What the EU will do to protect the Euro.
April 20, 2006 5:33 PM   Subscribe

Can the European Union "take over" a country's economy?

A while ago I thought I heard that the EU had the authority to assume control of a member nation's economy if it was in very dire straits. This would be done to protect the Euro. I also thought that this authority had been used since the Union's inception.

Of course, I could be imagining all this, since I haven't found mention of it on the web, archival news searches, or with librarians. All I've found is mentions of sanctions against the economically weak nation.

Please help this confused USian.
posted by easyasy3k to Law & Government (7 answers total)
I think (long time since I studied this) that the strongest provisions in law are in the Stability and Growth Pact.

Provisions of this act have been used, but "taking over an economy" would be an extremely strong way to put it.
posted by godawful at 5:44 PM on April 20, 2006

The Stability and Growth pact does set a couple of limits that each country in EMU is supposed to hold to, such as limits on budget deficits and public debt. If a country breaks the limits, it is supposed to suffer sanctions. However, France and Germany have both broken the Pact and were not punished.

If a country adopts the euro, it does lose control over several aspects of its economy: it cannot devalue its currency, and it loses control of monetary policy. Interest rates are set by the European Central Bank for the whole of the Eurozone.
posted by matthewr at 5:54 PM on April 20, 2006

What exactly would that mean? EU control over prices and deciding who gets to buy what?

There are some EU rules that allow the EU to force certain fiscal policies, which affect the economy, but I don't think anyone since Stalin has thought that you could 'take over' an economy ["capture the heights"].

Googling "EU control of fiscal policy" brings up a whole lot of official and semi-offical web sites and PDFs which you might find useful.
posted by tiamat at 5:00 PM on April 20, 2006

Fact is, right now no one really knows for sure just what the EU can or cannot do. As a practical matter it seems that the EU can do whatever it manages to convince the member countries to let it do.

Given the failure of the constitution, what seems to be going on is that those who support the EU, including the rising army of bureaucrats, are proceeding to act as if it had passed and are getting on with the job of running the entire continent.
posted by Steven C. Den Beste at 6:24 PM on April 20, 2006

Den Beste is right about the EU in the sense that nobody really knows what it can and can't do. EU nations no longer have independent monetary policy FWIW. Though I think it unlikely that the EU would assert control over an economy without its permission. It seems more likely the opposite would happen. There's a lot of rumors swirling at the moment that Italy wants to pull out of the Euro -- something that came up Wednesday at a briefing with the IMF's chief economist Raghuram Rajan on Wednesday.
posted by Heminator at 7:19 PM on April 20, 2006

A while ago I thought I heard that the EU had the authority to assume control of a member nation's economy if it was in very dire straits. This would be done to protect the Euro...

There are 25 EU member states. Only 12 of them use the euro. So, no.

It's a common misconception that the euro is the common currency of all EU states. The euro and the EU are not the same thing.
posted by plep at 8:38 AM on April 21, 2006

Thanks everyone. I didn't realize that countries lost control over those aspetcs of their economy. Didn't know how ill-defined the EU's powers were either.

plep: I was assuming the EU would only go to save a country that adapted the Euro, but now that I think about it, wouldn't a member nation's economy bottoming out affect the Euro, even if the nation didn't use it?
posted by easyasy3k at 9:05 PM on April 25, 2006

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