Future of the European Union

[Furunculus]

From my outside view it looks like most people are happy with the economic union and its benefits but extremely wary of further political union.

In the good times, yes. When there are no 'consequences' to doing nice economicky things that make us feel all EUropean.
But these are not the good times, and we expect 'the state' to step in and do extraordinary things to preserve our declining welfare.

Germany benefits from the single currency by having its natural foriegn exchange rate suppressed by the wider currency region. Its goods are cheaper, but by the same token it raises the exchange rate for the wider currency region. Making their goods more expensive.

And this happens whilst engaging in none of the normal solidarity acts that nation states engage in to normalise wealth potential within the 'regions':

Federal US taxation is ~25% of GDP and the variation in spending levels between rich and poor states is ~5% of GDP, so a variation of roughly 20% of federal spending.

How big a budget would the EU need to be able to slosh around 5% of combined GDP into the poor regions (bearing in mind the current budget is only 1% (and heavily constrained by CAP payments)?

The other point is that americans accept this, they are all american, whereas we are rapidly finding out just how german the germans are, and finnish the finns are, when it comes to firehosing cash at nations they consider to be essentially delinquent! In the UK this ‘sloshing’ occurs in the form of:

a) National pay-bargaining which benefits poorer regions (teachers, nurses, etc)

b) National social benefits more generous than poorer regions could afford alone (eg.housing benefit in glasgow)

c) Targeted regional development grants/discounts to encourage business growth (objective 1 EU/WEFO funds)

d) Additional infrastructure spending to support the local economy (the mainland-skye bridge)

e) Operating national services hubs from depressed regions to boost wages (DVLA in swansea, etc)

Unless Germany recognises the ‘familial’ relationship, and the obligation that goes along with that, then it needs to leave for the good of its neighbours.

This principal applies equally to the netherlands and finland, but since it is Germany that is the driving economic power for the euro’s sake the answer must be ‘right’.

One mechanism to equalise this foriegn exchange disparity would be eurobonds. To compensate for a higher than natural foriegn exchange rate the wider currency union would borrow collectively, and thus lower their borrowing costs on the back of Germany’s strength.

The quid-pro-quo would be that Germany’s cost of borrowing would rise, as it too would be borrowing through the wider currency union and would see its strength diluted in consequence.

What is happening right now is commonly termed “wanting to have your cake, and eat it too“, an attitude considered ugly by weaker members of the polity who consider that cake to be shared treat.

An economic union cannot exist long term without a political union from which to draw legitimacy from for the acts that it must take in regulating society.

[spmetla]

EU's border-free Schengen zone needs overhaul, political leadership - Macron
https://www.reuters.com/world/europe...on-2022-02-02/

The European Union's border-free Schengen area should be managed by regular ministerial meetings, just like the euro zone, French President Emmanuel Macron said on Wednesday, adding that this could start as early as next month.

National security concerns, waves of migration and, most recently, the coronavirus pandemic have led to the re-emergence of border controls in the Schengen zone and much criticism of how it functions, eroding what had been hailed as a milestone achievement in Europe's post-World War Two integration.

Speaking to EU justice and interior ministers, Macron said what he dubbed the "Schengen Council" would evaluate how the border-free area was working but would also take joint decisions and facilitate coordination in times of crisis.

"This Council can become the face of a strong, protective Europe that is comfortable with controlling its borders and therefore its destiny," he said in the northern French town of Tourcoing. He said its inaugural meeting could take place when the EU's justice and home affairs ministers next gather, on March 3.

"We must reform Schengen," he said. "There can be no freedom of movement if we do not control our external borders."

France has also proposed an emergency response mechanism that could be triggered when the bloc's external borders are under threat.

Wonder how far along he'll get in his proposals, Frontex certainly needs more help, the countries that are the first stop for refugees and migrants certainly need far more help in housing, transport, and processing. The power dynamics that Morocco, Belarus, and Turkey have used with migrants certainly has shown that the EU is lacking in a unified front and most of the burden is on the bordering nations.

Something needs to be done to save the Schengen zone's positive benefits while limiting some of these negative outcomes and of course to save the lives of the migrants being used as pawns for power politics.

[Furunculus]

Re: Schenghen and Frontex

They're in a difficult position, as if they aren't willing to be as aggressive as Local enforcement (see: Poland), then domestic politics in frontline states will see the EU as enabling mass migration, and Frontex will be targetted over and above Local enforcement by rogue states like Belarus.

If they aren't deemed credible, then frontline states will marginalise Frontex to safe bureaucratic roles behind the border, at which point is the involvement of the EU a net-benefit to frontline states?

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Separately:

ECB keeps interest rate at -0.5% and quantitative easing at £20b/month despite inflation running at over 5%:

https://www.telegraph.co.uk/business...stine-lagarde/

Consumer prices soared by 5.1pc up in the year to January, up from 5pc in December, according to Eurostat’s first estimates. Economists had forecast a slowdown to 4.4pc.

The rise was spurred by higher food and energy costs, which left the rate of inflation more than two-and-a-half times higher than the ECB’s 2pc target. Energy prices were 28.6pc higher, while unprocessed food cost 5.2pc more.

With those volatile components stripped out, core inflation stood at 2.3pc, down from 2.6pc the previous month. Officials watch this measure as a better indicator of medium-term inflation.

They provide a difficult backdrop as officials prepare to meet in Frankfurt on Thusday to decide on the course of eurozone monetary policy. Ms Lagarde has repeatedly said that high levels of price growth will fade as energy costs come back to normal and global supply chain issues fade.

