BELGIUM – BRUSSELS – 2017 will be a crucial year for the EU. The popular votes on the Brexit and the choice for Trump as the new US President have rattled the establishment in the EU. The vote against Renzi and his reform agenda in Italy was regarded by many as an anti-EU vote as well. With elections in the Netherlands, France and Germany coming up there is potential for more turmoil. The migration crisis is not under control, as even president Juncker admitted recently. While many member states depend on the EU for transfer payments, most do not want the EU to interfere with their internal matters. The refusal of the Visegrad countries to take in migrants was a clear statement that was quietly welcomed by many in Western Europe as well.
The EU is not in a good shape and there are many voices that question its ability to survive. To even ask this kind of question was unthinkable just a few years ago, but with the Euro-crisis festering for almost a decade now, frustration is high and patience is running out. Much of the damage done was caused by the Euro-system. If this system fails the EU is in grave danger as well as there was much political capital spent by the EU on saving this dysfunctional monetary union.
A central problem will be the future of Italy. Italy is the third biggest economy of the Euro-zone and it is burdened by too much regulation non-performing loans in the private sector. It has not mustered the political will to overcome its problems and perhaps by now the problems are too great to overcome on its own. While overregulation could in theory be dealt with, someone will have to pay for the non-performing loans.
The Italian government is not ready to let any of the bigger banks go under because this would hurt many small private investors who are holding junior bonds in these banks. It took the EU years to implement the new European banking regulation and regulation for the banking union which forbid state-aid to banks, but it seems that these rules will be already abandoned.
The fear of Beppe Grillo and his five-star movement profiting from any bail-in is too great in Rome and in Brussels. In the end Italy wants to socialize the cost of bank restructuring in Europe.
The EU is prepared to go along with this but instead of going for a one-time debt relief it wants to implement permanent transfer systems and reign in the member states whose economic policy it no longer trusts. If this plan was successful, the EU would gain more power and reduce the member states to provinces in regards to economic policy. These ideas are outlined in the 5-Presidents report, the Bresso-Brok and the Verhofstadt reports.
But are these ideas credible? Is there enough support in the member states for this kind of European integration at a time when anti-EU forces gain ground everywhere? I very much doubt this.
Some countries, like France, want transfer systems but at the same time keep their political independence and countries such as the Netherlands or Austria will be unwilling to pay. With hundreds of breaches of the Stability and Growth pact, trust in the rule of law on the EU level has suffered and nobody knows if any new promises would be kept.
As we know from EU-Commission President Juncker, the EU does not even expect countries such as France to respect the rules and has resigned itself to tolerate this behaviour. Unless the EU wants to leave the entire economic problem to the ECB and its printing press, it will need German support and German money. In the past few years the crisis has lead to many political casualties and many in the EU believe that Merkel is the only leader left in Europe who has the political will and financial power to deal with the problems.
I personally have little doubt that for the sake of the Euro-system Merkel and her minister of finance Wolfgang Schäuble are prepared to pay for the problems in southern Europe after the election to the German Bundestag at the end of September. Plans of European centralization and additional transfer systems will be supported by the Social Democrats, Greens, and the Left. The potential SPD nominee Martin Schulz has even called for giving the European Parliament the power to raise taxes in order to finance “many wonderful projects”.
Merkel is not a conservative at heart and she might join forces with those parties that want more centralization and transfer systems.
While Merkel is damaged politically due to her handling of the migration crisis, for both her and Schäuble the coming election is their last one.
None of them seems to care much about the fate of their own party, the CDU, which after the Merkel years does not have much personnel left and could be terminally damaged by such a rescue operation for the Euro system.
As a German, these days I have to rely on smaller countries to save us from the vision of the European super-state. In any case I believe that it will be elections that dominate 2017. Perhaps only in 2018 these results will translate into politics.