Although some countries recovered from the 2008 recession, some smaller countries have not. Greece, Ireland and Portugal all received financial bailouts from the EU, prompting questions about who should pay for future bailouts.

The Promise Of The Euro Zone

When the euro was created in 1999, it was seen as ushering a new age of European integration, as eleven countries would be using the same currency, making it easier for transactions to move across borders.

In the past decade, the euro has grown to seventeen members, but the euro has also exposed the economic divisions among countries using the euro.

Since the global recession in 2008, many European countries (typically in northern Europe) have experienced recoveries, while others (primarily located in southern Europe) have not seen their economies return to prosperity.

For instance, the German economy grew at its fastest rate since Reunification in 1989 between April and June 2010. However, Greece has not experienced economic growth since 2007.

One Size Fits…

The euro has actually helped exacerbate this problem, as it is difficult for the EU to implement “one size fits all” policies for seventeen different countries. Like the Federal Reserve System in the US, the European Central Bank (ECB) is responsible for controlling monetary policy for the entire Euro zone.

For instance, the European Central Bank increased interest rates in 2009 because Germany (which is the largest European economy) was growing, while Greece (which only accounts for 2 percent of the EU economy) was not.

The United States suffers from this problem as well, as American states grow at different rates as well. However, the U.S. Federal budget helps smooth out these bumps, but the EU cannot help member states in the same way.

While it was not apparent until recently, the euro created a second problem for Europe. After countries adopted the euro, the interest rate that national governments paid fell dramatically as investors thought that many countries were now safer places to invest.

EU countries seemed like a safe investment because to join the euro, governments had to agree to the Growth and Stability Pact stating that they would keep their budget deficits below 3 percent of GDP every year.

In addition, the EU had a “no bailout” clause, meaning that if one country could not pay its bills, the others would not step in and help them. Unfortunately, the rules of the Growth and Stability Pact were not enforced, and borrowing in some European countries soared now that they had access to cheap credit.

When the recession began, many governments had to borrow more as tax revenues decreased while government spending grew due to increasing unemployment and demands on social spending.

EU Says Yes To Bailouts

In 2010, investors started to realize that not all Euro zone countries’ finances were the same. Greece was the first to see the interest rates that it had to pay on government debt increase to levels that it could no longer afford and received a €110 billion (about $154 billion) bailout from the EU, the European Central Bank, and International Monetary Fund in May 2010.

Everyone hoped that this would calm the markets and Greece would be able borrow money again internationally in a few years. However, Greece was followed by bailouts for Ireland in November 2010 and Portugal in April 2011.

These three countries are all small and account for only about 5 percent of the total EU economy, but the fear is that investors will start to panic and focus on two of the largest EU countries—Spain and Italy. While the EU and others have been able to attempt to rescue Greece, Ireland, and Portugal, it would be very difficult to bailout Spain or Italy.

Voters in many richer European countries might be willing to loan some money to small economies, but the cost of supporting Spain or Italy would probably be too much and a Spanish or Italian default could potentially lead to the breakup  of the Euro zone.

A major crisis in the Euro zone would directly affect the US and Indiana. The transatlantic economic ties are among the strongest in the world, and economic problems in Europe would mean less European investment in the US and fewer American exports to Europe.

Indiana does not have very strong economic ties with Portugal or Greece, but Ireland, Italy, and especially Spain are major economic partners for the state.

Indiana is potentially exposed to the European Debt Crisis, although to date exports to the Eurozone have continued to grow despite the situation in Europe.

Learn More

This episode of One State One World is produced in partnership with the EU Center at Indiana University.

Read more about the European Union on the EU Center’s blog, Across the Pond.

For continuing coverage, the BBC and The Economist both have excellent sections devoted to the crisis.

A Confusing Start

From the beginning, the European Convention did not create a simple constitution that was a clearly defined contract between the EU and its citizens.

In its final form, the European Constitution was more than 300 pages long (the original U.S. Constitution was four pages long), and was written in a way that made it hard for anyone who was not an expert on the EU to understand.

