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Eurozone: State of play in the quest for further integration - ING

Ideally, the year in which the Eurozone has staged an impressive comeback as global growth driver and, for a change, positive surprise of the year, should have climaxed with further steps towards more integration next week, according to analysts at ING.

Key Quotes

“The political impasse in Germany as well as a general fading of a verve to reform do not bode well for next week’s European Summit. And beyond. The window of opportunity for further integration seems to be closing again, before it had actually been opened. Below is our take on the current state of play.”

“This week, the European Commission will present another set of proposals on how to further reform the Eurozone. It will be the prelude to what was supposed to be a crucial month for the development and further integration of the monetary union. According to the initial (and optimistic) roadmap, the European Summit on 14 and 15 December should have marked the peak of a spectacular u-turn for the Eurozone throughout the year. From Nexit and Frexit fears towards further integration in the wake of revived eu(ro)phoria, at least partly initiated by Emmanuel Macron’s victory at the French presidential elections.”

“The German elections gave this new eu(ro)phoria already a cold shower. First, the future of the Eurozone hardly played a role in the parties’ election platforms, then the FDP’s proposals for an unwinding of the European Stability Mechanism (ESM) and temporary exit facilities made the coalition talks look like a threat for the future of the monetary union and now the collapsed coalition talks simply mean that Germany will not have an official government position at the upcoming summit. As regards German politics, one upside of a possible new grand coalition for the Eurozone could possibly be a more pro-integration oriented government.”

“Over the last months, or better years, a huge variety of ideas on how to strengthen Eurozone integration has been floating around. The basic idea of all these ideas is to bring the monetary union closer to a political union (preferably without telling anyone). For a long while, opponents of this route simply stepped on the brakes, undermining any reform efforts. This strategy has changed and opponents of further federalism have taken a more constructive stance, proposing their own view of how the Eurozone should look like in the future. In short, this clash of views or cultures can be described as the “federal model” versus the “national plus independent but technical institutions model.”

“There is an entire ocean out there with proposals on how to reform the Eurozone. In fact, some of these proposals are already as old as the monetary union itself. Currently, the most prominent proposals are currently circulating: a Eurozone finance minister, a fiscal capacity or a Eurozone budget, a European Monetary Fund, Eurobonds, etc.”

“Probably the best and most likely outcome of the discussion on further Eurozone reforms will be a typical European reflex: create new institutions.”

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