European Union: From financial consolidation to deeper political division

Heads of States or Governments of the EU met in Brussels for the European Council of 18/10/12.

In June 2012 the 17 Euro-area leaders who made a giant step forward towards a closer Eurozone union, when back home, those on the giving side, namely Angela Merkel, pretended that nothing has changed, while the ‘winners’ made it look like a gift, which it was not. As for the 10 heads of states and governments whose countries do not use the euro, they all appeared quite restricted, with David Cameron going as far as promising a referendum on Britain’s participation in the new closer Union. At this point two questions arise.

A substantial/financial one, about the true nature of the concessions made to Spain and Italy and another more important political one related to the political Gordian knot, which is apparent for quite some time now and relates to the growing reluctance of the European citizens to accept Brussels as their… capital.  Let’s take one thing at a time.

What really happened?


As it usually happens, stock exchanges celebrated for one day last Friday 29 June, what it looked like a breakthrough in the unsustainable conditions that prevailed in the Madrid and Rome sovereign debt markets. On Monday morning 2 July Asian bourses had already returned to the red and Tokyo closed with a negative sign. Unquestionably the decision to recapitalise the Spanish banks directly with taxpayers money from the European Financial Stability Facility/European Stability Mechanism (EFSF/ESM) is a major step towards a viable arrangement for the country’s banking sector.

Yet this will be realised after Eurozone’s supervision mechanism on the banking industry is in place, under the European Central Bank. In any case the recapitalisation of the Spanish banks will be realised, “on appropriate conditionality, including compliance with state aid rules, which should be institution specific, sector specific or economy-wide and would be formalised in a Memorandum of Understanding”. Will this MoU be like the ones now in force for Greece, Portugal and Ireland? The answer is no and yes, depending from the angle one sees things. Not to forget that the Spanish banks will not be directly recapitalised by the EU financial instruments, the EFSF/ESM, until after a Eurozone wide control mechanism is established on banks under the ECB. In the mean-time the Madrid government will be borrowing the funds to recapitalise the country’s banks.

There is also a possibility that even the IMF is included as a ‘technical’ advisor to the EU, while enforcing the terms of the MoU on Spain.  Then what who is right? Mariano Rajoy, who said that “now we have a new European Union”, or Angela Merkel, that insisted “no gifts were made”? The German Chancellor is probably closer to the truth, at the exemption of the seniority loss for the money ‘invested’ by the EFSF/ESM to Spanish banks. Obviously the two political leaders are addressing different audiences and this is a strong indication that the political union is still far away, despite the talk about the contrary.

Severe austerity imposed from Brussels causing high unemployment in  the south of Europe have turned the political union of the EU a dreadful prospect for Greeks and Spaniards. At the same time voters in the North reject the idea of helping the ‘lazy’ southerners.

Let’s continue however on the financial decisions agreed in the early hours of last Friday 29 June. Again the intervention in the national sovereign debt markets by the EFSF/ESM through the structures of the ECB will be realised under a Memorandum of Understanding, imposing to the beneficiary governments a whole array of obligations, “respecting their Country Specific Recommendations and their other commitments including their respective timelines, under the European Semester, the Stability and Growth Pact and the Macroeconomic Imbalances Procedure”. No need for the IMF here as a direct controller. The Fund can still issue its recommendations openly or even secretly to the ECB, as the bank of central banks. All EFSF/ESM interventions will be realised through the ECB. As they say the “devil hides in the details” and those details will be decided by the Eurogroup in its convention on 9 July.

The political division

All those new financial instruments meant to strengthen the bonds tying Eurozone members closer together, they repel further away the countries outside euro area. The European Union of at least two speeds is becoming more evident every day and this division creates EU centrifugal forces. In Britain for example, not to mention other smaller countries, the internal political scenery forces both the government coalition and the Labour opposition to favour more Eurosceptic proposals.

It was exactly in this line that Prime Minister David Cameron promised a referendum on the UK’s stance vis-à-vis the widely advertised in Brussels advancing political union of the EU. The same is true for the Eurozone members in the South. With unseen before unemployment percentages and severe austerity policies threatening the social cohesion in Greece, Spain, Portugal and Italy voters in those countries will not hesitate to support ‘patriotic’ political parties on both ends of the spectrum. In Greece the present coalition government of three parties under Antonis Samaras does not look like having a very long future.

