Methods of Development | The European Union: The Ideal Economic Model?

In recent years, and especially with the recession in the U.S., the European Union’s success seems like the ideal model for economic unity and financial security. So ideal that South America and Africa are considering similar models. However, with European banks struggling to repay sovereign debt, the unified euro zone model has come under scrutiny.

Last week, The Heritage Foundation hosted a talk titled “The Euro on the Brink: What’s Happening in Europe and Why It Matters for America.” Moderator Theodore Bromund and speakers Ambassador Terry Miller, Dr. J.D. Foster, and Dr. Desmond Lachman discussed how lack of financial foresight led to the decline of the euro and the current banking crisis, most acutely felt by Greece, Ireland, Portugal, Italy, and Spain. While they pointed to issues of budget deficits (as a result of not following criteria in the Maastricht Treaty), bailout fatigue, price and wage inflation, solvency and liquidity crises, the speakers suggested ways in which European governments could adjust policies in order to curb the effects of the crisis. The most common response to debt crises lies in austerity programs and budget cuts, which for the hard hit countries in the EU, could take years to reach their previous levels of economic activity.