Ten Years since the Crash

A Retrospective

New Political Challenges for the Eurozone as it Continues its Recovery from the Economic Crisis


In 2008, the world's major banks were saved only by the concerted intervention of their governments’. This averted many financial institutions from bankruptcy and collapse – catastrophes for the stability of the international financial order.

In America the US Federal reserve took rapid action to revive its economy with the introduction of Quantitative Easing (QE), while in Europe, the European Central Bank (ECB) dithered in failing to take sufficient remedial action in response until the beginning of 2015. Europe far lagged the US in economic growth for the preceding five years.

For Europe, its prime concern was – as it still is – to protect the stability of the Eurozone at all costs. But no effective concerted plan exists for repairing the fault lines that now crisscross the region, particularly in the Eurozone's weakest economies. Members such as Greece (PIIGS) Ireland, Spain and Portugal were instead offered (with strict conditions of compliance) rescue programs – with IMF connivance – that did little to restore confidence in the single currency. These short-term financial bailouts involved the wholesale slashing of state spending and welfare, and produced the most drastic levels of austerity seen since the 1930s. Despite the failure to establish the much needed fiscal and banking union, the ECB’s introduction of QE in 2016 has, finally, helped provoke the first stirrings of an economic recovery in the Eurozone.

New Challenges

New challenges have surfaced that suggest the present organizational structures were designed more for an EU of 15 nations, than the 27 it now holds (without the UK). It’s clear that satisfying the diverse needs and expectations of an EU that comprises this many members will not be met by the dream of ‘ever closer union’. This appears to be off the menu for most countries, with the possible exception of France. In the meantime no firm policies are agreed on the fiscal and banking structures necessary to avoid Eurozone financial calamities in the future.

Populism and the Rule of Law

It is argued that the new political challenges pose the EU with an existential challenge. Years of economic stagnation culminating in mass unemployment and huge welfare cuts can rightly be blamed on the failure of the Euro system, and its leadership. But the growth of populism and agendas for change – at national and the supranational level – are fueled first and foremost by the failure in Brussels to control non-EU migration. The security of Europe’s borders, and not the impact of Brexit, dominates the agendas of EU national governments as this will decide the future of the Schengen ‘open borders’ agreement.

The growth of populism and nationalism threaten the liberal, internationalist political status quo - in Europe as in the US. Its appeal helped win the Brexit vote in the UK and continues to pose a danger to the hegemony of all Europe’s center left and right governments.

Brussels was slow to react to the non EU migration crisis. EU leaders soon recognized management of this will continue to remain as important as Eurozone reform to contain the populist surge and political extremism feeding on electorates’ fear of mass migration.

Fortunately refugee numbers are down from their 2015/6 highs. New vetting procedures for asylum seekers at port of entry have been put in place. ‘Rescued ‘migrants will be sent to Euro-wide “controlled centers” – but only on a voluntary basis – to accommodate hostility of populist governments to any Brussels imposed compulsory arrangements.

The Brussels Effect

The huge benefits of membership are not lost on even the most ‘dissident’ members. But shared sovereignty reminds newer members such as Hungary and Poland of the joining rules they signed up to. Brussels has indicated it will not flinch from Article 7 sanctions on those states accused of eroding the rule of law and actions to undermine the supremacy of their domestic (Supreme) courts. Future EU funding will be tied to compliance with these democratic values pledged in (members) EU Accession treaties.

It is easy to forget the EU is a global economic power and in recent years has stood alone against the power of multi-nationals in its enforcement of anti-trust legislation with Google at the top of its hit list. It continues to champion international free trade and the growth of the global economy. But it also sets the regulatory agenda for much of global trade and the corporate system, and its methods have been embraced by trading blocs throughout the world in a phenomena known as the ‘Brussels Effect’

John Theodore is a trained barrister and was Director of the International Tourism Research and Consultancy Centre specialising in EU projects at Manchester Metropolitan University, UK, for 20 years. He has also been a Visiting Professor at Warsaw University, Poland, where he was awarded the Senate Medal of Merit.

His latest book, The European Union and the Eurozone under Stress: Challenges and Solutions for Repairing Fault Lines in the European Projectis co-authored with Jonathan Theodore, Kings College London, and Dimitrios Syrrakos, Manchester Metropolitan University, and features a foreword from Lord Desai. This followed Cyprus and the Financial Crisis: The Controversial bailout and what it means for the Eurozonealso co-authored with Jonathan Theodore.