Development, the European Union and the financial crisis: assessing the picture

Author:Graeme Baber
Position:BPP University College of Professional Studies, London, UK
Pages:441-464
SUMMARY

Purpose The purpose of this paper is to investigate the developmental status of the Member States of the European Union (EU) in the wake of the global financial crisis. Design/methodology/approach The paper considers the three elements in pairs, i.e. development and the EU, development and the financial crisis, and the EU and the financial crisis, and synthesises these by... (see full summary)

 
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Development, the European
Union and the nancial crisis:
assessing the picture
Graeme Baber
BPP University College of Professional Studies, London, UK
Abstract
Purpose – The purpose of this paper is to investigate the developmental status of the Member States
of the European Union (EU) in the wake of the global nancial crisis.
Design/methodology/approach – The paper considers the three elements in pairs, i.e. development
and the EU, development and the nancial crisis, and the EU and the nancial crisis, and synthesises
these by answering the questions propounded in the introduction. A sustainable development index is
constructed for all 28 Member States of the EU. In the next section, the association between the nancial
crisis and sustainable development is considered for four non-European developing countries, using
correlation analysis. Following this, the construction of the EU’s regulatory framework in the wake of
the nancial crisis is summarised.
Findings – Member States who did not have the status of advanced economies on joining the EU have
closed the development gap on their neighbours. Of the four non-European countries, the nancial crisis
is not a major factor in the sustainable development of three of them. Post-crisis legislative reforms
within the EU are comprehensive. Nonetheless, a long-term perspective must be taken to effectively
address the issues that underlie development, within the EU and beyond.
Research limitations/implications – The sustainable development index incorporates most, but
not all, of the World Bank’s sustainable development goals. Countries omit to supply data to the World
Bank, so gures need to be estimated. Regression analysis is avoided, because of the variable
measurement problems therein. Therefore, no claims are made as to causation. All arithmetic workings
are shown.
Originality/value – The paper integrates three concepts, which is a new research.
Keywords Development, European union, Index, Financial crisis, Regulation, De larosiere report
Paper type Research paper
1. Introduction
“Greece is bankrupt and will default on a debt repayment to the International Monetary
Fund (IMF) that is due in two weeks, the country’s interior minister said yesterday”
(Watereld, 2015, p. 35). This abrupt statement, made on 24th May, illustrates that not
all is well in terms of the economic welfare of the constituent countries of the European
Union (EU). So, to what extent are any of these states considered to be “developing
countries”? What, if anything, is the continent doing for them? To what degree has the
nancial crisis and the response to it inuenced the picture in terms of developing
countries, especially within Europe? To approach these issues, this paper looks at the
three items in pairs, i.e. development and the EU, development and the nancial crisis,
and the EU and the nancial crisis, and, on this basis, proceeds to make some
observations.
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/1359-0790.htm
European
Union and the
nancial crisis
441
Journalof Financial Crime
Vol.23 No. 2, 2016
pp.441-464
©Emerald Group Publishing Limited
1359-0790
DOI 10.1108/JFC-09-2015-0049
2. Development and the EU
First, a description of “development” is required. Whilst it is possible to distinguish
between richer and poorer countries, states with similar mean incomes can materially
differ in respect of the quality of life, i.e. items such as access to education and
opportunities for employment (Soubbotina and Sheram, 2000). Countries that generate
economic growth but without using this to benet the majority of their citizens, for
instance, in terms of literacy and life expectancy, tend to be unable to sustain this
position (Soubbotina and Sheram, 2000). “Sustainable development” is development
that satises the needs of the present, without compromising the ability of persons in the
future. This includes the concepts of “needs” – especially those of the poor – and of
limitations that the state imposes on the environment’s ability to full needs in the
present and in the future. Thus, a range of component measures is required to describe
“development”. The difculty is, of course, how to select and weight these.
A measure of economic growth is needed: real, annual gross domestic product (GDP)
per person can represent this[1]. The other elements can be selected with reference to the
World Bank’s Millennium Development Goals, which are to eliminate extreme poverty,
achieve primary education for all, further gender equality, lower child mortality,
improve maternal health, combat diseases, ensure the sustainability of the environment
and develop a worldwide partnership for development (World Bank, 2014). The last
three of these are each difcult to represent in a single measure. For the other ve
objectives, the respective indicators might be the share of the poorest quintile in the
national consumption[2], the literacy rate of 15-24 year olds[3], the share of women in
non-agricultural wage employment[4], the infant mortality rate[5] and the maternal
mortality ratio[6]. These data are to be collected for EU Member States, and are to be
benchmarked by the country at the top of the 2013 Human Development Index (HDI),
Norway and, that at the bottom, Niger (United Nations Development Programme, 2015).
As sustainable development includes the requirement to satisfy needs in the future,
the description of “development” should also include a measure of investment and an
indicator of saving. For investment, gross capital formation as a percentage of GDP is
selected. For savings, gross savings as a percentage of GDP is chosen.
Table I shows the development indicators for the 28 Member States of the EU, and for
the countries with the highest (Norway) and lowest (Niger) HDIs for 2013. It also shows
the highest and lowest values for any recorded country for each of the indicators. The
source of these gures is the World Bank’s statistical database[7].
These components can be weighed and added to form a “sustainable development
index”. As GDP per capita is an indispensable component of development, the annual
GDP per capita measure is to be emphasised more in the construction of the index than
any of the others. Annual GDP per capita is to be weighted at 30 per cent (0.3), and the
other seven indicators at 10 per cent (0.1) each.
As the data may be grouped towards either the weakest or the strongest readings –
for instance, it is grouped towards the latter for the infant mortality rate per thousand
births – I will equilibrate the natural logarithm of the strongest datum reading for each
indicator with the maximum weight for that measure, and the natural logarithm of the
weakest datum reading for each indicator with the minimum weight for that measure –
which is zero. The reading for the relevant country will be scaled between these,
according to the value of its natural logarithm[8]. Such use of natural logarithms evens
out the spread of the data points across the range.
JFC
23,2
442

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