EU’s Significance in the Global Political Economy EU’s significance in the global political economy The global market has undergone significant reduction in economic growth levels and depreciation in financial returns which as caused a global financial crisis. According to James (2010) the crises have not spared even the global economic giants such as the European Union and the United States. The crisis has led to decrease in exports from the financial giants. Apart from the giants, the third world countries have been affected severely. There has been about 30% increase in the price of commodities (James, 2001).
The most affected commodity is the price of oil. The price of oil and petroleum products in Africa is mostly controlled by the Arab countries in the Middle East. This leaves them with no choice than to acquire the commodity in the stated price. From the severe outcomes, the European Union and the United States felt the obligation to try and solve the issue. So far the resolution strategy has not bore fruits yet which makes the third world countries lose hope in finding solutions from the two financial heads.
The European Union is also affected by the crisis and stares in the brink of losing its economic superiority. This paper will focus on the effects of the crisis to the European Union and also the leadership strategy that EU will use to curb the crisis. Additionally, it will focus on the crisis effect on the leadership of the European Union. It is a definite assumption that the role of the European Union in the financial market has been weakened by the financial crisis. With the EU countries facing vast economic crisis, they have shifted their focus in finding stability in their own countries and paid less attention to the global crisis (Drazen, 2000).
However, this is not enough for the local citizens. In countries like Iceland and Latvia, there have been rampant protests over the governments handling on the issue of financial crisis. This is a clear indication that the European Union is unable to handle the crisis appropriately. The European Union mostly gets profits from exports its member countries have. The number of exports from the past number of years has depreciated significantly.
Exports from Europe mainly land in the third world countries. Due to the global economic hitch, many of these countries have been advised to reduce the level of importation and focus on local production of goods (James, 2001). This has left many exporters with a loop hole in their profit giving centres of trade. The economic crisis in the European Union is mainly caused by low local demand on commodities. In many states, for instance Spain, the local citizens have failed to reach the required demand levels to sustain the country’s economy.
Due to this the state has shifted to over reliance of exports. According to James (2001) a country’s exports cannot do well enough to sustain its economy to the optimum level. In Europe banks have also faced losses due to the decrease in local customers and many creditors. The consequences of these effects are rampant in Greece where the country debt levels have reached an alarming rate. With banks having many debtors and the decreasing levels of local demand, it has become difficult for them to clear their debts.
This has forced many banks to bankruptcy. This consequently leads to the affected countries to turn to the E. U for monetary assistance. Since its liberal minded, the European Union lends money to its member states. As a union the E. U believes in a positive change in the economy conditions of the Euro zone. However, continuing to give monetary aid to its member states is not aiding in the situation. The monetary aid is creating a mode of over reliance in the Union.
According to James (2001) it would be a logic move if the European Union finds ways to increase the demand of products among the local people. The decline of local demand levels is attributed to the high prices of commodities. Due to this, individuals are aiming at saving more than spending. Apart from the euro zone, the E. U has a global responsibility which it must fulfil. Due to this, it makes it difficult for it to control both Europe and the rest of the world as far as monetary aid is concerned.
The problems facing the euro zone are evidence that the European states are failing in the control of global political economy (James, 2010). However, many people still have hope in the reincarnation of the euro zone but at the moment the crisis in Europe is far from over. According to the IMF (2009), the United States contributes 40% of the funds in the IMF. The overreliance on the IMF by European states to clear their debts has become a cause of worry to the U. S taxpayer.
With the growing concerns, countries like Greece will be forced to look for other sources of monetary aid. With increasing debt levels of member states the European Union must find alternative to stabilize its economic growth. The United States being the only hope to these crises is also having problems in financing its debts. This indicates that the economic partners of the Euro Zone will continue to bear the pain of the crisis in Europe (James, 2001). If this happens, the crisis in Europe will be severe to force the Union to abandon some states.
Conclusion Consumers in Europe hold the key to the solving of the crisis. However, this is far from being achieved because many consumers in the euro zone are aiming for financial security. They have turned to saving what they have to prepare themselves for the soaring economic conditions. If the European Union is get back to its usual economic strength, it must find a way of making locals to invest and increase demands in the markets (Drazen, 2000). This is only achievable if they are assured of future financial security and the current economic condition will not worsen.
The significance of the European Union cannot be undermined in the global market but its participation in solving the world economic crisis is becoming insignificant. The only logic solution to the crisis is the finding of alternatives for economic growth for the global financial giants. At the moment, borrowing is still the source of monetary aid used by many nations in the European Union. Analysts say that if the condition in the Euro Zone remains the same, the European Union will break which will impact very negatively on the global political economy (Drazen, 2000).
References Drazen, A., 2000. Political economy in macroeconomics. Princeton: Princeton University Press. IMF. , 2009. Global Financial Stability Report, International Monetary Fund, April 2009. James, H., 2001. The End of Globalization: Lessons from the Great Depression. Massachusetts: Harvard University Press. James, K., 2010. Financial Crisis: Impact on and Response by the European Union. Darby: DIANE publishing.