PRESENTED BY : MOHIT KARWAL

DRISHTI BOSE
SHIVANGI SINGH
MUSKAN JANGRA
 WHAT IS DEBT AND SOVEREIGN DEBT?
WHAT IS EUROZONE?
ADVANTAGES AND DISADVANTAGES OF
THE EUROZONE
WHAT IS THE EUROZONE DEBT CRISIS?
DETAILED CAUSES OF THE CRISIS
IMPLICATIONS OF THE CRISIS
SOLUTION
PRESENT SITUATION
CONCLUSION
Debt refers to a sum of money that is owed
or due.
Debt is money owed by one party, the
borrower or debtor, to a second party, the
lender or creditor. The borrower may be a
sovereign state or country, local
government, company, or an individual.
Sovereign debt - also referred to as government
debt, public debt, and national debt - is a central
government's debt. Sovereign debt is issued by the
national government in a foreign currency in
order to finance the issuing country's growth and
development.
On the basis On the basis
of lenders of duration

Internal
Short term
( If debt is owed
(If debt lasts for
to lenders within
less than a year)
the country)

External Long term

( If debt is owed (If debt lasts for
to lenders from more than a
foreign areas) year)
 The Eurozone is a
geographic and
economic region that
consists of all the
European Union
countries that have
fully incorporated the
Euro as their natural
currency.
The Eurozone is one of the largest economic
regions in the world and its currency, the
Euro, is considered one of the liquid when
compared to others.
The Euros are printed and managed by the
European System of Central Banks (ESCB)
Symbol of Euro - EUR
The Eurozone comprises of 19
out 28 countries of the
European Union. These
countries are :

Austria Latvia
Belgium Lithuania
Cyprus Luxembou
Estonia
rg
Malta
Finland
The
France
Netherlands
Germany
Portugal
Greece
Slovakia
Ireland Slovenia
Italy Spain
LOWER TRANSACTION COST
With a single currency, there will be no longer a cost involved in
changing currencies; this will benefit tourists and firms who trade
within the Euro area.

Protection for smaller countries against international

financial crisis which often adversely affect small countries
with limited reserves

PRICE TRANSPARENCY
With a common currency, it will be easier to compare prices in
different European countries because they would all be in
Euros. This enables firms to source cheaper raw material and
consumers to buy cheaper goods
Eliminating exchange rate uncertainty Volatile
swings in the exchange rate can destroy the profitability of exports
(e.g. a rapid appreciation). This exchange rate uncertainty
undermines business confidence in investing. Therefore with a
single currency business confidence should improve leading to
greater trade and economic growth.

IMPROVED TRADE Supporters of the Euro argue that

greater price and cost transparency/no exchange rates
encourages intra Eurozone trade. The ECB state exports and
imports of goods within the euro area rose from about 27% of GDP
in 1999 to around 32% in 2006.

Improvement in inflation performance

The ECB which sets interest rates for the whole Eurozone area
will be committed to keeping inflation low; countries with
traditionally high inflation should benefit from this greater
inflationary discipline. EU inflation has been low.
Low-interest rates It was hoped membership of the Euro
would help reduce bond yields as there was greater security
belonging to a stronger currency. Initially, this occurred with bond
yields in Greece, Spain and Ireland converging on German bond
yields.
But the credit crisis of 2008-12, saw Euro bond yield rise to record
levels, suggesting that the Euro could be very destabilizing for
interest rates.

Benefits to the financial sector

The introduction of the Euro appears to have reduced the cost of
trading in bonds, equity, and banking assets within the eurozone.

Inward investment
Inward investment may increase from outside the EU as firms take
advantage of lower transaction costs within the EU area. Some firms
have said they prefer to invest within the Eurozone area.
 The cost of transitioning 12 countries' currencies over to
a single currency could in itself be considered a
disadvantage. Billions were spent not only producing the
new currency, but in changing over accounting systems,
software, printed materials, signs, vending machines,
parking meters, phone booths, and every other type of
machine that accepts currency.
 In addition, there were hours of training necessary for
employees, managers, and even consumers. Every
government from national to local had impact costs of
the transition. This enormous task required many hours
of organization, planning, and implementation, which
fell on the shoulders of government agencies.
The chance of economic shock is another risk that comes
along with the introduction of a single currency. On a
macroeconomic level, fluctuations have in the past been
controllable by each country.

