The Other Side of the EU

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on Sep 24, 2020

Updated: Dec 19, 2022

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Born several decades ago, the European project was built on the desire to end centuries of animosity among European nations. Skeptics existed and still existed. After all, were people supposed to believe that the French will kiss and make up with Germans, or that the Southern economies will perform better than the Nordic ones, just like that?

And yet, reality delivered a surprising outcome. Faced with adversities, the European nations worked together in what has become the biggest custom and monetary union success in world history.

However, some discrepancies still exist, and when do they resurface if not in times of crisis?

The Givers and the Takers

One article in Financial Times this week highlighted what countries benefit the most from the upcoming E.U. recovery fund. Unsurprisingly, the frugal, Nordic countries contribute to the periphery’s success.

Needless to say, the chart above started discussions on how the periphery takes advantage of the core of the union. How German savers and Swedish companies spend money lifting Romania, Poland or Croatia out of misery.

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To some extent, the comments are correct. But before taking some info from context, it is best to think of the overall picture.

After the creation of the single market, one of the big achievements of the European Union, some countries sitting at the core of Europe forgot that suddenly they had hundreds of millions of people to sell their products to – without barriers. Suddenly, Sweden forgot that Ikea’s best shop in terms of sales/square meter for over a decade in Europe was located in Bucharest. Or, people forgot that Germany’s Metro, the wholesale retailer, increased dramatically by expanding to the East.

The expansion to the East was what made Europe so strong as it is today. By adding new people to the single market, it reached the 500 million people it has today. This, in turn, gives a powerful negotiating power with other countries.

In other words, the truth is always somewhere in the middle. Yes, the periphery needs help now, as it did in the past and as it will probably need in the future. Yes, the Euro helped Southern countries trapped before in devaluation. But the same goes the other way around – peripheric countries helped the core ones to achieve sustained economic growth in the past, while the Euro helped to avoid a stronger currency as otherwise Germany, France, or The Netherlands would have had.

All in all, such discussions are never constructive. When it gets tough, a family gets together and fights. Europe would better do so too, or financial markets will smell its weakness and push the yields higher, to the detriment of all E.U. members.

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