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Surprise! It’s not the eurozone crisis anymore. Welcome to the EUrozone crisis

Angela Merkel is offer­ing her lat­est vision for a “fed­er­al Europe”. That “vision” still con­sists of few details oth­er than a promis­es that it will be a slow process that will take years, if not gen­er­a­tions. Appar­ent­ly Merkel thinks that a vague “long-term vision” is the only thing that can pla­cate ner­vous mar­kets freaked out over the immi­nent insol­ven­cy of major mem­ber states. There’s also talk of a pub­licly elect­ed pres­i­dent of the EU com­mis­sion, so there are at least some signs that the vot­ers would have some direct say in the new halls of pow­er. More imme­di­ate­ly, the new region­al bank­ing super­vi­sor is pos­si­bly going to get imple­ment­ed as soon as next year, so that might pla­cate the mar­kets. And a new pan-euro­pean army is being bandied about. Mar­kets do seem to like war, death, and blood­shed, so that might help. But that’s a long ways off. The bank­ing union will have to do for now [1]:

Wash­ing­ton Post
Ger­many offers vision of fed­er­al­ism for the Euro­pean Union

By Antho­ny Faio­la and Michael Birn­baum, Updat­ed: Wednes­day, June 27, 1:44 PM

BRUSSELS — Polit­i­cal posters in Rome are com­par­ing her to Hitler. A pop­u­lar British mag­a­zine dubbed her “Europe’s most dan­ger­ous leader.” But could Ger­man Chan­cel­lor Angela Merkel — the fru­gal physi­cist foist­ing tough aus­ter­i­ty on the region’s hard-hit economies — real­ly be the most pro-Euro­pean leader in Europe?

Merkel arrives here Thurs­day for a Euro­pean Union sum­mit, with the sto­ic 57-year-old raised in East Ger­many again seen as the chief stum­bling block to a shock-and-awe response to the region’s debt cri­sis. Jeal­ous­ly guard­ing the purse strings of Ger­many — an anchor of eco­nom­ic might and sta­bil­i­ty in a region adrift in finan­cial trou­ble — the leader nick­named “Frau Nein” by the Euro­pean press is resist­ing calls to roll out a bevy of mea­sures seen as pos­si­ble quick fix­es to the cri­sis.

But espe­cial­ly in recent weeks, Merkel and her top min­is­ters have been spelling out a far grander, Ger­man alter­na­tive to con­vince mar­kets the euro is here to stay. What they envi­sion would mark a rad­i­cal step for­ward in Euro­pean inte­gra­tion through a “polit­i­cal union” in which coun­tries in the region would act more like Amer­i­can states, , shar­ing an elect­ed pres­i­dent and even a pan-Euro­pean army.

Such visions are hard­ly new, but the Ger­mans are nev­er­the­less build­ing a fresh case that inte­gra­tion is the only way to shore up the foun­da­tions of the euro, albeit one that could take years, if not gen­er­a­tions, to see through. Part of the sum­mit here will be ded­i­cat­ed to debat­ing the first steps of such a path, includ­ing the cre­ation of a region­al bank­ing super­vi­sor that, in about a year, would have the pow­er to do some­thing long con­sid­ered taboo in the fierce­ly inde­pen­dent nations of the euro zone: over­ride the author­i­ty of nation­al gov­ern­ments.

Plans also being dis­cussed call for the estab­lish­ment of a sort of Euro­pean Trea­sury down the line, vest­ing cen­tral author­i­ties with broad pow­ers over nation­al bud­gets. Yet for many in Europe, the hold­out by Ger­many for a grander plan is being seen as sus­pi­cious and high­ly dam­ag­ing.

In a more deeply inte­grat­ed Europe, Berlin could emerge as the most pow­er­ful sin­gle voice, par­tic­u­lar­ly send­ing chills down the spines of the French. At the same time, crit­ics charge that Merkel’s call for a big­ger — and slow­er — solu­tion is sim­ply a cov­er for Ger­man unwill­ing­ness to take cost­ly and crit­i­cal stop­gap mea­sures. They warn that there could be no euro zone left to inte­grate if the region acts on Berlin’s timetable.