• With their own national currencies, countries

could adjust interest rates to encourage investments
and large consumer purchases. The euro makes
interest-rate adjustments by individual countries
impossible, so this form of recovery is lost. Interest
rates for all of Euroland are controlled by the European
Central Bank.
• They could also devalue their currency in an
economic downturn by adjusting their exchange rate.
This devaluation would encourage foreign purchases
of their goods, which would then help bring the
economy back to where it needed to be. Since there is
no longer an individual national currency, this method
of economic recovery is also lost. There is no
exchange-rate fluctuation for individual euro
countries.
• A third way they could adjust to economic shocks was
through adjustments in government spending, such as
unemployment and social welfare programs. In times
of economic difficulty, when lay-offs increase and
more citizens need unemployment benefits and other
welfare funding, the government's spending increases
 to make these payments. This puts money back into
the economy and encourages spending, which helps
bring the country out of its recession. Because of the
Stability and Growth Pact, governments are restricted
to keeping their budget deficits within the
requirements of the pact. This limits their freedom in
spending during economically difficult times, and
limits their effectiveness in pulling the country out of
a recession.

• In addition to the chance of economic shock within

Euroland countries, there is also the chance of political
shock. The lack of a single voice to speak for all euro
countries could cause problems and tension among
participants. There will always be the potential risk
that a member country could collapse financially and
adversely affect the entire system.
 In 2007, EU economies, on the surface, seemed to be
doing relatively well – with positive economic growth
and low inflation. Public debt was often high, but (apart
from Greece) it appeared to be manageable assuming a
positive trend in economic growth.
 However, the global credit crunch changed many things.
(The credit crunch refers to a sudden shortage of funds
for lending, leading to a decline in loans available.)
 Bank Loses: During the credit crunch, many
commercial European banks lost money on their
exposure to bad debts in US (e.g. subprime mortgage
debt bundles)
• Recession: The credit crunch caused a fall
in bank
lending and investment; this caused a
serious recession (economic
downturn).
• Fall in House Prices: The recession and
credit crunch also led to a fall in European
house prices which increased the losses of
many European banks.
• Recession caused a rapid rise in government
debt: The recession caused a steep
deterioration in government finances. When
there is negative growth, the government
receive less tax:
(less people working = less income tax; less
people spending = less VAT; less company
profits = less corporation tax etc. )
(The government also have to spend more on
unemployment benefits.)

• Rise in Debt to GDP ratios: The most useful

guide to levels of manageable debt is the debt to
GDP ratio. Therefore, a fall in GDP and rise in
debt means this will rise rapidly.
For example, between, 2007 and 2011, UK public
sector debt almost doubled from 36% of GDP to
61% of GDP (UK Debt – and that excludes
financial sector bailout). Between 2007 and
2010, Irish government debt rose from 27% of
GDP to over 90% of GDP (Irish debt) .

Green – debt
in 2007
Blue – debt in
2010
 EU BONDS YIELDS
•Markets had assumed Eurozone debt was safe. Investors assumed that with the
backing of all Eurozone members there was an implicit guarantee that all
Eurozone debt would be safe and had no risk of default. Therefore, investors
were willing to hold debt at low interest rates even though some countries had
quite high debt levels (e.g. Greece, Italy). In a way, this perhaps discouraged
countries like Greece from tackling their debt levels, (they were lulled into false
sense of security).
•Increased Scepticism. However, after the credit crunch, investors became
more sceptical and started to question European finances. Looking at Greece,
they felt the size of public sector debt was too high given the state of the
economy. People started to sell Greek bonds which pushes up interest rates)
see: relationship between bonds and yields)
•No Strategy. Unfortunately, the EU had no effective strategy to deal with this
sudden panic over debt levels. It became clear, the German taxpayer wasn’t so
keen on underwriting Greek bonds. There was no fiscal union. The EU
bailout never tackled fundamental problems. Therefore, markets realised that
actually Euro debt wasn’t guaranteed. There was a real risk of debt default. This
started selling more – leading to higher bond yields.
•No Lender of Last Resort.
Usually, when investors sell bonds
and it becomes difficult to ‘roll over
debt’ – the Central bank of that
country intervenes to buy
government bonds. This can
reassure markets, prevent liquidity
shortages, keep bond rates low and
avoid panic. But, the ECB made it
very clear to markets it will not do
this. (see: failures of ECB)
Countries in the eurozone have no
lender of last resort. Markets really
dislike this as it increases chance
of a liquidity crisis becoming an
actual default.For example, UK
debt has risen faster than many
Eurozone economies, yet there has
been no rise in UK bonds yields.
One reasons investors are currently
willing to hold UK bonds is that they
know the Bank of England will
intervene and buy bonds if
necessary.
Uncompetitiveness

