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EU Economic Woes

What is the cure for the EU's ailing economy?

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In May, German Chancellor Angela Merkel met with Pope Francis in a private audience that lasted for 45 minutes. The global financial crisis has not passed over the European Union, and the economy was one of the main topics of conversation between Chancellor Merkel and Pope Francis.

Merkel is noted, not always favorably, as a one of the main proponents of austerity measures that have been implemented in several countries across Europe. These austerity measures have varied from country to country, but are all aimed at cutting government debt through higher taxes and reduced spending. Income taxes and sales taxes have increased, government jobs and benefits have been cut, and wages have been reduced. In this climate, European banks have been reluctant to extend loans to small businesses, leading to ballooning unemployment.

Ireland has been living under austerity since 2008, with plans to continue at least through 2015. By May 2012 the unemployment rate in Ireland had risen to 15 percent, while sales taxes had climbed to 23 percent (The Guardian, 8 May 2012. “Austerity in Europe; what does it mean for ordinary people?”). Greece has cut spending on education, health care and defense, among other things, and is struggling under a 27 percent unemployment rate (nbcnews.com. John W. Schoen. 2 June 2013. “Austerity backlash forcing Europe to soften budget cuts”). The stringent measures imposed for economic recovery have led to riots and strikes, as the Greek population have chafed under the strict economic guidelines. Several Eurozone countries have been forced into these belt–tightening reforms as stipulations of rescue loans offered to them through the International Monetary Fund, approved by the Eurozone countries (The Guardian, 8 May 2012. “Austerity in Europe; what does it mean for ordinary people?”).

In this gloomy economic environment, Germany has been a bright light. While unemployment across all Eurozone countries has reached 12.2 percent, almost 20 million people, in Germany the unemployment rate is only at 5.4 percent. Germany continues to provide roughly one–third of Europe’s economic activity, and has been outspoken and uncompromising in requiring countries who receive bailout loans to take extreme measures to cut national debts. But Germany alone cannot sustain the entire Eurozone, and the depressed economy is now invading Germany. Carl Weinberg, of the economic consulting firm High Frequency Economics, predicts that “hard times are coming to Germany. Employment is flat or down, real wages are not going up, credit is tight and five years of austerity are biting. Euroland’s hard times are reflecting back on Germany (nbcnews.com. John W. Schoen. 2 June 2013. “Austerity backlash forcing Europe to soften budget cuts”).

Pope Francis has been critical of political responses to the global financial crisis, and of business practices that he describes as “chasing the idols of power, profit, and money over and above the value of the human person” (GlobalPost, Jason Berry, 30 May 2013. “The language of shaming”). After her meeting with the Pope, Chancellor Merkel told reporters, “Pope Francis made it clear that we need a strong, fair Europe and I found the message very encouraging” (reuters.com. James Mackenzie. 18 May 2013. “Germany’s Merkel visits Pope, urges tougher market controls”).

Chancellor Merkel reaffirmed her belief in a strong Europe when she recently collaborated with French President Francois Hollande in a paper published on May 30 which called for “the creation of a full–time euro ‘President.’” The paper called for a more fully developed governance of the general EU economy (euobserver.com. 31 May 2013. Andrew Rettman. “Merkel and Hollande call for full–time euro President”). However, as German and French leaders call for an even more closely tied European economy, the citizens of the various Eurozone countries are becoming increasingly disillusioned with their leaders, and with the Union and what it has done for European economics. A Pew Research study showed that, compared to 2012, general satisfaction with the EU is down from an average of 60 percent to 45 percent across all countries (Pew Research. “The New Sick Man of Europe: the European Union.” 13 May 2013).

The European Union has, from its roots in the Holy Roman Empire, been a delicate organization of diverse, independent, often fiercely nationalistic nations, willing to compromise only out of the necessity of working together economically to compete “in a world of giants such as America, China and India” (The Economist. 22 Dec 2012. “European disunion done right”). Will a continuing recession cause division between the Eurozone member countries, or motivate them to greater economic and political unity?