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Tuesday, May 10, 2011

News to the Wall Street Journal: The E.U. Has a Common Market

The European Union has a common market. This would seem to be news to The Wall Street Journal. This is not to say that the E.U. is a common market.  For instance, the union has governmental institutions, including a parliament, a senate (i.e., the European Council), an executive branch (i.e., the Commission), and a supreme court (i.e., the ECJ).  So it is surprising when journalists forget that the E.U. even has a common market—treating each of the States as having its own economy. To be sure, regions of the E.U. perform differently economically.  In the U.S., the States in the Northeast and California tend to produce more than say South Carolina and Iowa.  Therefore, I contend that The Wall Street Journal errs in applying the concept of contagion to the E.U. financial crisis of 2010. 

A contagion occurs “when a loss of market confidence in one economy transmits to others.” It can occur through trade connections, economic similarities, and financial linkages. There are no “trade connections” within the E.U. because there is a common market within its borders—the E.U.’s borders, that is.  Economic similarities and financial linkages naturally exist within an economy; they need not evince contagion. 

In terms of the E.U. States that are variously suffering from budget deficits, high government debt and low growth, both the problems and solutions can be viewed in systemic terms with respect not only to the state governments, but also to the EU in terms of its common market and governance. Reducing the E.U. to its States misses this point and is antiquated. 

Beyond the financial matters in the E.U., the reporting thereon evinces a problem in itself—that of being excessively rooted in “the same old, same old” at the expense of a changing world.  In other words, our perspectives seem to have a nasty habit of being too sticky or rigid, and this is a problem that may dwarf those facing the E.U.

Click to add a question or comment on the E.U.’s common market.

Source: Tom Lauricella, “Fears of Domino Effect Pervade Europe,” The Wall Street Journal, November 24, 2010, pp. C1-2