On March 25th, European Union (EU) leaders from 27 nations gathered in Rome to celebrate the 60th anniversary of the founding of the organization. Although the EU currently consists of 28 members, the U.K. was absent due to its recent decision to leave the EU. On that day in 1957, France, West Germany, Italy, Belgium, Luxembourg and the Netherlands signed the Treaty of Rome, creating the European Economic Community (EEC), which eventually became the EU. Over time, new members joined the group. This map shows the current members.1

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It should be noted that this wasn’t the first attempt at a supranational European body. France proposed the European Defense Community to be comprised of the six original EU members. However, the French failed to ratify the treaty. In 1951, West Germany and France built the European Coal and Steel Community which included the other four founding nations of the later EU and it became a forerunner of the EU. In 1957, the same six nations agreed to cooperate on nuclear power. Still, the EEC is considered the original source of what evolved into the EU.

The primary goal of the EU was to prevent another world war from being fought on European soil. That goal, at least so far, has been successful. The key to meeting this goal was to solve the “German problem.” That issue continues to evolve.

In Part I of this report, we will discuss the German problem and how NATO and the EU were developed in response to resolving that problem. In Part II, we will examine the post-Cold War expansion of the EU, including a discussion of the creation of the euro and the Eurozone. With this background, we will analyze the impact of the 2008 Financial Crisis and the difficulties the EU has faced in dealing with the problems it caused. There will be an analysis of immigration and European security as well. We will look at several proposals being floated in the wake of Brexit about reforming the EU and, as always, conclude with potential market effects.

The German Problem

Until the early 1800s, what is now Germany was a region of small principalities. These small states created a buffer zone between France and Russia and was thus considered useful by both. Napoleon shattered that notion by marching through the region on his way to Moscow. Although the French leader was ultimately defeated, his invasion sparked nationalism in Prussia that led to the creation of the German state in 1871, led by Prussian leaders. The creation of the German nation was aided by the Franco-Prussian War of 1870-71, which encouraged the southern principalities to join Prussia to create Germany.

Germany’s central location in Europe coupled with few physical barriers to the free movement of people and goods helped Germany become an economic powerhouse. At the same time, the German military was acutely aware that it could not withstand a simultaneous attack from France and Russia.

Thus, Germany’s military doctrine focused on eliminating one competitor first, usually France, and turning on the remaining nation. It also meant that if France and Russia were aligned, it would be forced to act pre-emptively because it could not allow these two powers to choose their time to start a war.

For the most part, France and Russia welcomed Germany’s economic expansion.

It offered investment opportunities and gave them another source of goods and services, reducing their economic dependence on Britain. However, they also feared

Germany’s rise because that same economic expansion made the country a formidable military power.

In 1907, in response to Germany’s rise,

Article on EEC, EURO, Germany, EU etc continues in the PDF

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