08 April 2014

European Integration Monitor - March 2014

The European Parliament elections loom on the European political landscape. The Fourth European Semester process is progressing and States are due to present their National Reform Programmes. The German Constitutional Court delivered its final rulings on both the ESM and the fiscal compact.

This month in brief:

Political: The European Parliament elections at the end of May now loom large on the European political landscape. The candidate for the post of Commission President must gain the support of a majority of the Members of the new Parliament – 376 votes. It may be difficult for a candidate from the extremes of the political spectrum to gain the necessary support. So the chances of the centrist - Verhofstadt – being able to gather support from either side of the spectrum are not as low as many argue. If this can be translated into a higher turnout of electors, then the euro-sceptics may not fare as well as many commentators suggest. The relatively poor showing of the Front National in French local elections and the problems of Geert Wilders in the Netherlands should allay fears of a fragmented Parliament. 

Financial: The European Parliament scored a major victory for the people of Europe by forcing changes to the SRM that should enable it to resolve major banks quickly. If the ECB succeeds in identifying impaired assets /weak capital, then the Mechanism may not need to be used for many years. But there are still many pieces of financial legislation that will be left over to the next Parliament. Fortunately, Omnibus II went through a vote in the EP’s Plenary but there are still many questions about how the detail will be filled in – by barely 18 months to go. Securitisation is being strongly advocated by the ECB as part of the answer to banks’ de-leveraging and starving the economy of new credit. The pace of reviews of existing legislation always seems to come round faster than expected and the Parliament’s comments about the review of the ESAs shows the push for `more Europe’ is unabated. 

Economic: The Fourth European Semester process is progressing and States are due to present their National Reform Programmes soon to address the “imbalances” that the Commission identified in 14 Member States. CEPS added its voice to the analyses of the Troika’s programmes as States begin to complete them and identified political resistance to structural reforms in Greece as a key impediment to a resumption of sustainable growth. The ECB’s Coeuré argued that the downsizing of the banking sector needs a matching acceleration of the development of alternative, capital market-based sources of finance, and through initiatives which the ECB supports, to revive European ABS markets. Such a rebalancing of the financing mix of the euro area economy probably requires further regulatory action to acknowledge the emergence of new, high-quality capital market instruments, such as simpler and more transparent ABSs. 

Member States: The German Constitutional Court delivered its final rulings on both the ESM and the fiscal compact – both treaties are constitutional. Germany – both Government and Bundesbank - also recognised the problems caused by its current account surplus, but without any specific commitments on what to do about it. Spain and Italy both give concern about their willingness and even ability to respond to the lengthy adjustment process that is still needed. Bruegel even discussed the potential need for Italy to lengthen its debt maturities. Finland is often cited as increasingly awkward about the EU but its Parliament adopted a report that underlined it EU commitment. However, the problems in the Ukraine are undoubtedly reminding Russia’s immediate neighbours of the benefits of closer EU integration. Greece appears to be about to get the next tranche of aid – supported by an improving economic picture but observers are noting the failure of the political system to implement adequate structural reform. 

© Graham Bishop