In Italy, the problems that the technocratic administration of Mario Monti now faces in both legislative chambers, left no options to him than to threaten the last EU summit with a total destruction, if Italy did not get additional support. As for the surplus Eurozone countries, Chancellor Merkel has insurmountable difficulties to convince its voters that Germany wins more from Eurozone than it pays to save it. If the growth Pact fails to revive the ailing economies of Eurozone, the entire European Union and the entire Western financial system will tremble.


the sting Milestone

Featured Stings

Can we feed everyone without unleashing disaster? Read on

These campaigners want to give a quarter of the UK back to nature

How to build a more resilient and inclusive global system

Stopping antimicrobial resistance would cost just USD 2 per person a year

Silk Road Unlimited

A critical European young voice on Net Neutrality: the distance between Brussels and Washington

Malaria: Focus on pregnant women and children, stresses UN health agency report

France is building a village for people with Alzheimer’s

How to tackle the perils of air pollution

There is no greater sorrow on earth than the loss of one’s native land

Yemen consultations have started, insists top UN negotiator

Companies can help solve water scarcity. Here’s how

Civil protection: Parliament strengthens EU disaster response capability

UN Envoy ‘confident’ deal can be reached to avert further violence around key Yemeni port city

These are the countries where most adults still don’t have a smartphone

Have Europe’s Ukrainian wounds begun to heal?

UNICEF delivers medical supplies to Gaza in wake of deadly protests

Commission concludes that an Excessive Deficit Procedure is no longer warranted for Italy at this stage

Innovation for a smarter world: ITU Telecom World 2018

We need better alignment between climate and trade. Here’s a roadmap

State aid: Commission approves €400 million of public support for very high-speed networks in Spain

The Indian case: health policies need to keep pace with public health literacy

Sochi not far away from Ukraine

First-ever EU defence industry fund to finance joint development of capabilities

We don’t know how autonomous vehicles will depreciate – and that’s a problem

Banks promise easing of credit conditions in support of the real economy

Making money from meeting the SDGs? An overarching approach to sustainable development.

Guterres calls for ‘maximum restraint’ following drone assault on key Saudi oil facility

Violence against women a barrier to peaceful future for all

Further reforms can foster more inclusive labour markets in The Netherlands

Portugal: Budget MEPs back €4.66 m in job-search aid for 730 redundant workers

European Development Days 2013

Young people demand a transparent job market: new campaign launches on international interns day

How digital can transform healthcare in Asia for millions of people

How supporting climate action on a local level can transform the world

Consumer protection: Deal on EU-wide rules for those sold faulty products

It’s a lie Eurozone isn’t competitive

EU’s unsparing question to UK: now what kind of future relations do you want?

Your chocolate can help save the planet. Here’s how

Refugee resettlement: ‘Tremendous gap’ persists between needs, and spaces on offer

The Sting’s Values

Development aid drops in 2018, especially to neediest countries

Security Union: political agreement on strengthened Schengen Information System

General Assembly officially adopts roadmap for migrants to improve safety, ease suffering

Thought AIs could never replace human imagination? Think again

INTERVIEW: Poverty, education and inclusion top new General Assembly President’s priority list

What is ‘South-South cooperation’ and why does it matter?

A Sting Exclusive: Disaster risk resilience, key to protecting vulnerable communities

JADE @ European Business Summit 2014: Youth Unemployment – a drive to Entrepreneurship

6 ways to future-proof universities

Member states jeopardising the rule of law will risk losing EU funds

Tuesday’s Daily Brief: #GlobalGoals progress, essential meds, updates from Cox’s Bazar, Sudan and DR Congo

The European Union’s Balkan Double Standard

Strengthen inclusion, participation of people with autism to ‘achieve their full potential’ says UN chief

How to provide health education and thus create better health systems

EU Council agrees to reform the system for motor vehicles but with “restricted” power for the Commission

This is how music festivals are tackling plastic waste

The EU Commission is lying to the “Right2Water” campaign

A Valentine’s Special: giving back, a dialogue of love

ILO welcomes new UNDP report that places decent work at the heart of sustainable development

Everybody against Japan over yen’s devaluation

How is the global economy fairing 11 years after the financial crisis?

Launch of Pact for Youth: European Youth Forum calls for real business engagement

3 natural mysteries that could be explained by quantum physics

More Stings?

Speak your Mind Here

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s