05 November 2013

European Integration Monitor - October 2013

The driving forces of politics, finance, economics and budgets are a powerful cocktail that will intensify in the years ahead. In these notes, Graham endeavours to highlight the incremental content rather than give a balanced summary.

The PDF link at the foot of the page takes you to the complete European Integration Monitor

This month in brief:

Politics

The end of the Berlusconi era seems to be allowing Italy to come back onto the European stage – perhaps at a critical juncture, as Italy will take up the Council Presidency in 2H 2014 when the new Parliament and Commission will be thinking about goals for their five-year term of office. With France immobilised by internal problems and the UK also immobilised by debating whether to leave the EU entirely, Italy may seize the opportunity to take a bolder role. However, the European political class is now fully alert to the risk of a public backlash in next May’s EP elections that could bring a dis-organised but influential anti-EU block into the Parliament. More…

Finance

The October European Council made little progress on Banking Union – as expected – and Schäuble reiterated that legacy bank asset problems must remain a national responsibility. The legality of using impairment standards that are not yet EU law has now surfaced, but the whole issue of the balance sheets that will be published to investors in the spring (and used for any capital raising that is required) has yet to be addressed. If these turn out to mislead investors, who will be liable? Perhaps the most helpful turn of events in the month were (i) the ideas from Germany about opening the ESM in some way to non-euro members to give them the same rather limited banking backstop as euro members, and (ii) the statement by Commissioner Rehn that one-off capital injections by states would normally not be counted against a state for the purposes of the Excessive Deficit Procedure. The Commission’s Work Plan for 2014 emphasised the importance of financial regulation, as these took the first seven places on the priority list (FTT was number 24). More…

Economics

The Commission proposed a batch of ideas to deepen social integration as a political counterweight to the pressure to reduce budget deficits, but the competitiveness agenda will re-appear on November 15th when the fourth iteration of the European Semester process gets underway – with first outing of the new powers from the `two pack’ to monitor national budgets. A key problem will be how to scrutinise the implementation of the Country Specific Recommendations, as the record so far shows that only about 15% of them have been implemented. More…

Budgets

The `two pack’ comments on budgets will be public so that should step up the pressure on states to put forward budgets that should keep deficits genuinely in check. But a re-elected Chancellor Merkel is already indicating that even greater European involvement in budget-setting may be at hand. This debate should be clarified at the December European Council meeting when the ‘main features’ of `contracts’ between Member States and the EU will be fleshed out. Will a further round of greater European control herald the need for a quite fundamental revision of the EU Treaties? If so, resolution powers will certainly get tacked on. But will this trigger a UK referendum on EU membership even if there is an opt-out for the UK? More…

Member States

The Headlines alone illustrate the diversity of events around the EU. More…(click on the individual countries for detailed reporting).

© Graham Bishop