What’s App in Europe – August 2018

Will the EU get a completed Banking Union?

Over the past weeks broad agreement seems to be emerging on the creation of a Banking Union within the EU. First Italy and France and then France and Germany seem to now agree on the way forward. The EU has been building the banking union since the 2008 financial crisis. The first two pillars are already in place and include the Single (Bank) Supervisory Mechanism (SSM) and the Single Resolution Mechanism (SRM). What is left to complete is how to deal with non-performing loans, investing in sovereign bonds (Italian banks buy Italian bonds only) and a European deposit insurance scheme (EDIS). Steps on these issues have already been taken at the national level but difference give rise to an unlevel playing field.
What will happen to UK banks and financial institutions remains to be seen.

And will there be a common Eurozone Budget?

There is some confusion over what was agreed when the French and the German cabinets met in a bi-lateral meeting in Meseberg Castle (outside Berlin) in mid-June. The plan is to combine national funds, income from a financial transaction tax and European funds to build a budget which would be administered by the Commission. There was some doubt as to whether there would be a single finance minister for the Eurozone and what the role of that person would be. It is clear that the budget would not be large and would be dedicated to structural support for Eurozone economies. The two leaders left many details vague saying that they did not want to anticipate what might be agreed between the leaders of all the Eurozone states.


Brussels is getting more and more frustrated with the lack of clarity from the UK on how it wants to withdraw from the Union and what future relationship it wants with the EU. The EU has set out its red lines which include no cherry picking of the Single Market and no border in Ireland. Internecine wars in the UK Conservative party (and to a lesser degree in the Labour party) have left the UK without a clear position. There are two consequences: i) the EU goes on about its own business and is trying, for example, to complete the banking union or deal with migration) and ii) there is no mood for any form of compromise with the UK to adopt rules to keep, for example, the City of London within the single market. At this stage it looks very like the hardest of hard Brexits and a reinforced border in Ireland.


It is easy to dismiss the agreement between Greece and the Former Yugoslav Republic of Macedonia as a very small step in the complex politics of the Balkans and the eastern Mediterranean. Two issues need to be emphasised. The EU appears to be learning from its mistakes. The EU allowed Cyprus to join the EU despite the requirement that it would solve its domestic impasse between Greeks and Turks on the island before doing so. A solution to this impasse seems as far away as ever. Secondly, words, and in particular names, are important. People identify with names and the willingness to share a name cannot be underestimated. Let us hope that the parliaments and peoples of the two countries are able to follow the courage of their leaders.

Can Salvini be successful in Brussels?

There is an opening in Brussels to address the migration issue differently from the past and thus Salvini can have a strong role in shaping the new policy that most agree needs to be forged. So over the summer Salvini is likely to be seen as one who is doing most to shape this new policy. However the reason that there is an openness is the understanding that many other countries have reached their immigration carrying capacity and so something must be done anyway. The real test of Salvini will be whether he can solve migration without blowing up Shengen, the agreement that allows EU citizens to travel between countries without controls and checks.

Where Salvini is less likely to be successful is in relation to the Euro. The new Italian government wants the EU to shift from an austerity programme to one of expansion. The problem is that there is very little money to do this and to the extent that any money is available, it is clear that Italy does not have it. So overall Salvini is likely to get a mixed report at the end of the year.

The Reform of the Common Agricultural Policy

The EU’s CAP has come a long way. When it was first established the EU was a net food importer. Agriculture was underfinanced and undereducated. Farmers were leaving the land in droves prospects looked bad. Today, the EU is still the biggest importer of food but it is also the biggest exporter. We bring in grains and oilseeds and commodities and we export high value cheeses and wines and spirits and delicacies of all sorts. The CAP achieved all of this by subsidising production and innovation. Since 1992 the CAP has been moving away from the subsidisation of production to the subsidisation of farmers. We had to stop subsidising production because we were producing too much and we didn’t know what to do with it. However, the slow changeover from production to subsidising farmers (it has taken 20 years) has not addressed some of the big problems facing food production in the EU today.

Farmer subsidies are still linked to land rather than to need. This means that today about 80% of the subsidies go to 20% of the farmers. The next test is to work how how the 80% farmers who are more in need of support (the 20% tend to be efficient farmers on good land) should get it if the objective criterion of land is abandoned as the benchmark for payments. The second bit problem facing EU agriculture is climate change. Land use is both a carbon sink and a source of carbon and carbon gas equivalents. The bovine meat and dairy industries, long the backbone of agricultural production in many member states are significant contributors of methane which has four time more heating effect in the atmosphere than carbon dioxide.

In June the Commission came forward with proposals for the reform of the CAP for the period 2021 to 2027. Some attempts are being made to try and redistribute the farmer subsidies away from the larger farmers to the smaller farmers. The is a proposal to cap the total payments any one farmer can receive. The attempts to address climate change are less obvious. Work on cataloguing the impact of land use, land use change and forestry on climate change seems to be going on in parallel without any clear idea of how these changes could impact the CAP.

The Commission proposal is just the kick off. Now the Council and the Parliament will have their say. Possible compromises between all the different interests will not become apparent until early 2019.




The content of this article is only for information and does not constitute professional advice.
For further information contact Bernard O’Connor.

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