03 October 2013

European Integration Monitor September 2013 - Inaugural edition

This edition covers the summer months so many significant events could not be highlighted – but the links to them are available. 

Politics The European political class is preparing to move on from ‘pre-German election’ paralysis – once the CDU’s coalition partner is settled. From a European perspective, replacing the increasingly ‘anti’ FDP with either of the more ‘pro’ partners should be good news in the medium term. However, the next excuse for paralysis is already looming – the May 2014 European Parliament elections, followed in the autumn by horse-trading for influence in the next European Commission. Italian premier Letta survived the Berlusconi attack but still has to find a way to produce real reform so that perhaps Italy can lead during its EU Presidency in 2H 2014 towards his goal of “risk-sharing and financial solidarity” within the EMU. Meanwhile, UK premier Cameron announced a “radical” re-negotiation of Britain’s relationship in Europe to remove the concept of “ever closer union” via a Treaty change – but even the Dutch have now made clear they do not support that approach. More Politics …

Finance The shape of the ECB’s Asset Quality Review (AQR) is now crystallising. It is certainly ambitious, but it does not expect any disasters, and any one-off national re-caps of banks will not break EU budget rules. So the furore over the SRM seems ever more irrelevant for the eurozone in the next year or so. Nonetheless, that debate will shape which non-euro states decide to join Banking Union. The moment of decision is getting closer. Perhaps the most significant aspect for financial markets is the growing recognition that the special regulatory treatment given to government debt must be changed – as this author has advocated since 1989! More Finance…

Economics The euro area economy is showing the first signs of recovery but there is no room for complacency as political instability and reform fatigue looms in several countries. President Barroso’s State of the Union message did not mince words when he said that progress on Banking Union is a vital requirement for economic confidence. The fourth round of the European Semester is now gearing up for the Commission’s Annual Growth Survey and Scoreboard report on 15 November. Will Germany be criticised for its continuing large current account surplus? However, this process seems to be stimulating the think-tanks into considering - yet again – if there should be a euro area institution to manage the beloved concept of the area’s ‘aggregate fiscal stance’. But the policy-maker community seems to have the rather more hard-headed approach that public backing for such a scheme is ‘barely discernible’. More Economics…

Budgets EU technical experts cooked up a plan to change the definition of ‘structural deficit’ which would have eased the austerity on countries such as Spain, but senior officials soon became concerned about the ramifications so there will be no change ‘for the time being’. However, these details pale into insignificance when considering exactly how the ‘Fiscal Compact’ Treaty will work to involve national Parliaments with the European Parliament – an EU institution being used to operate the inter-governmental TSCG. This may be a foretaste of the debates about how to promote ‘ever closer eurozone union’ while the UK remains outside! More Budgets…

Member States Cyprus, Greece, Ireland, Portugal, France. More Member State Events…

© Graham Bishop