Eurozone countries with debt

problems are also generally
uncompetitive with a higher
inflation rate and higher labour
costs. This means there is less
demand for their exports, higher
current account deficit and lower
economic growth. (The UK
became uncompetitive, but being
outside the Euro, the Pound could
depreciate 20% restoring
competitiveness.
Poor Prospects for Growth
People have been selling Greek and Italian bonds for two reasons.
Firstly because of high structural debt, but also because of very poor prospects
for growth. Countries facing debt crisis have to cut spending and implement
austerity budgets. This causes lower growth, higher unemployment and lower
tax revenues. However, they have nothing to stimulate economic growth.
•They can’t devalue to boost competitiveness (they are in the Euro)
•They can’t pursue expansionary monetary policy (ECB won’t pursue
quantitative easing, and actually increased interest rates in 2011 because of
inflation in Germany)
•They are only left with internal devaluation (trying to restore competitiveness
through lower wages, increased competitiveness and supply side reforms. But,
this can take years of high unemployment.
Individual Cases
Ireland’s debt crisis was mainly because the Irish Government had to bailout
their own banks. The bank losses were massive and the Irish government
needed a bailout to pay for their own bail-out
Greece. Greece had a very large debt problem even before joining Euro and
before the credit crisis. The credit crisis exacerbated an already significant
problem. The Greek economy was also fundamentally uncompetitive.
Italy’s debt crisis – long term structural problems. Very weak growth prospects.
Political instability
 PIIGS
PIIGS is an acronym used to refer to the five eurozone nations that were
considered weaker economically following the financial crisis: Portugal, Italy,
Ireland, Greece and Spain. Since the nations use the euro as their currency,
they were unable to employ independent monetary policy to help battle the
economic downturn.
BREAKING DOWN 'PIIGS'
On May 10, 2010, European leaders approved a 750 billion euro stabilization
package to support these nations. The economic troubles of the PIIGS nations
reignited debate about the efficacy of a single currency employed among the
eurozone nations. Critics point out that continued economic disparities could lead to
a breakup of the eurozone. In response, EU leaders proposed a peer review system
for approval of national spending budgets in an effort to promote closer economic
integration among EU member states.
Economic Impact
The PIIGS have been a major drag on the eurozone's economic recovery following
the 2008 financial crisis, contributing to slow GDP growth, high unemployment and
high debt levels in the area. Compared to pre-crisis peaks, Spain's GDP was 4.5%
lower, Portugal's was 6.5% lower and Greece's was 27.6% lower as of early 2016.
Spain and Greece also had the highest rates of unemployment in the EU at 21.4%
and 24.6%, respectively. Sluggish growth and high unemployment in these nations is
a major reason why the debt-to-GDP ratio of the eurozone rose from 79.3% at the
end of 2009 to 93% in early 2016.
This chronic debt persists despite both the U.S. Federal Reserve's massive
quantitative easing (QE) program, which has supplied credit to European
banks at near-zero interest rates, and harsh austerity measures imposed by
the EU on its member countries as a requirement for maintaining the euro as
a currency, which many observers believe has crippled economic recovery
throughout the whole region. Greece's public debt to GDP ratio is 180.1%,
Ireland's is 91.4%, Italy's is 132.6%, Portugal's is 128.4% and Spain's is
98.9%
While the origin of the term PIIGS grew from the currency trading and investment
community, it caught on with the public. The members are quite vocal against the
use of the term, finding it to have negative connotations that do not exactly inspire
confidence.

