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As The EU Dodders On, Will Markets Intervene?


An article in this morning’s FT powerfully highlights how completely sclerotic and status quo-minded the EU’s leadership has become. There’s no more talk of re-jiggering the seemingly untenable terms of the Greek bailout, no talk of setting up an EU banking union to manage future crises—nothing comes up that could possibly upset German voters. Everyone is basically sitting around waiting for Angela Merkel to get re-elected, after which, well… things will probably go on just as they have up until now.

The truth is that unless there is a big policy shift, then whoever wins in Berlin there will be no rush to reform in the rest of the eurozone, especially if that means treaty change. And Berlin won’t move on anything as controversial as a common bank resolution fund, or eurozone bonds, without treaty change.

European elections in 2014, plus municipal elections in France, the appointment of a new European Commission and then British elections in 2015, all point to prolonged postponement of any serious change in the governance of the eurozone or the European Union.

There will be a one-year respite in 2016, before a potential “perfect storm” in the electoral cycle in 2017, with both France and Germany back at the polls – and the UK possibly holding a referendum on EU membership. So 2016 will be the one time when a treaty change might be contemplated.

Anything that can’t go on, won’t—markets usually see to that. When the markets decide to jolt the EU leadership awake is anyone’s guess, but betting on the status quo seems like wishful thinking at best.

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