The European Union (EU) is the beating macroeconomic heart of European Command (EUCOM); unfortunately, today, that heart has opaque and clogged fiscal, monetary, and political arteries, which impede the flow of needed capital to and from the center and periphery of the global economy. (1) Nonetheless, Russia has attempted to emulate the organization and success of the EU’s combined annual GDP of 17.5 trillion USD, with a Eurasian Economic Community (EurAsEc) concept fielding a combined annual GDP of 2.1 trillion USD. (2) Turkey (annual GDP 735 billion USD) also attempts to follow the EU model, as exemplified by its participation in regional free trade agreements with nations such as Syria and by chairing the 57 member strong Organization of the Islamic Conference, all the while continuing to work towards a fading dream of eventually joining the EU. (3) (4) (5) Global economic failures have a history of releasing unpredictable social and political pressures which increase the cost of basic necessities, reduce living standards, increase demographic inequalities, destroy livelihoods, and reduce global financial predictability. (6) (7) (8) The struggles of EUCOM countries, in their attempt to maintain a sustainable macroeconomic equilibrium, are instructive as well as of financial interest to all stakeholders within the interconnected global economy.

The concept of Market Clearing, where the prices of goods and services are in equilibrium and can be visualized at the intersection of supply and demand curves, underpins many Macroeconomic models. (9) Modeling the long run or the short run impacts the equilibrium point of the macroeconomic model used. In the long run prices are seen to be flexible while in the short run prices are seen as sticky. We also need to consider that all macroeconomic models function within a framework of fiscal and monetary policies, applied by institutions within traditional Westphalian Nation-States as well as by transnational structures. Within this framework, institutions and supra-empowered individuals continuously compete for influence. Fiscal Policy is typically formulated and supervised by a fiscal authority such as a Financial Ministry while Monetary Policy typically originates from an independent Central Bank. Fiscal Policy variables of note include taxation, government spending and borrowing. Monetary Policy variables of concern include money (quantity theory), foreign exchange rates, inflation, and interest rates. Both the International Monetary Fund (with 187 member countries) and the US National Intelligence Council publish reports, which incorporate regional projections resulting from macroeconomic modeling efforts. (10) (11) (12)

The European Union is not a fiscal union and it is an incomplete economic (common market and customs union) and monetary union; this distinction is at the center of its current macroeconomic troubles. In order to achieve a fiscal union, member states will have to cede a greater portion of national control over fiscal policy to the EU. This will require national voting on the proposed structural changes to the EU’s directly elected parliamentary institution, the European Parliament. Given the history of the Lisbon Treaty, the approvals process for structural changes are far from assured. (13) Since the EU does not have a centralized Financial Ministry (not withstanding the heroic efforts of Mr. Olli Rehn, the European Commissioner for Economic and Monetary Affairs) the union instead has 27 different financial ministries, who’s Fiscal Policies are not necessarily synchronized. This reality is seen in the unsustainable budget deficits of Greece and Portugal, which resulted from national fiscal policies, which were not synchronized with the requirements of Maastricht Treaty nor with other members of the union. Although comprised of 27 members, only 17 (the Eurozone) have ostensibly met the economic and monetary union requirements of the 1992 Maastricht Treaty. In return for the ability to participate in the world’s second largest reserve currency, these 17 members (Austria, Belgium Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia, and Spain) of the EU follow Monetary Policy set by the independent European Central Bank. (14) The macroeconomic situations in Spain and Ireland however, which had low levels of government debt prior to the crisis, are indicative of the thesis that sovereign debt among Eurozone members is not risk free, and is in fact differentiable. As a result of this realization bank runs, on Eurozone banks, which hold suspect sovereign debt are increasingly seen as possible. (15) European political leaders are under incredible pressure to continue the integration process of the EU, with a short-term focus upon crafting an acceptable fiscal union, due to the interconnectedness of the global financial system. (16) Due to Germany’s position as the strongest economic member of the Eurozone, the buy-in of the German populace is seen as critical and, threshold criteria for any deeper integration of EU members are expected to be stringent. (17)

