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Kimberly Amadeo

Is the EU a Viable Economy?

By May 18, 2010

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The recent economic crisis in the European Union (EU) triggers doubts about whether it can survive. Can a collection of countries with separate political heads function as one economy?

In 2007, the answer seemed to be "yes!" as the EU overtook the U.S. as the world's largest economy. In 2009, the EU's economy produced $14.5 trillion in goods and services, while U.S. GDP came in at $14.3 trillion. Combined, the two produced over 40% of the world's economic power, which totals $70.3 trillion. (Source: CIA World Factbook, Rank Order GDP)

However, the rising debt of the PIGS countries (Portugal, Italy, Ireland, Greece and Spain) signals that the EU economic model may not be working. These countries continued to spend recklessly and increased their debt to unsustainable levels (sound familiar?). They gambled on the fact the Germany, the sixth largest economy in the world, would bail them out. So far, they were right.

What It Means to You

The U.S. economy has always benefited from an inherent economy of scale - large land mass, bountiful natural resources, and a large domestic population that loves to shop! The success of the EU model has eaten into this comparative advantage. As a result, the EU's currency, the euro, has competed successfully with the dollar as a global currency.

The bay of the PIGS crisis walloped the euro down to a four-year low from which it is only just now recovering. Many analysts now say that the EU "experiment" is doomed to failure, and these vastly different countries could never work together as a unified economy. Many areas such as Southeast Asia and Latin America have been considering copying the EU model. The world is watching.

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Photo: EU Internal Market Commissioner Michel Barnier (Credit: John Thyss / Getty Images)

Comments

May 20, 2010 at 8:55 am
(1) pro-euro says:

Which country/union is not hit by the financial crisis? What are the US debts at this moment?

In 2002, the euro was worth 0.85 dollar, now it’s 1.25 dollar. The real problem is that economists only look at the short term. Nobody knows what would have happened if Greece still would have had the Drachme during the financial crisis of the past years.

Yes, EU countries are different in culture and language, but I don’t see why this should be a problem for the economy.

May 25, 2010 at 2:09 pm
(2) Jim Wygand says:

Kimberly,
It is useful to remember that the EU was not set up to deal with a contingency involving the deficit/debt problems of its members. Moreover, since members consider themselves by their national identity FIRST and as Europeans second the EU will have to rejig its founding documents. I believe the EU is a viable economy IF AND ONLY IF its members can abandon the “burden of history” and consider themselves as Europeans first and Greeks, Italians, French, etc. second. The USA consists of 50 separate States with a modicum of “sovereignty” and even so we faced a major war when some states chose to withdraw from the Union. However, we do not have a long-standing history of internecine warfare and the consequent mistrust of the other sovereign states that characterizes the EU. Viable and possible, most certainly. Probable, only the EU member states can say (and do!)
Jim

August 16, 2010 at 5:49 pm
(3) Matthew says:

Well Europeans will never be Europeans first and French, German or Greek second. This is just like you would say Americans are North Americans first and Americans second.

Europeans are not 1 nation and never will be. Basically Americans are not really 1 nation either by European standards since you all pretty much come from Europe and it’s culture.

EU is not 1 country and never will be, EU is something nobody else before did and it’s not yet known how to consider the whole organization. Here in Eu we are all pretty much happy because EU has more positive effects than negative, still some people are against EU and integration.

Greece and other pig countries are a problem because we don’t have proper rules, but I’m sure we’ll take care of that.

Greetings from a small EU country

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