The French parliamentary elections could be the real stumbling block for changes to the way the eurozone is run, comments Fleming in his European Voice column.
There are two sets of parliamentary elections in the European Union next week. Each will help to determine the fate of the euro.
The elections that the Anglo-Saxon world is talking about are those in Greece – a re-run of the inconclusive contest in May... However, arguably the more important elections are those held over two weekends on 10 and 17 June for the French parliament. These will determine whether François Hollande, the newly elected president, will have enough political room for manoeuvre to agree with his European partners that a shift in the structure of the eurozone is needed, and soon.
On this view, the only way out of the eurozone crisis is to convince the financial markets that the single currency's leaders are ready to take bold steps towards deeper fiscal and financial market integration – a path dubbed EMU II by some of its advocates.
The meeting of government leaders of 23 May tasked a high-level group comprising Herman van Rompuy the president of the European Council, José Manuel Barroso, the president of the European Commission, Jean-Claude Juncker, the president of the Eurogroup, and, critically, Mario Draghi, the president of the European Central Bank, with drafting an outline of a plan to present at the EU summit of 28-29 June.
They are expected to propose the creation of a “banking union” for the eurozone's larger, systemically important, banks. This scheme would include eurozone bank deposit insurance, bank resolution (orderly bankruptcy or bank restructuring), and pan-eurozone supervision. To have any credibility with the financial markets, which will be the key test, the Van Rompuy group must include plans for the necessary financing structures underpinning their proposals. These will inevitably involve a further significant, and painful, transfer of sovereignty to a pan-eurozone level.
Note that the group's paper will be a eurozone blueprint – so excluding the eurozone's financial centre, the City of London. The insouciant, eurosceptic British government appears not to have noticed this threat, even though shrewd observers like Jean-Pisani Ferry, director of Brussels-based think-tank Bruegel, are beginning to think such a radical initiative is likely. Commenting last week on the idea of a banking union (31 May), he wrote: “Will Europe bite the bullet?...It would not be the first time European heads of state wait until they are on the edge of the cliff to take a decision. But it would not be the first time they end up taking the right decision.”
But that may depend on those elections of 10 and 17 June. As one senior EU official put it: “France could still be the stumbling block”.
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