similarly process industries in terms of global competitiveness, ecology and employment is another important goal.

Is immigration the only solution to the grave problem?

Immigration is the only solution that can save the drowning future of the European Union just as it had Australia. Australia, U.S and Canada are some of the countries with open border policies. Except for Germany and the UK, no other European nation is less sceptical to immigration (Spasic, 2015). For Europe’s economic turmoil to take an upswing these sentiments have to change. Unless this happens, it is worried that the economy will enter into a permanent phase of declining unemployment and slower economic growth.

It is sometimes absurd to understand that how can today’s demographic disparity affect future economic growth. It is to be noted that the present youth population will grow up to become future entrepreneurs and job seekers and most importantly, future tax-payers. If an economy lacks this basic demography, it is indeed hard time for the economy as a whole (Spasic, 2015). This is clear indication that the governments have failed to perform up to the brink to resolve this long going problem.