As much as the members of PIIGS criticize the term, this acronym has just become
too well used and convenient and will most likely stick with them for some time.
While it seems the entire EU and the rest of the world is suffering from some of
these same symptoms, these five countries seem to always be on the top of the list
when it comes to high debt levels compared to GDP, stagnate economic growth,
unstable and sometimes corrupt governments, high unemployment and a general
lack of catalysts for change, besides government or EU intervention. Each of these
countries has had some previous experience with growth and economic success,
but since joining the highly touted EU, they have used their collective borrowing
strength to promote growth using debt instead of organically expanding their
economies.
Portugal
Located on the tip of Spain in Southern Europe, this country ranks as the 14th
largest economy in the European Union. Hosting over 10 million people, Portugal
exports over 75% of its agriculture-based products, including grain, cattle, cork
wheat and olive oil. While it's one of the smallest economies included in the original
PIGS, Portugal's economic woes include the same issues of slow economic
growth, high unemployment and a high debt to GDP rating that affect its
Mediterranean cousins.
Italy
The boot-shaped county in the south of Europe
has had the misfortune of being included in this
group, and is sometimes interchangeable with
Ireland, depending on who is using the term.
Because of Italy's rich history, famous food and
romantic nature, it is one of the most visited
countries in the world. About two-thirds of the
60 million residents work in the service sector,
which may explain part of its high
unemployment. Tourism, a driving force in this
country, has been negatively affected since the
world economy stumbled in 2008. Italy's
economy is considered above average in
development, driven by an educated, efficient,
hard working labor force. Italy boasts a very
high standard of living, but it has financed these
standards by being one of Europe's biggest
offenders of taking on debt. The country has
reached an above average GDP per capita,
with a national debt in excess of 100% of GDP.
Ireland
Also called the Emerald Isle, Ireland is a famous tourist destination due to its rich
history, unique climate and terrain. Ireland has a population of around 4.5 million,
and a small economy, which places it close to Portugal in its ranking in the
European Union. Ireland was dubbed the Celtic Tiger, as it was once considered an
economic anchor with Asian-like growth characteristics. Ireland participated in the
economic boom throughout the 1990s and 2000s, but suffered from the same
symptoms that affected many other countries, such as a housing bubble. Ireland
fell as fast as it grew, and was the first eurozone country to fall rapidly
into recession in 2008. In order to avoid collapse, Ireland required massive
injections to its banks and significant government oversight and rebuilding efforts.
While it emerged from the recession with the rest of the world, the scars are deep,
leaving the country with heavy debt and very high unemployment.
Greece
Greece joined the EU in 2001, and its government began building a mountain of
debt that surpassed its GDP prior to the other EU countries. Greece also suffers
from slow economic growth and high unemployment, but it differs in its economic
structure compared to other European nations; Greece has a very large public
sector workforce accounting for about half its GDP. This in itself has limited
Greece, to a certain extent, in its economic recovery, as the public sector is
notorious for moving and reacting slowly. Since the end of 2009 and up to 2011,
Greece has been the most public, and most troubled, member of the PIIGS, seeing
its fair share of corruption and political unrest.
The Greek yield diverged in early 2010 with
Greece needing eurozone assistance by May
2010. Greece received several bailouts from the
EU and IMF over the following years in
exchange for adopting EU-mandated austerity
measures to cut public spending and
significantly increase taxes, while experiencing a
further economic recession. These measures,
along with the economic situation in itself
caused social unrest, and in June 2015 Greece,
with divided political and fiscal leadership and a
continued recession, was facing a sovereign
default. The following month the Greek people
voted against bailout and further EU austerity
measures, which opened a possibility of Greece
leaving the European Monetary Union entirely.
The withdrawal of a nation from the EMU is
unprecedented, and the speculated effects on
Greece's economy if the currency is returned to
the drachma range from total economic
collapse to a surprise recovery. The Greek
economy is still highly uncertain with
unemployment over 23% (though declining),
Spain
Spain is the fifth largest economy in the EU, and, despite
its place in the PIIGS, it's the 12th largest in the world as
of 2010. Famous for its historical sites and diverse
climates and locations, Spain also relies heavily on
tourism to drive its economy. With over 45 million
residents and a large land mass, Spain is an important
part of the EU, but it has seen some of the worst
economic damage. Part of the reason Spain was placed in
this group was its dramatic economic downfall that started
in the late 2000s. Spain boasted 15 years of above
average GDP growth and began to stumble in 2007 as a
result of a similar property bubble that occurred in Ireland,
