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European Union

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This paper reviews how the current economic crisis has affected the European Union. The paper examines into details how the integration of the European Union is being tested and makes an attempt to project whether it will hold in the future. It should be noted that the Union is viewed as one of the most vulnerable to the recession because of the tight links it has to the rests of the trading centers around the world. The paper makes use of table and figures to put across this truth and uses statistics to show how the integration of the Union has been shaken. A deep examination of the steps taken to ensure that the Union is not sunk by the recession is reviewed and possible recommendations are made.

The emerging and advanced economies in the European Union are expereinci8ng the full sale of the global recession (Aiginger 2010 p. 1). Zoli (2009 p. 1) brings out three facts concerning the integration of the European Union with respect to its economy:

  • Europe is struggling to go through the recession
  • There is a requirement for a more forceful action in the financial sector
  • There is a need for a better policy coordination.

As a matter of fact the European Union is struggling to overcome the recession. Zoli (2009 p. 1) attributes this to the strong links of the Union to the rest of the trading centers in the world:

The financial crisis is taking a harsh toll on both Europe’s advanced and emerging economies because of the global nature of the shocks that have hit both the financial sector and the real economy, and because of Europe’s strong regional and global trade links (Zoli 2009 p. 1).

The economic downturn has resulted to global, synchronized recession: “Tighter financial conditions, falling wealth, and greater uncertainty have triggered a sharp decline across all types of demand” (Zoli p. 1). Zoli (2009 p. 1) argues that this has resulted to unexpected collapsing of trade with the annual euro area exports reducing by  at a yearly rate of 26 % since the last quarter of 2008. Explaining further on this, Zoli (2009 p. 1) argues that, “The plunge in demand, together with the reversal of commodity price increases, has pushed headline inflation to very low levels in advanced economies and has diminished concerns about inflation in many emerging economies.”

The strong economic integration of the European Union has attributed to the slowing down of the average growth as depicted by the following table:

Zoli (2009 p. 1) makes some notable remarks on the deviations which have been observed, for instance, Ireland, the Baltic economies, Spain, and the UK have been affected to a greater extent due to homegrown real estate booms. Greece and Hungary have been particularly affected by current account deficits and large public debt.

Er (2009 p. 1) reports that in the UK around 30,000 were being lost each month as business firms struggled to face the recession. The same case applies to Germany where some of the biggest companies have, “adopted new unfair policies towards recruitment in response to the developing recession” (Er 2009 p.1). Some of these unfair mean include, “dismissing temporary workers, implementing short-time work, and finally pushing through mass redundancies” (Er 2009 p. 1).

The ONB national bank (2009) in clear way examines how the integration of the European Union has in the most effective way led to the whole union being affected by the recession. The fact that there are close trading ties between the Eastern Europe and the Western Europe it is very evident that the recession in the Eastern Europe will finally catch up with the Western Europe. It is reported that, “the EU-15 now feel the backlash of the crisis hitting Eastern Europe, with real economic linkages such as trade, investment and migration acting as the major transmission channels” (ONB 2009 . 2).

From statistics it is reported that in 2008 30 percent of the EU-15 exports were headed to Eastern Europe. Two years early (2006) the EU-15 had 356 billions Euros foreign direct investment in Eastern Europe. In particular Italy, France, Germany, the Netherlands and Austria have got strong ties in Eastern Europe: “Germany is the leading investor in the Czech Republic, Slovakia, Hungary and Poland, while Sweden is the major investor in the Baltics; Austria accounts for the highest share of FDI in Slovenia, Bulgaria and Romania” (ONB 2009 p. 3).

ONB (2009 p. 3) argues that any disruption of the CESEE will definitely hurt all the European Union members by the fact that there is a very high degree of economic integration. Apart from the economic integration, the regional distribution has plays a big part: “Sweden, for example, is the top investor in the Baltic countries, which at the moment are strongly affected by the financial crisis; Austria is among the leading investors in Slovakia and Slovenia, which both benefit from euro area membership” (ONB 2009, p. 3). Furthermore, there are very possibilities that spillover effects will intensify competitive differences within the EU members.

Various sectors of the economy have been affected within the EU-27 (OECD 2010, p. 120). In the production section the seasonally adjusted index for total industry fell to 102. 0 in December 2008: reported to be the lowest since 2004. A similar trend was observed for the construction activity where the production index was recorded falling on average by 0.4 through to November 2008.the activity for retail trade recorded a slow down in EU-27 (Tiedrez 2009, p. 1).

The above review clearly shows two things: EU-27 is highly integrated and as a result a disruption even in a single member will spill over to the rest of the member states. This is because the member states depend on each other in terms of investments (French 2007, p. 119). Member states have heavily invested heavily within the union such that any disruption which may occur in a small portion of the union will find its way round the other members through trade and investment channels (UN 2008, p. 89). The recession has spread through the union through the same way and will eventually affect the whole EU-27. Generally, the high integration can be said to the cause of the spread of recession through the EU-27 (Pylas 2009, par. 1). The section below examines the future of the European Union in the light of the current recession.

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