Unless the EU aligns economic and political integration, its future is obscure.
Europe has been a victim of two subsequent financial crisis; one imposed by the subprime lending in the US in 2008, and the other originating two years later owing to its internal financial mismanagement. Even though it has managed to outmaneuver the impacts of the crisis, remaining in a ‘preventive mode’ of operation is never without its fruits, precisely when uncertainties and geopolitical dependencies increases unceasingly. The EU, it seems, has never been out of a crisis mode, referring to the growing inclination towards isolation and protectionism in some of its nation members. The refugee crisis is adding the weight of financial burden on EU, which until recently, was gearing up to march on a recourse from earlier economic crisis. The concerns about its future and of the euro remain unanswered, since indications of dismemberment of the EU look more certain than further integration, barring the French election.
Right after the first crisis hit EU, in Spain and Ireland, it responded calculatedly by introducing the European Stability Mechanism (ESM), giving Brussels power to implement strategic measures to ensure economic stability and revenue growth. The EU also formed the European Systemic Risk Board (ESRB) making it responsible for monitoring possible macro market risks. However, despite an improvement in Euro nations’ sovereign debt and structural and financial reforms, the possibility of subsequent risks remains high.
One of them is the world’s oldest bank Monte dei Paschi di Siena, requiring €5 billion to strengthen itself before it enters ‘bailout zone’. Coupled with this is the political disinterest in Italy followed by capital building plans, which demand state finances. Portugal’s rising debt on the other hand, a staggering 130% of its GDP, is likely to make it more vulnerable to sovereign economic crisis, due to lack of appropriate austerity measures. Such issues shall remain, since EU is a common market, and paradoxically, not completely integrated. Even a supposed full integration would leave one nation at the mercy of economic imbalances of others. On the one hand, EU is enforcing shared acceptance of asylum seekers on Greece, and on the other, it is imposing austerity through pension cuts in order to recover debt dues. Such an irrational policy only makes the hope of preventing a euro crisis ‘irretrievably worse’.
Another matter of concern is the increasing financialisation of its economy, where real production growth takes a backseat, and debt capital overtakes production capital. This has resulted in rising unemployment numbers, and low potential for real growth. The European Central Bank must follow its promise of economic integration, irrespective of the likelihood of crisis. The ESM must become the primary instrument in addressing national debts, and deter excessive demands of reduced social spending. One brave decision could be to avoid bailing out ‘too-big-to-fail’ institutions, which have been irresponsible in disbursing credit. Monitoring credit quality remains the cornerstone of preventing bad loans, thus eliminating any needs of austerity and rise in tax rates. Rising nationalism, proven by Brexit, must be accepted as EU’s own creation, due majorly to its deficiency in structuring a unanimous immigration policy, before entering a corrective recourse.
EU must, as an essentiality, strive for attractive measures to prevent further misalignment between economic and political integration. Possibly arresting the refugee crisis, hailed as the seed of nationalism’s rise, could fix multiple cracks. Credit growth must support the right borrower, which would add real production and employment growth, instead of highly leveraged entities. Striving to preserve the ethics and culture, on which the EU was founded, would take strenuous efforts by political leaders and economic participants. In the absence of complete or majority of political and economic integration, chances of the EU surviving the next decade are dim. The EU must act now and act boldly, else it may be soon dismembered.