high unemployment and a large trade deficit. With such a
successful run in growth and comparatively strong
banking system, it was hard to imagine Spain falling so
hard and staying down so long; however, prolonged
growth without assessing fundamental issues such as
debt management and employment, brought this country
onto the brink of crisis.
The Bottom Line
While it is hard to imagine and impossible to turn back time, it's a wonder how the
PIIGS might have fared had they gone it alone or left their currency floating and
let the markets decide their fate. Unfortunately for these countries, the damage,
whether caused collectively or independently, is deep and has left long lasting
scars. The debt they collected to grow their economies has reached a point
where it will most likely be excused, restructured or somehow revised in order for
them to move forward. While the media tends to dramatize the issues of each of
the PIIGS, their state of affairs could be much worse.
• Implications for the advanced countries
• The EZC and the EMEs
• Possible directions
 The EZC has been moving from one peripheral economy
to the next, and more recently, is affecting the core
economies in the euro zone.
 EU accounts – 26% of the world GDP (at market exchange
rate) and the euro zone – 19.4%.
 The euro area accounts 10% and 26% of the global equity
markets turnover and the global holding of reserves.
 Thus, the crisis threatens the pace of recovery of the
global economy especially the EU and within that, the
Euro Zone is a significant market for the rest of the world.
 The creation of the EU and Euro zone has been part of the
European dream of integration. A breakup of the Euro
would be painful in economic and political terms.
 A serious challenge is being faced by the two European
gaints Germany and France as the banks of both these
countries face large exposures . The markets have been
relentless in pricing them down.
 United Kingdom, that technically remains outside the
Euro Zone got no choice of remaining a passive spectator.
 As at present, the United States has a large financial stake
in Europe (over $600 billion). There are closing trade
links as Europe is US’s largest trading partner and the
largest destination for investment by U.S. corporations.
 For China and India, Europe and Eurozone accounts for a
significant market. Therefore, stagnation or worse, a
downturn in the euro zone will dent their export growth.
 China is somewhat balanced as the China is looking for
opportunities to diversify its forex assets (in the form of
sovereign debts as well as real assets like interest in
public sector units).
 For India, EU is a major trade partner (20.2% of India’s
exports and 13.3% of imports).
 Thus, the globalized banking system played a crucial role
in transmitting the crisis from advanced economies to
various parts of the world, including the emerging
markets.
 For dealing with the EZ crisis, the possible
alternatives being debated are on three broad lines.
 First, fiscal consolidation, including privatization.
This is the default policy choice.
 Second, would be to go in for a closer fiscal union
and a substantially enlarged European budget.
 Third, is the radical one, of peripheral economies
leaving the euro zone. A breakdown of the currency
may be very expensive, it could lead to insolvency of
several Euro zone countries, a breakdown in intra
zone payment.
The outcome of the current crisis may be a matter of conjecture.
None of the three choices are simple. Status quo is also not an
option. The choices will have to be political, but the
consequences will undoubtedly be economic. The issue is not
any more on how to deal with the current crisis. Rather, to make
the choice on ‘The Euro’- as Eichengreen put it, to ‘love it or to
leave it’ and depending on that, to do what needs to be done. In
the end, we conclude by observing that neither of these two
roads would be easy, the one that carries with it the vision of
unification still holds a dream but the other route may only take
the euro economies further apart.
 The crisis has many causes, problems and faces. Besides the fact that
the EMU was conceived with a too low level of convergence in monetary
and economic policies, a major flaw of the European Monetary Union
(EMU) was that it did not include the scenario of a sovereign debt crisis.
The Greek crisis has proven that government bonds are no more risk
free investments and is only one of the many problems the EU is
currently facing. Spain, Cyprus, Portugal, Italy and Ireland, as well as
others, have to currently cope with difficult internal challenges, creating
tremendous social and political tensions. Nonetheless, each case is
different and requires different policy responses. It is essential that the
concerned countries can rely on the support, the solidarity and the
decisiveness of the European community. The crisis proved that the
mechanisms currently in place were not enough to ensure fiscal
discipline and economic convergence within the Member States. The
EU therefore needs to find solutions to avoid financial and economic
shocks in the future, which derive from the co-existence of our monetary
union and the still incomplete single market with divergent economic
policies
 The sovereign debt crisis derived in large parts from the financial crisis
and the bail-out measures the governments had to undertake to prevent a
collapse of the real economy. The lack of oversight and rules for the