In addition, while the Constitution would make the EU more democratic by strengthening the elected European Parliament, member states still had their qualms, wanting to guard their state powers.

For instance, suggestions that the EU would now have a president elected by all EU citizens were scrapped in favor of a president who would be chosen by the leaders of the member states.

One Major Obstacle

But the biggest downfall to the European Constitution was that all of the member states would need to ratify the Constitution according to their own national laws.

In the end, the Constitution was ratified by 18 of the 25 member states, including by national referendums in Spain and Luxembourg.

However, referendums in France in May 2005 and the Netherlands in June 2005 failed, bringing the ratification process to an end.

For the U.S. Constitution, only nine of the 13 states needed to ratify it and the Constitution would become the basic law of the land. Had the EU been able to apply that threshold for its constitution, the European Constitution would have survived.

Instead, European leaders began the process of writing the Reform Treaty (commonly known as the Treaty of Lisbon), which contained many of the less controversial aspects of the European Constitution in order for the EU to function with 27 or more members.

Again, all member states (by this time, there were 27 member states) had to ratify the treaty. The Lisbon Treaty was signed in December 2007.

Ratification was not without its controversies, however, as Ireland was forced to hold a second referendum, after Irish voters had voted down the treaty the first time. The treaty formally adopted on December 1, 2009.

 Learn More

This episode of One State One World is produced in partnership with the EU Center at Indiana University.

Read more about the European Union on the EU Center’s blog, Across the Pond.

The EU was one of the signers of the 1997 Kyoto Protocol, the first major international effort to reduce greenhouse gas emissions. Using 1990 levels as a baseline, the treaty obliged the EU to cut emissions 8 percent by 2012 and 20 percent by 2020.

Various projections indicate that the EU should be able to meet the 2012 target, despite the fact that performance in terms of cutting emissions has been uneven across member states.

With the goal of reducing emissions, the EU launched the world’s largest “emissions trading scheme,” which created emissions allowances for large emitters of carbon dioxide.

The EU has also provided incentives for the development of alternative energy. The EU as a whole has set a goal to have 20 percent of its total energy consumption come from renewable energy sources by 2020, although different countries have different targets.

Although some countries are on track to meet their interim targets, there is a great deal of variation. According to the U.S. Energy Information Administration, in 2009 Austria got 74 percent of its electricity from renewable sources while the figure for Sweden was 60 percent, making these two countries the clear leaders. For a number of countries, however, the figures are below 15 percent.

Many European companies have become leaders in the renewable energy industry. The Danish firm Vestas, for example, has emerged as the world’s leading manufacturer of wind power, and its turbines can be found at the wind farms in northwest Indiana.

Learn More

This episode of One State One World is produced in partnership with the EU Center at Indiana University.

Read more about the European Union on the EU Center’s blog, Across the Pond.

However, as the EU attempts to create a Common Security and Defense Policy and engages in its own foreign missions, some wonder whether the two organizations will have complementary or overlapping roles.

There were several motivations for wanting to create a more unified EU foreign policy. The first was the assumption that speaking with a more unified voice on the world stage would help the EU achieve its economic and political goals more easily.

Second, some states, mainly France, wished to reduce the European reliance on America. For them, a more robust defense and security component to the EU would help displace the American-dominated NATO.

In recent years the EU has engaged in several military missions, mostly in Africa. In 2007 the Council approved the deployment of several thousand soldiers from EU member states to Chad and the Central African Republic to protect Sudanese refugees who had fled across the border.

The European External Action Service has a full list of the various EU peacekeeping and military missions here.

The response by American policymakers to the EU’s military operations has been varied. On the one hand, many proponents of NATO worry that a growing EU security and defense strategy might make the two organizations competitors (pdf).

There are indeed points of contention between the two organizations. For example, Indiana Senator Richard Lugar has been a vocal proponent of expanding NATO eastward towards the Russian border. Some EU members worry, however, that further expansion eastwards might harm Europe’s relations with Russia, because Russia is wary about NATO’s expansion to its borders.

