The Euro and the EU Super State

Updated on December 18, 2019
Amanda Bliss profile image

Amanda is a graduate student focusing on global economic trends.

With the formation of the European Union came many things. The group meant to watch each member country economically, and, to a certain extent, politically.

After its foundation, it’s hard to deny that the EU made Europe great again in the aftermath of the catastrophic World War II. And with the birth of the EU came the birth of a new currency—the euro—which turned out to be a powerful economic tool for EU countries that are using it.

Map of EU as for Nov. 2019. UK shown orange because of "brexit".
Map of EU as for Nov. 2019. UK shown orange because of "brexit". | Source

Trip Down Memory Lane: the Euro

The euro first appeared as a currency for electronic payments in 1999. That was the first phase. Slowly, the euro replaced the local currencies of the member countries. In 2002, the second phase kicked off saw the euro in its physical form and circulation, completely replacing local currencies in eurozone countries.

Eurozone and European Union

For those who might still be confused with terms and names, it’s important to remember that the “EU” refers to the 28-member trading bloc. Within the EU, the eurozone exists. The eurozone refers to the countries which are using the euro as their national tender. Outside the eurozone, but within the EU, nine countries use their local currencies.

Not each out of 28 member states is using Euro as currency
Not each out of 28 member states is using Euro as currency

Adopting the Euro

There are many reasons why some countries do not use the euro, including the independence to set monetary policies. But some states haven’t met the criteria the EU set to let countries adopt the common currency.

An EU country that wants to adopt the euro needs to:

  • Have annual budget deficits lower than 3% of their GDP
  • Have its debt-to-GDP ratio to be smaller than 60%

Now, non-EU-member countries can also use the euro. Examples are the Vatican City, Andorra, and Monaco and San Marino.

Using Euro for Unification

We know that the euro came about because of the creation of the European Union. With this as our starting point, we can conclude that the euro is meant to unify all the member states economically—at least initially.

Adopting the euro as the national currency brought a lot of advantages. For one, smaller countries can enjoy the support of powerhouse economies like Germany and France. Weaker economies also enjoy lower interest rates. Because of these lower rates, more foreign investments come into the euro-using country.

But, under the lens of economics, it didn’t unify all the EU countries, did it? The euro, although being the second most popular currency next to the dollar, doesn’t answer all the challenges to EU member countries.

For instance, certain countries have unique needs that the European Central Bank, the eurozone’s central bank, cannot address. That’s because any decision the ECB makes is a sweeping decision. Also, some countries want to retain independent control of their fiscal and monetary policy. Central banks like the Bank of England want control of their economy, even going back to Winston Churchill’s time, when he said:

“…we have our own dream and our own task. We are with Europe but not of it. We are linked but not compromised. We are interested and associated but not absorbed.”

In present times, the United Kingdom still has the same sentiment. Proof of this is none other than the referendum vote of 2016 that has been famously called Brexit.

So, did the euro fail to unify the European Union member countries’ economy?

Example of Euro Bills and Coins
Example of Euro Bills and Coins

The United States of Europe: A Pipe Dream or a Reality?

But another question arises when talking about the euro’s role in the European Union: is a United States of Europe possible through the use of euro?

The idea of a unified Europe has been around for literal ages. The earliest proponents include the ever-popular Napoleon Bonaparte, who believed that a united Europe was a super force that would be undefeatable. Giuseppe Mazzini had the same idea, describing the European unification as the logical continuation of the Italian unification.

After the First and Second World War, British Prime Minister Winston Churchill said that a kind of “United States of Europe” must be built. For him, this was the only way that “millions of toilers” could regain the simple joys of life. But could they have been wrong?

As a Pipe Dream

A lot of argument exists for the United States of Europe. This idea is something that a lot of leaders in the region, whether eurozone or non-euro country, have pondered. However, the idea of a European Super State faces a lot of reality checks.

On the economic front, the country’s economies, although tied mainly with each other, still run on different engines. At the same time, political divides exist. Even with the advantages of the euro, some countries do not see it as a useful tool for governing. Populist states do not sit well with historically democratic countries.

Socio-culturally, the countries in Europe are too diverse to be lumped as one sovereign people. It’s also hard to imagine their roots, language, and tradition becoming a part of one significant sovereign entity.

The European Union also doesn’t have a ratified constitution, which is something essential to form an independent country, whether it’s Federal or not. And although the European Commission, European Parliament, and European Council all have leaders that drive the union, the actual “president” of the European Union doesn’t exist. So, is it a pipe dream?

EU Dogo
EU Dogo

Moving Toward Unification

It's not necessarily a pipe dream. Throughout the decade, political and EU officials have hinted or even directly summoned the name of the United States of Europe. With varying degrees of support, the idea of a unified Europe is gaining traction in Germany and France. And that has some weight, as the Franco-German duo is the biggest name in the EU.

According to a survey, French and German people are mostly in favor of a United States of Europe. At the same time, many others argue that the European Union, with its single currency and the political and economic implications thereof, already makes it unique and an entity like no other. Put in another way, the EU may already be considered a federation. And a federation is just another word for a sovereign entity made up of different states—the United States of Europe.

But a truly united Europe—a completely sovereign entity that is composed of unified but diverse states functioning as one—may still be far in the future, unless the challenges have been addressed and resolved. If it happens, it will change the world, and power structures will be shaken to the core.

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