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Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

The EU May Bend to Keep From Breaking

Politics / European Union Mar 10, 2017 - 05:38 PM GMT

By: STRATFOR

Politics

The European Commission is taking a clear-eyed look at Europe's future. On March 1, the institution presented a report proposing five different visions for what the European Union might look like in 2025. The report will doubtless take center stage at the EU summit in Brussels on Thursday and Friday between discussions of such issues as migration, security, defense and the economy. Along with suggesting that member states could integrate at different speeds, the white paper raises the possibility that EU member countries may regain control of some prerogatives currently under Brussels' authority.


This idea represents a marked departure for EU leaders. Since the bloc's inception six decades ago, its goal has always been to progressively delegate national policy decisions to supranational authorities. Every institutional reform since the 1950s has furthered this goal, giving Brussels more responsibilities. Though EU officials have said they oppose weakening the supranational institutions, the white paper nonetheless speaks volumes about how things have changed in Europe.

However unusual the report may seem, Europe has already tried many of the ideas outlined in it. Integration in the Continental bloc, for instance, has been moving at multiple speeds for decades. Some members use the euro as their currency, while others don't. Some are members of the Schengen Agreement allowing passport-free movement, while others aren't. And some countries are exempted from participating in EU structures on domestic affairs and security cooperation. But prior to the white paper's publication, the bloc's central expectation was that all EU members would converge one day, if only in the distant future.

The change in tone suggests that the European Union has now formally accepted that the convergence may never happen. Just a year ago, former British Prime Minister David Cameron said in negotiations with Brussels that he wanted the United Kingdom to be excluded from its goal of an "ever closer union." In the wake of the Brexit referendum, EU leaders seem to be admitting that the principle may be unrealistic. The European Union has often faced accusations that it is inflexible and hasn't adapted to the changing social, political and economic environment. The white paper is an attempt at pragmatism. It could even mark the start of the bloc's first concerted effort to manage — rather than deny — its fragmentation. Doing so, however, will be no easy feat.

Reactions to the European Commission's proposals have been mixed. Countries with large economies in the eurozone's core, including Germany, France and Italy, expressed support for a "multispeed Europe" in which some members can move ahead with deeper integration even if others opt out. Countries in Central and Eastern Europe, on the other hand, warned against the danger of separating the European Union's core from its periphery. These states will have difficult choices to make going forward. Countries such as Poland and Hungary, for all their criticism, still see the European Union as a vital source of funding and protection. And although they have faulted the European Union and demanded that Brussels return decision-making power to national legislatures, they are troubled by the idea that the EU core could increase integration without them. The possibility that Germany or France could coordinate their policies toward Russia, for instance, without consulting the rest of the bloc is particularly disconcerting for former East bloc countries such as Poland or Romania.

The European Union's core members have their own concerns about a two-speed Europe, despite their emphatic support for the model. Forging agreements for deeper integration would likely be easier said than done for Germany, France and Italy. The process of EU integration has already come so far that the next step would entail giving up sovereignty on delicate issues. To turn the eurozone from a simple currency union into a fiscal union, for example, Berlin, Paris and Rome would have to reconcile their divergent views on inflation, fiscal policy and the role of the European Central Bank. And matters such as the banking union or the issuance of debt backed by the entire eurozone are as controversial as ever in Northern Europe.

Over the past decade, events outside the bloc — such as the international financial crisis and the immigration crisis — have exposed the European Union's internal shortcomings. The rise of nationalist and Euroskeptic sentiments across the Continent, meanwhile, have forced EU members and institutions to come to grips with the fact that the dream of a federal Europe may never come true. Even countries such as Germany, which see EU integration as a centerpiece of their foreign policy, seem to have accepted that the bloc will have to bend to keep from breaking. The idea of protecting the European Union by making it more flexible appears to be a reasonable choice under the current circumstances. Depending on the kinds of reform that the bloc's members decide to introduce, however, amending the European Union's governing treaties may be required. And considering the divisions among the bloc's regions — and especially between Northern and Southern European countries — adjusting the treaties seems out of the question. Consequently, EU members may have no choice but to temper their expectations and focus on changing the bloc within the confines of its existing institutional framework. After all, just because EU members can move at different speeds doesn't necessarily mean they'll move in the same direction.

"The EU May Bend to Keep From Breaking is republished with permission of Stratfor."

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