The Ger­man leader’s tough talk has not helped her case. Merkel told the Ger­man Par­lia­ment on Wednes­day that col­lec­tive debt for Europe — seen by many econ­o­mists as a vital weapon against the cri­sis — is “eco­nom­i­cal­ly wrong and coun­ter­pro­duc­tive.”

...

But the Ger­mans are dig­ging in their heels, dis­miss­ing the charges ema­nat­ing from cor­ners of Europe that Berlin is try­ing to orches­trate a new mod­el for the con­ti­nent in which it is the one large­ly call­ing the shots. “Maybe the fears of oth­er nations in Europe are relat­ed to World War II and his­to­ry,” said Sebas­t­ian Dul­lien, senior pol­i­cy fel­low at the Euro­pean Coun­cil on For­eign Rela­tions in Berlin. “But it could also be they are sim­ply afraid of los­ing pow­er.”

The Ger­mans have yet to ful­ly spell out what they mean by a polit­i­cal union, but it large­ly involves the sur­ren­der­ing of more nation­al author­i­ty to the region’s admin­is­tra­tive cap­i­tal in Brus­sels. Merkel’s influ­en­tial finance min­is­ter, Wolf­gang Schaeu­ble , last week re­inforced calls for a direct­ly elect­ed pres­i­dent of the Euro­pean Com­mis­sion, as well as a new finance min­is­ter for Europe capa­ble of over­rul­ing nation­al gov­ern­ments. Ger­man For­eign Min­is­ter Gui­do West­er­welle called a forum of his peers togeth­er last week to float notions includ­ing the inte­gra­tion of Euro­pean defense into a sin­gle, stand­ing army.

“Only a long-term per­spec­tive for Europe will restore the con­fi­dence that we also need to come out of the debt cri­sis now,” West­er­welle told the Finan­cial Times.

...

Hmmm...this new-ish ‘vision’ still sounds rather con­tentious. Good thing it only involves the euro­zone and not the entire EU. Espe­cial­ly the plans that are intend­ed to be imple­ment­ed in the near term, like the region­al bank­ing union that’s sup­posed to get imple­ment­ed next year. If some­thing like THAT was intend­ed to over­see whole EU, that would pret­ty much guar­an­tee an giant polit­i­cal train­wreck. And it would be a total dis­as­ter if this new pan-EU bank­ing super­vi­sor actu­al­ly led to lighter bank­ing reg­u­la­tions in small mem­ber states. The small­er the state, that greater the need more con­trol over their bank­ing sys­tems than their larg­er brethren require due to the risks of “hot mon­ey” flood­ing in and out of their small economies. That could turn those small­er EU mem­bers into finan­cial boom/bust zones. At least that’s not part of the ‘vision’ [2]:

East­ern EU mem­bers attack bank plan

By Michael Win­frey and Robert Muller

PRAGUE | Wed Jun 27, 2012 11:31pm IST

(Reuters) — The Czech gov­ern­ment and Bul­gar­i­an cen­tral bank stepped up crit­i­cism of pro­pos­als for an EU bank­ing union on Wednes­day, rais­ing new obsta­cles to agree­ment at a sum­mit this week.

Changes to EU bank­ing super­vi­sion are seen as impor­tant for resolv­ing the euro zone debt cri­sis and are up for dis­cus­sion at a sum­mit that is already set to be heat­ed as Ger­many faces off with Italy, France and Spain over how to save the cur­ren­cy bloc.

Some states out­side the euro zone, includ­ing eco­nom­ic heavy­weight Britain, fear EU-wide bank­ing rules could rob them of sov­er­eign­ty and dam­age their economies.

Czech Prime Min­is­ter Petr Necas said his gov­ern­ment would not accept ini­tial pro­pos­als cir­cu­lat­ed so far.

