The European Council on Foreign Relations

Walking backwards towards integration at the EU summit

Date: 2nd July 2012 | Author: François Godement,

Categories: Reinventing Europe,
Tags: , eu integration, eu summit, euco, euro, euro crisis

In EU politics, lots of noes can sometimes produce a yes. That's what has happened again at the European summit this week. To recap: Spain wanted no toughened conditions for its public budget. Germany did not want to lend more without its debtors – and by implication all other eurozone members – surrendering budget authority. This time around, repeating the same old pledges to implement targets would not do. Italy didn't want to commit to further austerity, France is vague about federal budget authority (a subject on which Germany has exactly the opposite view) and, lest we forget, the UK wants nothing but a solution for the eurozone headache that will improve its own national prospects.

Amazingly, with the skill of a professional contortionist, the summit has delivered a compromise that everyone can just about live with. The downside is that the eurozone's future is now stuck inside the world's smallest and tightest suitcase. Namely, the solution to the crisis is dependent on a banking union, which is in itself still conditional on a banking supervision authority, which remains to be created.

But there is also an upside. The summit has set a target at the end of the year to create the banking supervision authority. At the December 2011 summit, Europeans had failed to set out a binding schedule for their next institutional steps: the market hardly gave them a three-month respite. This time, the market may grant a reprieve. It will figure that the endangered debtors – Spain, Ireland – can survive six months with the promise that the suitcase will be opened at the end of the year, and that Italy will be spared by contagion and will not have to fit in the suitcase.

Should the deadline be broken, however, it is more than likely that the market will asphyxiate everyone inside the suitcase. The first hurdle, therefore, is a legitimate and believable solution to the supervision issue by the end of the year. This will predictably be a Franco-German trench war. French banks have thrived on a dirigiste diet, while Germany will want to close the loophole of public borrowing from national banks.

But for the time being, all the noes have been rewarded. Spain isn't subjected to the kind of loss of financial control that Greece has gone through. Germany is conditioning its new support to a pledge for common supervising authority, although it would have preferred implementing the supervision before loosening the strings of the purse. France is getting the schedule it wanted – pledges of solidarity before more commitments to surrendering banking and fiscal authority. The UK can only watch the caravan go by, but it hasn't been asked for any specific commitment.

Have we therefore failed to move even one step towards federalism? Not so simple. In keeping with Europe's tradition of walking backwards towards more integration, federalism is not the goal there. It is merely the worst solution, except for all the others that have been tried.

Looking ahead confirms this analysis: François Hollande won't be able to hold off ratifying the December 2011 fiscal pact much longer. Angela Merkel will be politically squashed between her party and a strong opposition calling on her to continue on the path set out on Friday. Mariano Rajoy will, in the next six months, continue to pile on his official debt figures, which doesn't put him in a position to resist strong banking supervision. Mario Monti has no incentive to rock the boat, when the steps taken this week may save Italy from calling for help.

Yet the drift into federal solutions, however involuntary or reluctant, is likely to continue.

A version of this article first appeared in The Guardian/Comment is free.

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2 comments

Florin Pasatoiu 12th July 2012 at 12:07am

Reading the title, I thought you would dwell on the federalism topic right from the very outset of your article, but it proved I was wrong:). I bet there was a bit of a rational choice drive.
From a different angle, the EU needs to resume the efforts on further EU integration, albeit federalism.
From the outside, one would ask “whose world governance”? Security and politics to a large extent would rely with the US, economy seems to be dependent on the emergent Asian and Latin America growing (!?) economies, would the politics of societal progress and politics stil rely with the Europeans, here the EU?
From the inside, chaos and social disorder is gaining momentum from economic crisis to political crisis, shattering the very fundamental of the EU!

The current misfit that would eventually trigger an institutional and even constitutional remake of the EU has a purely economic basis and further transferring of national sovereignty would have technical reasoning and no peoples demand- hence, we witness emerging a challenging stance- in the recent centuries any sort of state build up has been the recourse of peoples contributing.
As the actual furthering of EU integration is not a natural demand, there is a high risk to widen even more the gaps in between nations in the EU and give way to a multiple speed EU where more divergences rather than convergence may spur.
Yes, we should move on!

Übersetzung Englisch Deutsch 12th July 2012 at 03:07pm

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