The ECB has laid out plans to move less speedily than the Bank of England and US Federal Reserve to cut back on its ultra-loose monetary policy stance.
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In December, it set out an aim to cut asset purchases to €20bn a month by October, but members of its governing council have said they do not expect to increase rates this year.

Markets think differently, however, and are pricing in three ECB rate rises in 2022, two fewer than the five increases expected from Threadneedle Street and the Fed. Increasing interest rates raises the cost of borrowing, with the aim of curbing inflation.

This has to be causing political friction in Germany and the Netherlands. How will that manifest?
My guess would be the steady erosion of trust in the Gov'ts that notionally were not elected on a cost-of-living manifesto (fair enough you might say, as they don't control monetary policy, but they still carry the can for the consequences).

[Montmorency]

The alternative to liquidity support is, of course, is a short-to-medium term decrease in living standards.

Bank of England: Households must brace themselves for the biggest annual fall in their standard of living since comparable records began

The Bank of England has raised interest rates to 0.5 per cent and signalled more hikes are on the way as it warned rocketing inflation will see the worst hit to household income for at least 32 years.

The Bank’s Monetary Policy Committee (MPC) voted 5-4 to raise rates from 0.25 per cent to 0.5 per cent – marking the first back-to-back rise since 2004, coming after a quarter point increase at its last meeting in December.

In a gloomy prediction for under-pressure households, the Bank said this will see disposable incomes fall by around 2 per cent – the worst impact since Bank records began in 1990.

Ofgem’s 54 per cent energy price cap increase to around £1,971 in April is the driving force behind the inflation forecast hike, with the Bank predicting around another 10 per cent rise in the cap this October.

But its forecasts do not take into account the Chancellor’s package of measures announced on Thursday, offering £350 support for the majority of UK households.

But the Bank cooled financial market forecasts of a flurry of rate rises in 2022.

It predicts that inflation will undershoot its 2 per cent target in the medium term if rates rise to 1.5 per cent by the middle of 2023, as financial markets expect, signalling it will take a more cautious approach.

However, it gave a sobering alert on the impact of rising inflation on consumers and the wider economy.

The Bank said sharp rises in energy prices and the cost of goods amid supply chain pressures will weigh on spending and growth.

“This is something monetary policy is unable to prevent,” it cautioned.

The Bank downgraded the growth outlook to 3.75 per cent in 2022 and 1.25 per cent in 2023 from the 5 per cent and 1.5 per cent respectively predicted in November.

Because so far Western governments refuse to get involved in industrial management and price controls, the most serious tool they have to reassure markets is the self-hobbling one of interest rate increases. Which in turn may have to be complemented by orthogonal fiscal support to households...

When you only use the hammer you have to strike gingerly. As you say, EU-wide policy will piss off many people regardless of its direction.

(Note also that the US is one of the only OECD countries to experience durable rises in disposable incomes during the pandemic, due to government policies.)

[spmetla]

EU vows to help prevent the possible breakup of Bosnia
https://apnews.com/article/business-...2d0b45b4cfd2be

BRUSSELS (AP) — The European Union is ready to limit financial assistance and possibly impose sanctions in Bosnia to help prevent the possible breakup up of the ethnically divided Balkan country as the peace agreement brokered over 25 years ago unravels, the EU’s top diplomat vowed Monday.

“There is no place in Europe for a divided Bosnia and Herzegovina. And those who work in this direction are strongly wrong,” EU foreign policy chief Josep Borrell said after chairing a meeting of the bloc’s foreign ministers.

The United States last month announced new sanctions against Bosnian Serb leader Milorad Dodik, who has for years been advocating that the Serb-run part of Bosnia should leave the rest of the country and unite with neighboring Serbia.

The U.S. accused him of “corrupt activities” that threaten to destabilize the region and undermine the U.S.-brokered Dayton Peace Accord. Dodik says he and Bosnian Serbs are being unfairly targeted and wrongly accused of corruption.

Quite frightening that with all that's going on in Ukraine that this part of the Balkans continues to have problems. The Balkans are one place that the EU experiment of supra-nationality not based on ethic/religious ties were in my mind the most promising but as these countries aren't yet part of the EU, and with this uptick in problems won't be.
I hope this can be something that the EU can take lead on with the US supporting as the war on Serbia in the 90s was US and NATO lead, not EU/ECC.

[Xantan]

Well, things have definitely changed in the past month or so, because of the war in Ukraine. Apart from the significant strengthening of core EU unity and a great coordination between states, there's also civic unity which is markedly pro-EU. (and also pro-Ukraine)

https://www.euractiv.com/section/pol...n-as-possible/

And there's also this, a major major change in German diplomacy and foreign policy...

https://www.dw.com/en/ukraine-german...ned/a-61457259

https://mondediplo.com/2022/04/07german-rearmament

Chancellor Olaf Scholz, a Social Democrat, who had not made defence policy a central part of his election campaign last September, pledged €100bn to modernise the Bundeswehr and committed to spending more than 2% of GDP on defence annually, more than NATO’s target.

[Furunculus]

Is this unity going to allow gov'ts to accept further integration?

regardless of whether macron wins, the promises he is making to counter Le-Pen make france the wheel of the franco-german axis that just fell off.

hungary and poland are busy pursuing a sovereignist agenda via obstructionism that is indifferent to 'european' sentiment.

the traditional wet european 'security' agenda is morphing into a harder defence agenda, and that is happening at the nato level.

eu inflation is at 7+ percent and yet the ECB still prints money and has negative interest rates while Germany fumes.