Eurozone Integration



By Barry Edwards

Eurozone Integration


This week we have had the ‘State of the Union’ speech from Jean-Claude Juncker and a statement from the French finance minister Bruno Le Maire at the gathering of finance ministers in Tallinn, the Estonian capital, that Paris and Berlin would push through an overhaul of the Eurozone.

The Juncker speech was a typical federalist approach with some solid suggestions that were well received but most reactions were that most of it would not happen. It comes as no surprise to anyone that the real power lies firmly in the hands of France and Germany with the main thrust for now coming from President Macron. Angela Merkel has made it known that she is willing to go along with some of the French plans but while the German election is still pending the commitment is to be confirmed after the 24th of September.

The French have stated that they want to see a stand-alone Eurozone budget, parliament, monetary fund and finance minister. They want to discuss these proposals directly after the German elections. Everyone expects Angela Merkel to remain Chancellor and continue with the coalition with the SDP although this may take some time to finalise as usual. While these talks are going on, the French want to discuss their proposals so they can be part of the new coalition manifesto and become confirmed German policy.

The conditions for German compliance are that the French must restructure their economy to meet the conditions for talks to begin which is in the process of being implemented right now. President Macron and his team have presented their plans to the French parliament and it is expected they will be passed in the next few months. Providing everything goes according to plan, the Eurozone will achieve some form of closer union to support the Euro currency to make sure it can survive. The southern countries will have to be encouraged with the offer of support from the monetary fund in the event of financial trouble occurring. This used to be something the Germans would not accept but now both Merkel and Schäuble have said they agree this must become part of EU policy.

The big problem with all this is that the EU itself will then have 19 members rapidly unifying and 8 other members being distanced from this group. In other words a two tone EU with different ambitions which could cause disagreement especially if some of the Eurozone conditions were imposed on the eight. Therefore, it would seem necessary to agree how the two groups would operate within the EU before the unification of the 19 could begin in earnest. At the moment, there is no discussion about how this could happen which must be of great concern for the non-Euro members.

The EU usually takes many years to change anything, it is suggested that this new plan will be implemented in the near future taking the Eurozone in a new direction much more quickly. Therefore, the shape of the EU with the two different kinds of member must be discussed and agreed in the same timeframe. It maybe that there are talks going on about this matter but nothing has filtered out into the media to suggest this is happening. These days that usually means nothing serious is being discussed unless the politicians are being very discrete.

Jean-Claude Juncker is trying to make sure the EU progresses as one unified entity but the French and the Germans appear to be taking it in a direction that is at variance with the European commission. It appears that the EU does not see this as relevant to the debate about the future of the union but it must feature somewhere as the more recent members are grouping together and deciding what they want for the EU.

Clearly this point has been part of the reason why some Brexiteers want to leave the EU since they see it as the cause of the breakup of the EU and the UK would be better off outside it. This is the only truly genuine point, in my view, that has been discussed in the whole referendum debate and it has not been mentioned very much since that time.

Brexit and the arrival of Emmanuel Macron in May are not really related but they have caused the EU to analyse itself and come forward with proposals that are planned to be implemented in the next couple of years. All this could happen while the UK negotiations are continuing and the UK is still officially a member of the EU. It is reasonable to assume this may change the ultimate outcome but we can only wait and see how events unfold.

That’s all for this week, more observations next week.