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08 May 2014

European Integration Monitor - April 2014

The new Parliament will probably have to operate as a Grand Coalition. The European Parliament voted through key legislation on SRM for eurozone banks. International forecasters agree eurozone is on a path to economic growth. More evidence that 'Brexit' would be very damaging to the UK.

This month in brief:

Political: In three weeks, the European Parliament elections will be done – but could the result yet be tipped by the Russian impact on the simultaneous Ukraine polls re-awakening the basic fears that created the EU in the first place? The EPP’s Juncker promises `more Europe’ with deeper integration – but wants to accommodate Britain. The S&D’s Schulz promises more fiscal action, actions on tax havens/fraud and an FTT. But ALDE’s Verhofstadt was the outright winner in the polls of the first TV debate – how will this impact the eventual outcome? However, unless the polls are completely wide of the mark, the new Parliament will probably have to operate as a Grand Coalition – increasing the importance of left-of-centre views on financial markets – both on regulation and the basic issue of the size of public deficits. 

Financial: The European Commission’s Expert Group on DRFs and Eurobills presented its report to ECON and Graham Bishop explained his plan for a Temporary Eurobill Fund.
The European Parliament voted through key legislation on Single Resolution Mechanism (SRM) for eurozone banks, EU-wide rules for the winding down of failed banks – the Bank Recovery and Resolution Directive (BRRD) – and upgraded rules to protect deposits up to €100,000 (DGS). Council then agreed the texts of MiFID II, the SRM and BRRD and commentators reacted to these agreement as well as on PRIIPS and UCITS V. Efforts to boost securitisation were reinforced by the ECB and Bank of England. Full details of the AQR, Comprehensive Assessment and Stress Tests were published. 
Economic: All three major international forecasters (Commission/OECD/IMF) agree that Europe/eurozone is on a path to economic growth, especially for programme states – but deep-seated problems remain and structural reforms are necessary. A thoughtful analysis of communicating monetary policy by ECB President Draghi highlighted the difficulties in guiding expectations during a period of 'lowflation' – and underlining the risk of further impairment of monetary policy channels that might require unconventional responses. The FTT debate took another turn when the UK challenge at the ECJ was ruled out on the grounds that there was not yet a policy proposal – and the chance of that remain low as the proponents cannot even agree on what transactions should be taxed and who should receive the revenue. 
Member States: More evidence from the City that 'Brexit' would be very damaging to the UK – and also to the EU. The new French Government’s hints about taking longer to control its budget deficit immediately ran into trouble from Europe – underlining concerns about France’s policies. In contrast, Spain received warm words from the Commission, ECB and OECD. Similarly, Portugal was praised – cautiously - as it issued ten year bonds in the open market and prepared for a clean programme exit. Greece issued five-year bonds amidst recognition of the huge steps already made but the rise of political extremism is a cause for concern. Cyprus seems to be well on track with its programme. 

© Graham Bishop

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