Page 22 - AEI Insights 2018 Vol 4 Issue 1

Mascitelli, 2018

of weariness began to set in and the contrast between the new member states and the Western
group emerged quickly. The US initiated Iraq war and its desire to expand the coalition
attracted a number of the new European Union members from Eastern Europe. This war was
never seen with sympathy from the major European Union members such as Germany and
France though the UK was a prominent member of this Iraqi coalition. Another crack appeared
in the EU foreign policy approach and another reason for a stronger and unified approach.
Speaking with one voice was now seen as an obligatory next step amidst the global ridicule
that the EU suffered in this period.

The global financial crisis and its consequences to European integration

As the EU fought off criticism about its fragmented security and foreign policy approach
towards the world, as well as the concern about perceived inflation after the introduction of the
single currency, the final blow came with the global financial crisis in 2008. The onslaught of
the GFC, which was defined as being the most serious since 1929, caught especially those
European economies with large public debt, low growth rates and high unemployment. Other
economies that had poorly structured and secured banking systems also were in this mix such
as Ireland. Overall, however the ones most affected included the Southern Mediterranean flank
what the Economist referred to as the PIIGS countries – Portugal, Italy, Ireland, Greece and
Spain. The response of most European governments at the time was to tackle these winds of
crisis with even more austerity. As described by some scholars:
“In many European countries, this triggered severe sovereign debt crises beginning in early
2010, often followed by the implementation of tough austerity measures or programmes for
structural reforms of the welfare state and labour market with countries like Greece,
Portugal, Spain, Ireland and Italy and the Baltic States representing the most prominent
examples” (Armingeon & Guthmann 2013: 1).

While the US financial crisis was caused by the over extension of the banking credit system
involving private financial and mortgage institutions, the situation in the European Union was
primarily related to public debt and especially to high levels of budget deficits. This was
especially felt by lesser performing economies such as the Greek, the Portuguese, the Spanish
and the Irish. The test case however would be that of Greece which was facing debt levels of
bankruptcy proportions. One scholar observed that the Greek economy was built on excessive
budget deficits over the previous three decades and that between 2001 and 2009 the Greek
government took out substantial loans to sustain GDP growth (Kouretas 2015). Greece’s
admission into the Eurozone in 2001 and as such an adherent of the single currency also
allowed it greater access to private debt markets. This result in 2009 with private creditors
holding all of the Greek public debt, which by then had reached in 2008 alone the unsustainable
level of 130 per cent of GDP.

At the same time, the neighbouring European economies were only slightly better but all were
facing bond level interest, which were deemed to be of bankruptcy proportions. The austerity
responses by the member states, supported and encouraged by the European Commission,
created even more difficulties and distress. Unemployment grew and growth rates began
rapidly declining. In the case of Greece, it’s GDP from 2010 to 2015 declined by almost 50 per
cent. As one scholar observed:
“Austerity policy has caused the unemployment in the Eurozone to rise to 11 per cent, the
highest level since 1995. In Greece and Spain, rates are above 20 per cent; half of all young
people in the two countries are without work…Austerity policy is thus also contributing
decisively to further undermine the European Social Model” (Busch 2013: 5).

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