Tag / European integration

by Erik Jones

The Changing Relationship between Finance and Politics in Europe

The turmoil that struck Italian sovereign debt and bank equity markets on Tuesday, 29 June, is a stark reminder that the potential for another crisis is real, even if not imminent.  Important parts of the firewall that separates banks from sovereigns remain incomplete – and central bankers remain vulnerable to political influence as a consequence.  Two recent books help illustrate why.  One, by former Cypriot Central Bank Governor and Leicester University Professor Panicos Demetriades, reveals the limits of central bank independence.  The other, by University of Denver Professor Rachel Epstein, explores the interaction between banks and markets.

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by Erik Jones

Europe between France, Germany, … and Italy

The United Kingdom’s exit from the European Union (EU) creates new opportunities for Europeans to unite around a common vision. The British played an important role in Europe both as a common market and as a political union. The challenge for the remaining member states will be to adapt to Great Britain’s absence. Last autumn, French President Emmanuel Macron launched an ambitious raft of proposals for reenergizing the European project. More recently, German Chancellor Angela Merkel forged a grand-coalition government with a different pro-European agenda. Macron’s vision is more centralist and involves more institutionalized solidarity; Merkel’s vision is more intergovernmental and places more emphasis on political responsibility at the national level. The success of either approach will depend upon how other European member states respond to the call for unity. The next Italian government will play a critical role.

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by Erik Jones

The Italian Situation in Eleven Questions (and Answers)

Yesterday I had the opportunity to have an exchange of emails with one of Italy’s leading financial journalists.  This is part of a longer conversation we have been having over the past few years about the state of European financial markets and the role of Italy within them.  The difference this time is that he published the exchange in gli Stati Generali, which is a project created to allow journalists to share stories or rely on formats that might not otherwise find their way into traditional media outlets.  Knowing the journalist, the Italian version of our exchange is much more articulate than the English-language original I am reproducing here.  The questions are in bold; my responses are in regular text.

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by Erik Jones

Italy and Europe after the Elections

When Italy’s voters went to the polls on 4 March, roughly 32.5 percent voted for the Five Star Movement (M5S) and another 17.5 percent voted for the Lega. If we add in the 4.5 percent who voted for the Brothers of Italy, well more than half of the electorate supported openly Euroskeptical movements whose leaders have flirted with the idea of leaving the euro. ‘Europe’ did not play a prominent role in the public debate during the run-up to the elections; according to pre-election polling done by SWG – one of the major national public opinion polling firms – cutting taxes and throwing out the ‘ruling class’ were more important. But the two big winners from the contest strongly advocated policies like rolling back pension reforms (Lega) or introducing a basic minimum income (M5S) that would quickly bring Italy into conflict with the European Commission over fiscal consolidation. Moreover, any future Italian government will have to draw support from one or both of these parliamentary groups. The question is what this means for relations between Italy and Europe.

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by Erik Jones

European Macroeconomic Governance Reform: Engineering or Ethics

The German grand coalition agreement promises to breathe new life into the debate about European macroeconomic governance reform. The German Social Democratic Party (SPD) will hold the ministries for foreign affairs and finance; SPD leader Martin Schulz has made it clear that he is in favor of further integration; and the bullet-point version of the agreement includes a number of eye-catching suggestions that seem to cross over a number of previous German red lines. Although emphasis on risk-reduction (and national responsibility) remains prominent, risk-sharing, stabilization, and some kind of common backstop for banking resolution and deposit insurance seems more likely now than ever in the past. Nevertheless, I remain unconvinced. The problem is not whether the SPD rank-and-file will vote in favor of the agreement. That remains to be seen. My doubts arise from the categorical difference between engineering and ethics.

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by Erik Jones

Eurobonds as Hardy Perennial

Europe’s heads of state or government have launched a new conversation about reforming the financial structures of the European Union in order to prevent another economic and financial crisis like the one that consumed the last decade.  They have a number of ambitious proposals on the table — to complete the European Banking Union, to strengthen the European Stability Mechanism, and to enhance political accountability at the European level.  Not all of these proposals are sure to be adopted, and progress is likely to be incremental.  The goal of ensuring financial market stability is nevertheless apparent.

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by Erik Jones

The Franco-German Relationship Is Not What It Used to Be

There a strong presumption that a rejuvenated Franco-German relationship can relaunch the European project. That presumption is inaccurate. The problem is not that Emmanuel Macron has too much on his plate domestically or that Angela Merkel did not get the electoral results she (and Macron) might have wanted. The major constraint on a Franco-German relaunching of Europe is not even that the French and Germans disagree on fundamental issues related to reforming macroeconomic governance in the euro area. Rather, the reason a new partnership between France and Germany is not going to relaunch the European project is that Europe is not the same.

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by Erik Jones

Reforming Europe Starts at Home

Earlier this week, French President Emmanuel Macron gave a speech outlining his proposals to reform the European Union.  And there were a lot of proposals in that speech.  Surprisingly, though, not many of them focused on the euro area or on the process of European macroeconomic governance.  Macron talked about creating some kind of common budget and naming a European Minister of Finance, but he did not touch on the major issues sketched in European Commission President Jean-Claude Juncker’s State of the Union address or the letter of intent and reflection papers that the Commission has produced as well.

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by Erik Jones

The Danger of Building Walls in Europe

On 21 August, I was invited to talk about the importance of ‘walls’ in a European context at an annual socio-cultural-political event called ‘The Meeting’ in Rimini.  I sketched these notes as an aide for the interpreters who were supposed to render my unique version of the English language into fluent Italian.  My host, Paolo Magri, insisted that I speak in Italian instead.  What followed was probably more authentic as a set of off-the-cuff remarks using my one hundred and fifty mangled Italian vocabulary words, but it may not have delivered the full message.  My central argument is that we should be wary of identity-based political mobilization.  Any politician who wants to mobilize ‘us’ against ‘them’ is not your friend.  That is as true in the United States as it is in Europe.  Alas, Europe’s history with that kind of politics is a tragic one.  Let’s hope we don’t have to experience it again.

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by Erik Jones

Equity, Efficiency, and the European Social Model

The Belgian economist André Sapir used a background paper for the September 2005 informal summit of the European Union’s economic and finance ministers to make a provocative claim about the European social model: Europe’s heads of state and government do not need to choose between equity and efficiency or between a welfare state and a market economy; with the right reforms to welfare programs and market institutions, it is possible to have both equity and efficiency at the same time. The British held the rotating presidency of the Council of the European Union and were quick to take up Sapir’s challenge. The quest to achieve both equity and efficiency moved to the heart of efforts to relaunch the Lisbon Strategy and to re-energize the European project. Unfortunately, these efforts were soon overtaken by events.

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