The most obvious and pressing challenges facing the EU leadership are the still-rising flow of migrants coming from Libya and the negotiations for the UK’s departure from the union. But the elephant in the room remains the EU’s financial health, specifically the future of the euro in the face of the seemingly intractable problems of Greek indebtedness and the continued lack of discipline in Italian finances.
Over the weekend the European Commission nodded through Rome’s $19.2 billion rescue package for two failing banks in the prosperous Veneto region. In the last 12 months, the two banks had already received $4 billion of state-backed support.
It was only at the start of this month that, after protracted negotiations, the Italian government received clearance from Brussels to bail out the far larger Monte dei Paschi di Siena bank. This followed the state-backed $14.5 billion recapitalization of Unicredit. After the Monte dei Paschi di Siena rescue it was assumed that Rome would be hard-pressed to get permission to save the two Veneto banks. It is undoubtedly a sign of the deep disquiet felt in Brussels, that in the event, the rescue of these two ailing institutions was nodded through within 48 hours.
In 2014 both these banks passed EU financial stress tests, even though it was already known they were burdened with a significant portfolios of non-performing loans. This is illustrative of the whole EU approach to problems both in the banking system and with the euro. In essence such challenges are managed by pretending that they do not exist until it is impossible to ignore them any further. At that point the Brussels establishment goes into a well-practiced process of all-night emergency meetings, which produce not so much a solution, as a fudge, though from the point of view of the Eurocrats, any decision is of itself a success.
The core contradiction of both the supervision of the EU’s widely varying banking systems and the single currency by the European Central Bank is that individual governments still have the final say. This reinforces the argument for greater union with a single EU Finance Ministry laying down the fiscal and expenditure laws. This indeed was the ultimate logic of the single currency. How else could the euro be protected and run but by an overarching authority that worked for the aggregated interest of the eurozone as a whole rather than individual member countries?
Such surrender of national sovereignty is key to the EU vision. But the chaos over migration, the failure to coordinate a cogent EU defense policy without the umbrella of US military support and even the inadequacies of a unified EU foreign policy, for instance over Palestine, is causing a push-back against the Brussels dream of ever-greater political union. The UK, which never adopted the euro, is walking. Eastern European states are in open defiance of EU diktats. And even France’s new president Emmanual Macron, though an EU enthusiast, is saying radical changes are necessary.
Euro enthusiasts will argue that the legal and political ties which bind the soon-to-be only 27 member states are stronger than the pressures that threaten to pull them apart. What of course they would never admit is that the EU continues to survive despite stunning and serial mismanagement.
