This month in brief:
The shooting star `Putin’ is burning so brightly for the moment that it is having a profound impact of the EU’s governance – forcing a real Union to begin to emerge.
After the June Council meeting, President van Rompuy said “In our Strategic Agenda we set out five overall priorities: stronger economies with more jobs; societies enabled to empower and protect all citizens; a secure energy and climate future; a trusted area of fundamental freedoms; effective joint action in the world.” That agenda contains two reactions to the shooting star `Putin’: energy security will now be a major goal over the next few years. The second result of the shooting star was the failure to decide on the new EU `Foreign Minister’. A candidate who was seen as soft on Russia failed to be elected, so Putin may yet force the EU to create a much harder common foreign policy – a hallmark of a genuine Union.
Work proceeds apace on banking union and the filling in of the detail underlines just how integrative the process is.
This author has been describing for some time the necessary push for the completion of the single market in capital as a `Capital Market Union’ and the use of the phrase by newly elected Commission President Jean Claude Juncker has made it particularly timely. Banking Union is on the statute books and we are sailing toward full implementation. However, few observers recognise the massive pooling of sovereignty implicit in banking union. What if there were an offset? Arguably, there is: a properly-designed capital market union would deepen the single market in finance but simultaneously buffer some of that sovereignty loss. It would be an open union that enables the savers of Europe to make their own choice about where they put their money – and de-centralise both financial and political power.
Painfully slowly, the euro area is emerging from the recession – with improved public finances but too-high unemployment. ECOFIN closed the Excessive Deficit Procedure for a further six countries, leaving the number of countries still in the corrective arm of the SGP at 11, down from 24 three years ago. Meanwhile, the European Commission adopted a series of economic policy recommendations to strengthen the recovery. The recommendations are based on detailed analyses of each country's situation and provide guidance on how to boost growth, increase competitiveness and create jobs.
Interestingly, the ECB published its convergence report on the eight euro `outs’ who are committed to join the euro in due course. Only three are ruled out by their public finances currently but all except Lithuania have yet to take the political decision to join the ERM. Lithuania has been a member of the ERM for the requisite two years and was approved to become the 19th euro member in 2015. There are strong signs that the shooting star `Putin’ is persuading some of these `outs’ to reconsider the euro seriously. Far from the euro disintegrating, it continues to expand – and may well experience a new wave of entrants during the new Parliament/Commission.
Italy: IMF Article IV consultation mission: The recovery remains fragile and unemployment unacceptably high, highlighting the need for bold and quick policy actions. Deep structural changes are needed to make Italy a more dynamic country that adapts quickly to a changing world and is home to innovative entrepreneurs.
Spain: moderate recovery: Since the second half of 2013, the Spanish economy has perceptibly been experiencing a recovery, which began with positive, moderate quarter-on-quarter rates of change in GDP as from 2013 Q3 and which has continued in 2014 to date. Notably, Spain promised to make an early repayment of €1.3 billion to the EU. The government announced that it will make an early repayment of 1.3 billion euros from a total of more than €40 billion in European financial assistance.
Greece: adopting reform measures: Greece has committed itself to the immediate fulfilment of some prior actions required for the disbursement of the next bailout sub-tranches. Meanwhile, German Finance Minister Wolfgang Schäuble reckons a third bailout for Greece would be less than €10 billion, significantly smaller than each of the previous aid packages. And the ECB's Benoît Cœuré notes encouraging signs in the Greek banking sector- although, 'We now have to wait for the outcome of the ECB’s comprehensive assessment.'
Ireland: First post-programme monitoring discussions: The Irish economy is in the early stages of recovering from an exceptionally severe banking crisis. Following a smooth exit from the EU-IMF supported programme, strong job creation and other indicators suggest Ireland’s economic recovery is broadening. But the Irish Finance Minister Michael Noonan sees major difficulties in securing EU help with bank debt-other EU states are in a worse situation and unlikely to vote for support measures.
Portugal: Statement by the EC, ECB, and IMF: The European Commission, the European Central Bank and the International Monetary Fund 'T ake note of the Portuguese government's intention to await the pending Constitutional Court rulings concerning adopted budgetary measures before formulating a comprehensive response. These rulings are not expected before the IMF and EU programme expires at the end of June. We take note of the government's decision not to seek an extension of the program and to allow its expiration without completing the 12th and final review and without receiving the associated final tranche."
Cyprus: European Commission Adjustment Programme: The Commission has published its fourth report reviewing implementation of the economic adjustment programme for Cyprus. Programme implementation remains on track. Cyprus’s president says the bailed-out country could start borrowing from international markets by the end of the summer, a full year ahead of what its creditors had initially anticipated.
United Kingdom: reports on benefit of EU trade and costs of Brexit: In a report 'Trading Places' for British Influence, Lord Hannay, former British Ambassador the EU and the UN, analyses the trade implications for the UK outside the EU. “Would we have a better chance on our own [in securing a trade deal with the US] with only access to a market of 60 million consumers to offer in return as opposed to one of 500 million? Are there alternative ideas? I do not see them." Meanwhile, the CER published its final report on the Economic Consequences of leaving the EU: The Centre for European Reform's experts finds that, after leaving the EU, the UK would face an invidious choice: sign up to the single market’s rules, or suffer economic damage.
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© Graham Bishop
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