This week’s European summit is a crucial one for the future of the economic union. It has been called exactly one year after the European Council that paved the way for a banking union and sealed the Compact for Growth and Jobs. This agreement was meant to make up for the excessive emphasis on austerity policies in the finances of the 27 EU states, which has caused so much collateral damage. This summit will be an opportunity to see if the EU is advancing or going backwards, not so much in relation to the rest of the world, but as regards its own previous commitments.
There is little cause for optimism, particularly due to the worsening of the political and institutional climate and the backdrop of a recession, which does little to facilitate agreement. In the past year the tension and divisions between north and south, continental Europe and the Anglo-Saxon camp, and Germany against all the rest have become more acute. Relations within the Franco-German engine room have also been poor, although major damage has been averted in recent weeks.
On top of this, strong mistrust is now palpable on an institutional level within the troika, one of the instruments created to deal with the worst of the European crises, with the European Commission and the IMF having a public row while European Central Bank chiefs remain passively on the sidelines.
With these ingredients it is difficult to see how the necessary recipe will be achieved. Countries like Spain — with the ruling Popular Party having commendably reached an in-principle agreement with the opposition Socialists to present a united front in Brussels — have been rightly demanding a change in direction to ensure that the recession will be shorter and less harsh than it is promising to be. This will happen if, as well as the right policies being adopted, the perception that the union is able to take positive action is unequivocal and irreversible.
Of the pillars upon which banking union is based — supervision, a deposit guarantee scheme / liquidation powers — the first is looking fairly solid, while the second is taking shape with the usual flaws: an expanding timeframe and the pegging back of the implicit and explicit ambitions with which it was first devised.
Among these limitations is the insufficient amount of money (60 billion euros) that is envisaged for the direct recapitalization of European banks, a quantity that will not guarantee the breaking of the vicious circle between banking and public debt, one of the prickliest problems at the heart of the European crisis. The scheme is also weakened due to the ad hoc proliferation of national exceptions on the list of who should pay for banking bailouts. But perhaps the most important thing is that the banking union should come into force without further delay and dilution. Even a hidebound union is better than none at all, and future realities will have the effect of correcting its deficiencies.
As for the rest of the proposals on the table at the European summit — economic growth policies, measures to help small- and medium-sized companies, youth employment and the interior market — it is natural to hope to see a rapid pace of reform, given the extent of the economic crisis. However, it is perhaps more realistic to look out for some clear steps toward solutions along the lines of more and better Europe.