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The opportunity for euro-area reform is closing

Tuesday, June 18, 2019

Subject

Euro-area governance.

Significance

In the EU, macroeconomic governance reform is focusing around the creation of a euro-area budget and a European Deposit Insurance Scheme (EDIS) -- the final pillar for the completion of the European Banking Union (EBU) which would provide stronger insurance coverage for member states. However, northern countries are reluctant to pay for crisis-prone ones in the south, so compromise on detail could take years while the initiatives will have limited scope in responding to crises.

Impacts

  • The ECB’s Single Supervisory Mechanism will continue to focus on ‘risk reduction’ measures, including the disposal of non-performing loans.
  • The EU is unlikely to give Italian budget concessions perceived as acceptable by Rome, possibly hardening the position of Italy’s populists.
  • If Manfred Weber’s candidacy to become European Commission president fails, Berlin will likely insist that it gets the ECB president post.
  • The rise of migration flows in the Mediterranean and the lack of EU resolution on burden-sharing will worsen north-south relations.
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