financial sector led to excesses on the financial markets. In the end the
European citizens had to carry the burden for the irresponsible behaviour
of some financial institutions. The costly rescue operations cannot be
communicated to and justified before the European citizens. If instruments,
such as the EFSF and the ESM, are deemed prudent by the decision-
makers, that needs to be clearly communicated and explained to the citi-
Page 2 zens. In the future no financial institution must be "too big to fail"
and it must be insured that the financial industry itself carries the risk of
speculative adventures on the financial markets. Hence a single
supervisory mechanism (SSM) is needed to ensure such an environment
coined by financial stability exists in the Euro area. In order to secure
financial stability and fiscal discipline, the EU must continue to develop
appropriate regulatory norms and mechanisms for the control and
supervision of the big financial players. The European Central Bank (ECB)
could be the appropriate body to insure stronger national supervision at
the European level.
 In the globalized world the EU needs to boost its competitive advantages
in order to keep being an important political and economic player in the
world. Competitiveness needs to be restored at the EU level in order to
offer to all the Member States equal opportunities to generate growth. A
long-term strategy for growth and a balanced budget are key elements of
a renewed European economic and financial policy but should not
jeopardize the European social model, based on solidarity, social
protection and democracy. Trust in the European project is again
necessary in order to attract (foreign direct) investment, boost trade and
increase consumption of European goods. Trust in the functioning of the
European market and economy is fundamental and needs to be restored
and increased in order to safeguard growth. Our top priority must
therefore remain to create jobs and growth in order to maintain social
cohesion and welfare for future generations. One of the key aspects for
ensuring economic success and being competitive in a globalized world is
education and knowledge. In order to ensure this competitive advantage,
Member States must invest significantly in R&D, improve their educational
systems, offer professional training opportunities and secure investment
from the private sector
 The European public needs to have trust in the European institutions and EU
policy-making. European citizens must feel that decisions taken on EU level are
legitimate. During the crisis decision-taking too often occurred behind closed
doors in the European Council. Instead of using the Community Method,
measures like the European Stability Mechanism (ESM) and the Treaty on
Stability, Coordination and Governance in the Economic and Monetary Union
("Fiscal Compact") were concluded in an intergovernmental setting. Those
intergovernmental agree- Page 3 ments should be transferred into EU-law as
soon as possible and all newly created institutions, including the so-called
"Troikas", must be subject to the full democratic scrutiny by the European
Parliament. As a principle the democratic control of decisions should occur on
the same level as the decision-taking. The cooperation between the national
parliaments and the European Parliament must be intensified in the framework
of Protocol 1 of the Treaties. This, however, must not lead to the creation of an
additional parliamentary assembly. The European Parliament is the citizens'
chamber of the EU and there is no need for the introduction of an additional
organizational level. Currently, the EU is as much in the media as never before,
because the crisis affects almost all parts of European society and must be
tackled with European solutions. The crisis should be seen as a challenge to
induce and establish more participation and integration of the public and civil
society in European policy-making. Society should be further included in EU-
level decision-making and have the chance to shape policies, for example due
to instruments like the recently introduced European Citizens Initiative (ECI)
 In its current setting the Euro area is unable to react adequately on
economic shocks. The EU monetary policy doesn't provide the necessary
tools to facilitate the desired adjustments of the economy. The national
budgets are not big enough to provide the necessary means and are
furthermore subject to tight rules for fiscal discipline set by the Stability
and Growth Pact and the Treaty on Stability, Coordination and Governance
in the Economic and Monetary Union ("Fiscal Compact"). In order to be
able to counteract and absorb financial and economic shocks, the Euro
zone needs an additional fiscal capacity. The funds for this purpose must
be drawn from additional resources and the budget must be developed
within the EU's Multiannual Financial Framework (MFF) to underline the
unity and integrity of the EU. At the same time the EU budget's share of
own resource funds should be increased significantly to make it more
independent from national contributions. In addition to the financial
transaction tax the possibilities to raise further funding on EU level should
be explored in that regard. Confidence by citizens that the decisions taken
by EU leaders are and will be in their best interest is key to regain their
trust in the European project. It is essential to explain fiscal and financial
solidarity between Members States and the necessity of subsidies,
guarantees and transfers within the Union.
