(This is an archived page, from the Patterns of Power Edition 3 book. Current versions are at book contents).
Groups of countries like the EU seek to gain the benefits of joint decision-making on issues that affect all the members – notably to lower the barriers to trade between them. They have to set, and enforce, shared standards to avoid unfair competition.
To increase political stability and reduce migration, the EU tries to assist less developed regions through the European Regional Development Fund (ERDF). That has similar problems to regional support within individual countries, as described above (3.4.5.2), but with the added complication that redistribution of wealth between countries is politically contentious.
Currency union between countries is even more difficult. The Eurozone, for example, was set up by several countries to create a common currency – the euro – to remove the exchange-rate fluctuations that had affected the trading relationships between them. Each country continues to be responsible for its own macroeconomic management, but the common currency prevents governments from using inflation to solve the problems of running a fiscal deficit (3.3.8.3).
Any government with a fiscal deficit has to introduce austerity packages – either raising taxes or cutting spending – and these are much more visible than inflation. They caused political strains in the 2010 Eurozone crisis. Reuters listed demonstrations in Greece, Italy, Portugal, Slovenia and Spain in its report: Euro zone govt austerity plans stir protests.
The Eurozone benefits, of relative economic stability, come with a loss of members’ political autonomy: they can no longer be fiscally irresponsible.