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In 1948, European countries battered by the ravages of World War II began joining their economies in an effort to avoid World War III. This altruistic effort served as the basis for the 1957 "Treaties of Rome”, the genesis of the European Economic Community (EEC) implementing intra-regional free movement of people, goods and services in what we now know as the European Union (EU). After almost 60 years, the EU has expanded to include a regional trading bloc of 28 independent countries.
Unlike the United States, which has a strong, centralized federal system that legislates law for all states, the EU’s political institutions do not have the same sway and force over member countries. Member countries can accept EU laws on an “opt-in/opt-out” basis or choose to phase in laws according to their national interests. Over the past few decades, the enlargement of the EU rested on this flexibility in policy. However, as many EU countries have “matured” on the global economic stage, fissures between the de-facto EU capital of Brussels, Belgium and the general membership is becoming polarized over how to sustain an aging population, high unemployment, asylum-seeking immigrants and the willingness of one country to pay the debts of another country.
The recent troubles emanating from two EU-member countries, Greece and the United Kingdom, are examples of how the EU has reached (1) a failure of political will by some member countries to more closely integrate as a union run by Brussels-based parliamentarians and (2) a single currency (the “euro” or “€”) that is issued by a European Central Bank (ECB) that lacks a central, fiscal authority over a 19-country “eurozone”.
For the ECB, a difficult situation is now front and center.
As a country of 12 million people with a €240 billion (approx. US$266.5 billion) debt to eurozone creditors, Greece’s aging citizenry held a May 5th referendum if it would accept further austerity measures imposed by the ECB to qualify for further credit. At more than 60% of the votes being “no”, Greece has sent a strong message that it rejects the ECB’s terms for additional financial aid. The reason for Greece’s financial woes goes back to 2001 when the country’s government hid its true sovereign debt obligations in order to qualify for admission into the eurozone, giving the country ability to qualify for even more debt. Now, the ECB is stuck in an unfortunate position. As the eurozone’s “lender of last resort” to all eurozone countries, the ECB has lent far more than Greece can ever hope to repay. This leaves France and Germany in a difficult position, as their banks hold much of Greece’s sovereign debt. The bottom line is we are seeing Greek pensioners saying “no” to economic austerity for the sake of saving France's and, in particular, Germany’s, banking institutions.
So, what happens if Greece either voluntarily decides to exit the eurozone, or for that matter, the EU? Or if the EU asks Greece to leave the family?
Greece can look to the United Kingdom for some direction, as the UK is due to hold a national referendum in 2017 if that country will voluntarily exit the EU ... but for different reasons. Unlike Greece, the UK is nowhere near a banking crisis and trying to support a bankrupting state pension system for the elderly. Rather, Britons have voiced their concern over EU freedom of movement privileges that has allowed other Europeans to take jobs from British workers. In recent months, waves of North African asylum seekers are undertaking dangerous attempts to enter the UK from France via the “Chunnel” on the tracks of high-speed bullet trains or under the chassis of transfer trucks. The Home Secretary, Theresa May, has initially rejected Brussel’s proposed directive for mandatory asylum-migrant quotas for EU countries.
Greece and the UK are but two examples of where the EU is reaching a true test of faith within the family of 28 countries choosing to hold together and unify. Britain is chafing under what they perceive as Brussels dictating immigration policies contrary to Britain’s best interests while Greece battles the ECB on defaulting on debt repayment. Other countries, such as Netherlands and Denmark, are also voting for parties not favorable to intra-EU immigration policies. Ireland, Italy and Spain are still on the financial ropes with their sovereign debts. The ideals of the EU standing for a multi-cultural and “borderless” union is coming under considerable strain and LGI would like to make companies aware of possible anti-immigration measures cropping up in various EU member countries. This is where we see political and economic drivers swaying public opinion towards more highly selective, quota-driven immigration policies that can define global companies ability to place talent in the EU. Stay tuned.
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