As the EU crisis continues to unfold, many academics, investors as well as everyday people have lost their faith in the Union. They view more weaknesses than strengths in the Eurozone structure, and are under the idea that these weaknesses will lead the Union to its doom. On the other hand, there are those who have the firm belief that the EU will make it through, even if it takes some troubled years, and will emerge stronger and more unified from the crisis.
Both groups are correct up to a point: Although the destruction of the EU does not seem eminent, there are some important issues which undermine the well-being of the Union. The most important of them are:
(i) A non EU-wide bank regulating authority. Currently, the EU member-nations have the sole responsibility to regulate, supervise and recapitalize their banks. A separate authority should be created in order to monitor banks and have the sole responsibility for their recapitalization. This authority will comprise of officials from all EU member-states. Thus, if a bank recapitalization is needed the host country will not have to directly move to guarantee it as the authority will be responsible for it. In this way, the countries do not have to use their tax-payers money in order to bail-out the institutions.
(ii) Excessive public spending by EU governments (especially in the South). Unfortunately, people in the South knew that their governments were overspending years before this crisis occurred. Not to be fooled though, Northern nations were overspending as well (e.g. Germany, Austria and many others). However, everyone kept silent about this as no trouble had yet happened. The Stability and Growth Pact, as well as the Sixpack and the Euro Plus Pack which followed, are great ideas, nevertheless with little implementation. The reason is simple: what will stop a nation from having a large deficit if it needs to? Nothing at all. While the Packs and Pacts are full of proposals and ideas there are no "punishments" for those who wish to deviate from them. What happened when Germany had public debt of more than 70% of GDP for three consecutive years? Nothing. What will they do after the crisis ends? Return to the Packs and Pacts and after 3-4 years when all is forgotten governments will once again start spending more. The issue is not for the small nations. If Cyprus, Greece or even Italy are sanctioned by the EU they will most probably do as they are told. Will Germany do the same? I highly doubt it.
(iii) Lack of ECB independence and discretion. As of the current regulatory framework, the ECB cannot act on its own will as it has to have Member-States' permission. This makes the procedure of aiding an ailing nation or banking institution much slower and bureaucratic. Under the current scheme the role of the ECB is not the one of real Central Bank, like its counterpart in the US. If the ECB is not allowed to function autonomously then there is almost no need for its existence. The need for a better Union is tied together with a need for an autonomous bank which is allowed to act at its own discretion.
(iv) Non-integration of institutions, in favor of common policies. Most of the institutions in the EU have restricted powers and this does not allow for much to be done. Also, under the current structure, the only authority "paid to think European" is the European Commission. Thus, the need for more institutions which are EU-orientated in their policies arises. Aside of this, the aspect of granting more powers to the EU institutions is an issue which has to be settled. If the institutions are allowed to function as they should then more political union would occur in the region, thus making it easier for the monetary union to survive.
(v) Member-States leaders who believe the EU is their protectorate and have the notion that in order for anything to be done they have to grant their permission (Wonder who this makes me think about Angela....)
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