European (dis)Integration?

What good is the European Union?

The conventional wisdom is that the European countries that are part of the European Union have done better economically, but by how much? The Euro crisis made that question pretty important. The countries that had traditionally devalued their currencies to compete—Italy, Spain, Portugal—couldn’t do so anymore. So their exports—and their economies—suffered. If the benefits aren’t worth the cost, the Euro won’t survive.

So what is the advantage? Several researchers have looked into the question. They found that EU membership added significantly to almost every country’s income. On average, per-capita income across the EU would be 12% lower without the connection. This holds true for each individual country, with the exception of Greece. The gains came from three sources: increased trade, improved labor productivity, and institutional reform.

Trade is clear—everyone benefits from selling what they do best. Labor reforms help: when workers are free to work where the jobs are, they are more productive. And institutional reforms—like freeing up lending rules, or decreasing subsidies to preferred sectors—reduce a lot of waste. Until the Euro crisis, Greece hadn’t changed many of these rules, and that has held them back.

Making connections is hard, and adjustments are never easy. The United States had several secession crises in its early years. Let’s hope the EU’s long-term benefits remain clear to everyone.

Douglas R. Tengdin, CFA

Chief Investment Officer

By |2014-04-28T10:49:47-04:00April 28th, 2014|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

Leave A Comment