Learn More

This episode of One State One World is produced in partnership with the EU Center at Indiana University.

Read more about the European Union on the EU Center’s blog, Across the Pond.

But member states have been reluctant to cede control in foreign policy matters. The 2009 Lisbon Treaty was designed to strengthen EU foreign policy, and the EU has engaged in peacekeeping missions in the Balkans, and Africa.

The 2009 Lisbon Treaty attempted to enable the EU to speak with a more unified voice on the world stage, with the creation of the High Representative of the Union for Foreign Affairs and Security Policy. This position, which as of this writing is occupied by Catherine Ashton of the U.K., is akin to the American Secretary of State.

It is difficult to quantify whether these efforts to create a more unified EU foreign policy have succeeded. Some have argued that Ashton’s task is an impossible one, given that countries simply have divergent foreign policy preferences that no rhetoric about a unified EU can conceal.

Bitter disputes over the Iraq war, Libya, and other issues show that the EU will continue to speak with many voices on security matters for some time.

Learn More

This episode of One State One World is produced in partnership with the EU Center at Indiana University.

Read more about the European Union on the EU Center’s blog, Across the Pond.

The twenty-seven member EU now has a population of five hundred million and an economy slightly larger than the US.

The “Big Bang Enlargement” of 2004 was notable both for its scale and its symbolic importance. Ten new member states joined: Malta, Cyprus, Estonia, Latvia, Lithuania, Poland, the Czech Republic, Slovakia, Hungary, and Slovenia.

With the exception of Malta and Cyprus, all of these were former communist states. Most of them had seen their communist regimes collapse during the wave of demonstrations that shook Eastern Europe in 1989. Estonia, Latvia, and Lithuania had only gained their independence in 1991, with the collapse of the Soviet Union.

The 2004 enlargement not only was the largest in the EU’s history in terms of the number of states, population (bringing in 74 million new citizens), and territory, it also symbolized the destruction of the historic divide between Eastern and Western Europe.

Still, many older members feared an influx of citizens from the new member states, even though the free movement of labor and capital is enshrined as a core principal of the EU’s common market. (Although some studies show that this movement has not been as significant as expected.)

The older states were allowed to impose transitional restrictions on the free movement of labor from the new member states. The enlargement also led to new policy cleavages and political alignments; for example, the Eastern European member states have tended to take a tougher stance vis-à-vis Russia (pdf) than, say, Germany or France.

The accession of formerly communist East European countries was also of both symbolic and practical importance to those Hoosiers of East European descent.

Many of these individuals have families in Eastern Europe whom it was difficult to visit during the communist era. Shortly after joining the EU, these countries intensified their efforts to ease visa restrictions to travel to the U.S.

In 2008, nearly all of the new EU members were admitted into the Visa Waiver Program, which allows citizens of these countries to visit the U.S. without a visa for stays of less than three months. Among the new members, only Poland has thus far been excluded from the program, although the Obama administration has promised to allow Poland in.

Learn More

This episode of One State One World is produced in partnership with the EU Center at Indiana University.

Read more about the European Union on the EU Center’s blog, Across the Pond.

The treaty extended the EU’s authority to new policy areas and laid the groundwork for the future euro by establishing criteria for member states to adopt a common currency.

Of course, the Treaty did not create an integrated Europe out of whole cloth; other areas of European integration preceded the Maastricht Treaty, including the European Coal and Steel Community, the European Atomic Energy Community, and the European Economic Community. The Maastricht Treaty placed all three of these communities under a single authority dealing with economic, monetary, and trade policy.

Maastricht formally expanded the EU’s purview to include foreign policy and police and judicial cooperation, reflecting the longstanding desire among pro-integrationists to create a political, and not merely economic, union.

Although this new authority strengthened the EU at the expense of individual member states, the treaty made it clear that problems should be decided at the lowest government level possible. Similar to the idea that the U.S. federal government should not address problems that Indiana can solve, the EU recognizes that countries and regions play an important role in citizens’ lives.

