The European Union – 2009-02-17

The European Union is a wonderous thing. The concept amazing. The fact that it was actually implemented by such a diverse group as France, Italy, Germany, and the UK amongst others, who have different cultures, and different languages, not to mention a long record of conflict between them, is even more amazing.

A union formed by such a diverse group - not by conquest but by negotiations - speaks volumes of how far Europe has come since the dark, irrational days of World War I and II.

Under this Union, not only can people, goods, services and capital flow freely between EU members, but for the most part the EU has one currency, and if anything will destroy the EU it is this fact. Remember that the UK and several others have never agreed to convert to the Euro as their currency.

The benefits of a single currency are substantial. It eliminates both the risk of exchange fluctuations and the cost and delay of exchanging currencies. It creates greater price stability and so on.

So why might a common currency be the demise of the EU? Because when times are good, partners get along. The true test is can they get along when things go bad and economically there has not been a worse period in over ½ a century.

Control of its own monetary policy gives a government much more flexibility to control its economy by regulating the money supply, and some tools to fight inflation or deflation. While printing more money may not generally be a good idea, it is an option that is sometimes used to stimulate an economy. But each country that uses the Euro has different national governments, with different circumstances and differing political and economic policies. They no longer have unilateral monetary control over their own country.

The true test of the European Union will be these difficult economic times. Let us hope that this wonderous thing does survive.