Economic Imbalance between Core and Periphery States in the European Union

Abstract

This contribution aims to answer the question of whether the European Union (EU) and its legal and economic frameworks, in their current state, are reaching balanced economic growth. The root of this question stemmed from Article 3(3) TEU, which sets the EU objective of “balanced economic growth.” The question is relevant due to the unequal division of economic hardship in the EU during and after the Crisis of 2008-2009.

To answer the proposed question, the research is split into three major parts of study regarding the EU; legal, macroeconomic, and microeconomic.

The legal investigation found that there is significant uncertainty concerning the interpretation of Article 3(3) TEU. The only specific and tangible praxis for the provision is in the field of EU Competition Law. Furthermore, there are significant disagreements among scholars regarding the tangible enforceability of the clause. To apply the clause practically to economic development in the EU, a tentative interpretation was extracted from judgements of the Court of Justice of the European Union in the field of Competition Law.

It was further found that the legal mechanisms with the aim of fulfilling the objective set by Article 3(3) TEU, are highly convoluted. There are multiple substantive safeguards in the EU Treaties to limit the allowance of Member States to provide direct financial support to one another. However, without much legal discussion, several of these safeguards were ignored, or followed ‘loosely.’ The research finds that such actions could be explained by the use of the Principle of Solidarity – yet retorts by emphasizing that if that principle was used, it still resulted in the breach of multiple laws.

Based on the legal framework, the macroeconomic study was embarked upon. It was found, that there is wide macroeconomic disparagement between core and periphery states in multiple macroeconomic indicators. More importantly, there was not a significant decrease in the disparagement of multiple of these indicators for periphery states, which have been in the EU for over a decade. This indicated significant economic imbalance.

It was additionally found that core states, due to their initial economic advantage, could benefit from ‘beg thy neighbor’ policies, which further increased the disparagement with the periphery. The consequences of the austerity measures as a response to the 2008-2009 Economic Crisis further highlighted the disparagement, especially through diverging labor costs. However, the same measures also caused for an increase in convergence between periphery and core states for other factors, especially inflation rates. Ultimately, the macroeconomic study itself could claim that there exists imbalance currently, but not whether it would continue that way in the long term development of the EU.

In order to pinpoint the exact imbalance between the core and periphery states, the economic investigation was conducted on a microeconomic scale. By using labor and migration statistics, Latvia and the United Kingdom were compared in terms of healthcare worker burdens. This portion of the research highlighted that economically, periphery states are uncompetitive in terms of relative wages, and that even though standards of living differ per Member State, there are fixed costs, which cannot be decreased, past a certain level. Because of this, Core nations will benefit significantly more from current migration trends than Periphery nations – the same conclusion can be transcribed to other channels of trade between the Core and Periphery, as well.

In summation, this contribution finds that there are significant economic discrepancies between Member States in the core and periphery of the EU. Though economic growth is occurring, it is not split equally – the heavier burden is experienced by the periphery. Yet, in order to arrive at the core of which factors are the most important to remedy, further studies are necessitated. Nonetheless, it is clear that the EU will require further economic and legal fine-tuning in order to find the best and most sustainable balance in a unique monetary union without a united fiscal policy.

Keywords: economic imbalance, EU, European Union, Article 3 TEU, Macro, Micro