Russian dreams of financial strength and leadership as a unifying regional economic power, continually founder upon the hard realities of endemic corruption, xenophobia, weak institutions, arbitrary fiscal and monetary policy, and a cult of personality, all of which rest uneasily upon a narrow, commodities based economy. (18) (19) (20) This condition is no less a tragedy for the Russian people, than it is for the global community. (21) The Central Bank of the Russian Federation is constitutionally mandated to be an independent institution, setting national monetary policy and driven by technical concerns. The intent of this paper document is belied by the still unsolved 2006 murder of Andrei Kozlov, the first deputy central banker who fought for the rehabilitation of Russia’s more than 1,200 banks. (22) Banking corruption in Russia appears to continue unabated since his death. (23) The Russian Finance Ministry sets Fiscal Policy, and many foreign investors have hoped for positive changes in its policies since Russia’s 1998 default and its subsequent 2008 economic meltdown. (24) “This time is different, he adds, “are the four most expensive words in the English language.”” (25) The World Trade Organizations Working Party on the Accession of the Russian Federation was established in June of 1993 and efforts to meet WTO criteria continue. (26) (27) The EU-Russian relationship is a key one for Russia, and serves to influence Russian policy and actions. (28)

Turkey’s modern day economic rise, impacts members of the Middle East more than it does most members of EUCOM, nonetheless Turkey continues to follow many of the wishes of Ataturk in that it selectively continues to pursue compatible benefits of westernization. (29) (30) (31) (32) Turkey’s sovereign rating for foreign currency (provided by the S&P) remains at BB, two notches below investment grade, and 2014 forecasts for government debt/GDP ratios are trending at around 35%. (33) (34) Once Turkish sovereign debt reaches investment grade quality, it will be open to institutional investors. By Turkish Law, The Central Bank of the Republic of Turkey has an independent role in setting monetary policy. Turkey’s banking industry presently consists of approximately 45 banks, which have an average capital adequacy ratio of approximately 19% (higher than Basel III requirements – 4.5 % of common equity and 6% of tier I capital). (35) Since it’s economic meltdown in 2001, and subsequent three-year recovery, the Turkish Financial Ministry appears to have continued to follow the playbook drawn up by the Turkish Economist Kemal Dervis, to its benefit. (36) Turkish aspirations to join the EU are tempered with the knowledge of political realities present within the EU; yet Turkey realizes internal economic gains by continuing in the process. (37)

When one attempts to pass judgment, it is wise to remember that human lives are brief and that all human endeavors are flawed. (38) (39) (40) The combined population of the 51 EUCOM countries and territories exceed 500 million souls who generate in excess of 20 trillion USD in GDP annually (the population of the US is approximately 300 million souls generating an annual GDP of 14 trillion USD for scale). The spectrum of economic conditions within EUCOM display societal statements regarding the appropriate roles and responsibilities of the modern day state and, increasingly, that of transnational organizations and individuals. (41) The penetration of society, the regulation of social relationships, the extraction of capital, and the appropriation of the same are enduring capabilities used by each of these actors to varying success. (42) Furthermore these capabilities are set against a regional background of political fragmentation, heavy migration flows, select demographic declines, and an increased and widespread transparency regarding decision-making processes and resource allocation (aka the democratization of information). Ostensibly, an implied goal of just leadership is to set the conditions for a sustainable economy (which is supported by a minimal, transparent, predictable, and balanced regulatory framework) in which societies and individuals can navigate to generate growth and wealth, each according to his or her ability. (43) It is this author’s opinion that if the EU’s centralized macroeconomic heart fails, EUCOM countries, and more broadly the interconnected global financial system will struggle to avoid a global economic depression. But then, even though political successes may not always be explicitly linked to economic successes or failures, neither is political capacity always sufficient to meet the economic requirements of the times. (44)