 Europe is currently at a turning point in its history. The challenges that
lie ahead of the EU need to be solved together with politicians,
citizens, employers and employees. For that it is necessary that we
define a fair and new deal for the EU, adjusted to the needs of our time.
Due to the high degree of interdependence between EU Member
States, the countries have common problems which ask for common
solutions. Increased political integration is the answer to many of the
EU’s challenges, but for this the trust and belief of the citizens in the
European project must be strengthened and is key to our recovery.
Deep economic integration creates the need for political integration to
avoid the development of extreme economic imbalances and to
restore competiveness and the perspective for economic growth.
Coming to that, civil society and policy makers need to make sure, that
economic integration is accompanied by a social dimension in order
to ensure social cohesion, fair competition, good working conditions, a
fair labour market, and safety nets for those who need it. In any case, It
will be very difficult to communicate a feeling of trust in the European
project to the citizens in such periods of global crisis, but this
perspective is the only possible way-out on the medium term. A
particular effort of pedagogy and transparency is therefore needed in
this process. The main challenge is to win back the confidence of the
citizens in the perspective of the EP elections in 2014. Therefore EMI
calls upon the EP parties to nominate prime candidates and adopt
election programs.
 The crisis has given us a better idea of the social, political and
economic costs. The EU is in recovery and we are confident that
it will overcome the crisis and see it as a chance for further
integration, which despite its disastrous consequences for a lot
of citizens can be an opportunity for institutional progress.
However, the discussion about a new vision for the future of the
European project must be carried out in a public, democratic
and transparent form. A new European Convention with the
participation of the European Parliament, the national
parliaments and governments and the European Commission is
the only appropriate instrument.
 The EU will survive and will not break up any time soon, no matter the
economic, social, political, and foreign policy challenges. The next crisis in the
capitalist economy will force governments to make even greater concessions to
banks and corporations at the expense of the slashing living standards from the
middle class and workers. This will necessarily entail greater division within EU
and greater popular opposition to its continued existence, for it will cease to
serve the majority of the people and only cater to the financial elites. It will take
several crisis of capitalism for the EU to collapse and not one deep recession
and one left-centrist reformist regime in Athens opposing austerity, neo-
liberalism and the patron-client integration model. After all, there are many
countries waiting anxiously to join the EU, despite the fact that it has sharply
deviated from its original mission and its interdependent integration model
intended to help the economically weaker members.
 It took many decades for political leaders to convince their citizens that EU
membership was good for everyone and not just for banks and multinational
corporations based mostly in northwest Europe. It has taken a relatively shorter
time for people to judge for themselves the degree to which the EU best serves
the interests of all people in all the member states and not just the core. The
prevailing skepticism of whether there are really any benefits to the national
economy and society as an EU member, or if membership really serves the
domestic financial and political elites as well as the core EU members,
especially Germany, is an issue that cannot be overcome with propaganda, but
rather substantive policies resulting in real changes across Europe.
 Such changes will not come because the powerful banks, insurance,
pharmaceutical, defense, and other multinationals are behind the
regimes of Europe and they resist any change in the patron-client
integration model, and in making a commitment to social justice by
strengthening the middle class and workers that have suffered high
unemployment and major cuts in living standards. Along with some
programs designed to reduce unemployment by strengthening
businesses and providing even greater tax and other incentives to
corporations to hire and keep workers, there will be a major
propaganda campaign for voters to support the EU. Without tangible
results in socioeconomic improvement, the result will be continued
rise in the right wing and left wing political parties and disparate
groups that want their countries to leave the EU or they demand a
different integration model.
 The contradiction of the EU is that it is trying to project itself as the
most desirable bloc with the strongest reserve currency on earth, as
it tries to attract new members in Eastern Europe, while at the same
time, it is chocking growth and development within the periphery
areas precisely because it has a strong currency under monetarist
policies and neoliberal course of privatization and corporate
welfare programs undercutting the middle class as the popular base
of a democratic society. Survival is indeed certain for the short term,
but longer terms the decline and fall of the EU under the current
integration model is inevitable.