“Some pro­pos­als like the bank­ing union could have an extreme­ly dam­ag­ing impact on the Czech econ­o­my,” he said, adding that he did not expect any major con­clu­sion from the sum­mit.

Bul­gar­i­an cen­tral bank gov­er­nor Ivan Iskrov expressed con­cern over any pro­pos­al to extend bank­ing super­vi­sion across the Euro­pean Union, rather than just to the euro zone, and said small states would find that hard to sup­port.

A fail­ure by all EU mem­bers to agree on EU bank reg­u­la­tion would under­mine prospects for any changes which could in any case take years to imple­ment.

The par­tic­u­lar wor­ry of the Czech Repub­lic and some oth­er east­ern Euro­pean coun­tries is that their bank­ing sys­tems could be under­mined by lighter EU-wide reg­u­la­tion.

Many banks in east­ern Euro­pean coun­tries are owned by those in big­ger states. The fear is that under EU reg­u­la­tion, less well cap­i­talised par­ent banks could drain the cap­i­tal of their health­i­er sub­sidiaries in oth­er coun­tries.

Euro­pean Coun­cil Pres­i­dent Her­man Van Rompuy released a sev­en-page report this week envis­ag­ing an “inte­grat­ed finan­cial frame­work (that) should cov­er all EU states”.

...

Oh my. That’s not going to go over well with a larg­er EU. Well, for­tu­nate­ly there’s the elect­ed EU Par­lia­ment that might help give the the small­er states and non-euro­zone mem­bers some addi­tion­al say over how this new bank­ing super­vi­sor is man­aged and oth­er too-be-decid­ed sov­er­eign­ty sur­pris­es. The pow­er of the veto is not to be under­es­ti­mat­ed [3]:

June 27, 2012, 11:46 a.m. ET
Dow Jones
EU Par­lia­ment Head: Will­ing To Forego Veto Rights On Mea­sures To Save Euro
Frances Robin­son

BRUSSELS–The Euro­pean Par­lia­ment is pre­pared to give up its right to veto leg­is­la­tion as part of stream­lin­ing the deci­sion mak­ing process in Europe, its Pres­i­dent Mar­tin Schulz said Wednes­day.

“We need to be able to act imme­di­ate­ly,” he told reporters. “We’re liv­ing in excep­tion­al times which require excep­tion­al reac­tions.”

Schulz said an inter-insti­tu­tion­al agree­ment between the Euro­pean Com­mis­sion, Euro­pean Coun­cil and Euro­pean Par­lia­ment would enable leg­is­la­tion to help resolve short-term prob­lems.

“Let me tell you some­thing excep­tion­al for a par­lia­ment,” Mr. Schulz said. “We are ready to renounce, if nec­es­sary, our right of objec­tion so as to adapt, in the short­est time pos­si­ble, deci­sions which regard solv­ing prob­lems with the euro, finan­cial sta­bil­i­ty, or employ­ment.”

Under the EU’s Lis­bon treaty, rat­i­fied in 2009, the Euro­pean Par­lia­ment gained co-deci­sion pow­ers on a broad range of eco­nom­ic pol­i­cy issues. As a result, there have been long nego­ti­a­tions between par­lia­ment and EU mem­ber states on a num­ber of cri­sis response mea­sures delay­ing their imple­men­ta­tion.

Speak­ing along­side Mr. Schulz, Euro­pean Com­mis­sion Pres­i­dent Jose-Manuel Bar­roso said that while an agree­ment between EU insti­tu­tions could be impor­tant, deci­sions must be made via the so-called com­mu­ni­ty process–and that all coun­tries should be on board.

“Ger­many has right­ly been insist­ing on fis­cal dis­ci­pline,” he said. “But we also say to some, let’s call them the AAA coun­tries, you have to com­mit to sol­i­dar­i­ty.”

He added that while the sum­mit would­n’t “mirac­u­lous­ly” calm mar­kets, resolv­ing the cur­rent cri­sis “depends on both the short term and longer-term deci­sions” lead­ers will take.

Short-sight­ed long-term per­spec­tives are quite a sight to see.