The Maastricht Treaty also, to the dismay of some, created differentiation among member states. It did so by containing clauses that allowed the UK, Denmark, and Sweden to opt out of the Euro currency zone. Critics of these clauses argued that they created a multi-tiered EU that subtracted from the sense of unity that the organization had cultivated.

Despite these concerns, many of the changes made by Maastricht (strengthening the European Parliament, extending the EU’s authority to new policy areas, creating a unified EU foreign policy, etc.) have been furthered by subsequent treaties.

Learn More

This episode of One State One World is produced in partnership with the EU Center at Indiana University.

Read more about the European Union on the EU Center’s blog, Across the Pond.

The grisly scenes he witnessed inspired him to become an outspoken voice in ending the conflict in the former Yugoslavia. McCloskey was one of the first observers to describe events in Croatia and later Bosnia as genocide, and he continued to play a role in the region even after losing his reelection bid in 1995.

McCloskey’s efforts helped lay the groundwork for the 1995 Dayton Agreement that ended the conflict.

Today, both Croatia and Serbia are potential candidates to join the European Union.

Croatia is likely to become a member in 2013, following a favorable recommendation from the European Commission to grant the country membership.

Serbia has passed an important hurdle on the way to membership by apprehending three war crimes suspects, which the EU had demanded before formal talks could begin. Radovan Karadzic, former president of the self-declared Republic of Srpska, was detained in 2008. Ratko Mladic, the Bosnian Serb military commander accused of carrying out the infamous Srebrenica massacre, was arrested in May 2011. Finally, former Croation Serb general Goran Hadzic was arrested in July 2011.

Still, Serbia likely has a long road before it on the way to EU membership, especially given enlargement fatigue among many existing members.

Learn More

This episode of One State One World is produced in partnership with the EU Center at Indiana University.

Read more about the European Union on the EU Center’s blog, Across the Pond.

The continental currency was created in the hopes that it would stimulate trade and strengthen the coordination of monetary policy among EU member states. Since 2002, five more countries have joined the euro zone.

The idea to introduce a single currency in Europe had been floated as early as 1969, when heads of state and government commissioned Luxembourg’s Prime Minister Pierre Werner to construct a blueprint for achieving monetary union.

Although the idea stalled for decades, the Maastricht Treaty, signed in 1991, formally laid out the path to a single currency. Maastricht, also known as the Treaty on European Union, created the European Central Bank, which would control monetary policy.

The treaty also set out economic performance indicators that countries would have to achieve before they would be allowed to adopt the euro, with the goal of making sure the currency was stable.

All states that join the European Union following Maastricht are required to adopt the euro once they have met the convergence criteria. Currently, seventeen of the EU’s 27 member states use the euro.

Indiana’s exports to euro zone countries were about two billion dollars in the year 2000, and by 2010 exports had increased to nearly six billion dollars. But ongoing debt crises in Greece and elsewhere have renewed questions about the Euro’s future.

Learn More

This episode of One State One World is produced in partnership with the EU Center at Indiana University.

Read more about the European Union on the EU Center’s blog, Across the Pond.

The Common Agricultural Policy (CAP) provides European farmers with subsidies. Many of these subsidies took the form of price support: guarantees to farmers that the EU would buy their crops at a minimum price.  This was meant to provide security to farmers; however, this original policy created artificially high prices, which in turn led to oversupply and so-called “butter mountains” and “lakes of milk.”

In addition to subsidies for farmers, the Policy also included high import tariffs, which limit European demand for foreign agricultural products. This aspect of the original policy was criticized as a barrier to free trade.

Recent reforms to the Common Agricultural Policy have reduced the surpluses created by price supports, and the twenty-seven European Union members are now the largest importer of agriculture products in the world.

According to WiserTrade.org, in 2010 Indiana agricultural exports to the EU totaled $106 million, making the EU the third leading destination for Indiana agricultural exports, after Canada and Mexico.

 Learn More

This episode of One State One World is produced in partnership with the EU Center at Indiana University.

Read more about the European Union on the EU Center’s blog, Across the Pond.