The Italian government passed a series of decrees yesterday to allow Intesa San Paolo to buy the healthy assets of two small banks from the Veneto region – Banca popolare di Vicenza and Veneto Banca. The state will move the distressed assets into a ‘bad bank’ for orderly liquidation. This action closes a chapter on the Italian banking crisis that started in late 2015 when regulators made it clear that the two small Veneto banks needed more capital. Over the intervening period, investors threw good money after bad as the banks continued to haemorrhage deposits and mount up non-performing loans. The government did not want to step in because it did not want to impose losses on large depositors or junior bond holders. Ultimately, though, the situation for the two institutions was unsustainable. Now we know what the solution looks like. The question is what we learned from the process. The short answer is that Europe’s banking union is still dangerously incomplete.
The election of Emmanuel Macron is the triumph of populism and not its demise. His direct appeals to French voters were more compelling than those of Marine Le Pen. Nevertheless, the strategy of the two second-round candidates was much the same: play to emotions and identity; circumvent the established traditions of party politics; run against entrenched elites as much as against the other side. Now comes the hard part of converting a populist movement (En Marche!) into a political party capable of governing the institutions of state (La République En Marche!). Macron’s supporters no doubt realize this is important but are understandably still glowing in the confirmation that their France can embrace hope and change. Thinking back to the last successful hope-and-change candidates, however, it is necessary to stress how things can go wrong.
The inauguration of Donald Trump as 45th President of the United States represents the triumph of populism over the world’s greatest democracy. It also sets the stage for populists to make further gains across Europe. Trump’s affection for Nigel Farage is plain to see. His affinity for (and his attraction to) populists of other shades is easy to find as well. The challenge is to sort out what this means for the European project. Populists tend to stake out Euroskeptical positions, and Donald Trump has made no secret of his indifference for the European Union, but it is hard to say just how populists can have a lasting impact unless they somehow manage to seize control over government.
The surprise victory of Donald J. Trump in the United States (US) presidential elections briefly pushed the euro, the Swiss franc, and the Danish kroner up against the dollar. It also pushed down the yields on high quality sovereign debt and it temporarily sent equity markets into the red. This was all to be expected. Like almost everyone, market participants thought Hilary Clinton would gain the White House alongside a predominantly Republican Congress. They placed their bets to take advantage of another four years of competent administration and legislative logjam. A Trump victory upset that calculation and so some of those market participants were trying to safeguard their capital until they could get a better sense of what is happening. The assumption they made was that Europe can act as a safe-haven. Unfortunately, that assumption is mistaken.
Europe’s heads of state and government face a real dilemma. They want to attract support for European integration from the people of Europe and they also want to show the outside world that the European Union remains a major source of dynamism and innovation. So the question is how best to achieve those two goals. Should they propose a new project that will attract everyone’s attention or should they try to come up with some ‘vision’ that explains why Europe still matters?
There is a growing chorus of disenchantment with Europe and populist parties are preaching anti-European slogans across the member states. Today’s British referendum on European Union (EU) membership is only the most extreme manifestation of that disaffection. Whatever the outcome, the turmoil surrounding popular attitudes toward Europe is not going to end. The reason is a lack of vision.
Free trade is welfare enhancing. Interdependence requires cooperation. Central banks should be politically independent. And the United States is the indispensable world leader. These are the certainties we used to offer graduate students in international relations. Now they are all aflame.