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European Union

Little to look forward to for EU in 2013

The EU worked hard to plug Europe's financial holes in 2012. Much has yet to be done, however, to ensure sustainability. Four areas of 'construction' darken the EU's 2013 horizon.

The year 2012 has come to an end, and with it comes a bitter realization. No matter how much help is given to ailing countries like Greece, however large the bailouts they receive, the fundamental problems of the monetary union will not have been solved. The economic gulf between member countries of the EU remains too large.

Could it be that the euro, the tremendous prestige project of European integration, is inherently flawed? None less than Mario Draghi, president of the European Central Bank, has acknowledged that the currency union, in its current form, "isn't sustainable without taking further steps."

A middle-aged man takes off his glasses with an unhappy smirk on his face.
(Photo: REUTERS/Lisi Niesner)

ECB President Mario Draghi has had a grueling and very public 2012

Chancellor Angela Merkel described as a "foundational error" in the euro that the single currency has not yet led to economic convergence between member countries.

The EU would like to change that. At the most recent summit in December, Merkel drove the point home. "I believe that the member states, but also the EU as a whole, are ready to push profound changes through."

Four areas of construction

There are four areas in particular that will be worked on simultaneously: financial market regulation, bank supervision toward a greater banking union, budgetary discipline and economic coordination.

With financial market regulation, the EU will be forced to tiptoe forward. The British fear for London and its standing as a center of international financial competitiveness.

The distinctive egg-shaped highrise stands out among other buildings as London's skyline
(Photo: EPA/Lindsey Parnaby)

London will try to thwart EU financial regulations

Banking supervision, still a relatively fresh concept in December, 2012, should come into effect by March 2014. Those particulars are to be dealt with in 2013.

Particularly thorny for the EU will be the subject of "household discipline." For years, the EU's stability pact, with its clear deficit and debt limits, has been in effect. Yet for years, hardly a state has held to it. Nor have they borne any consequences for not doing so.

No pounds of flesh - yet

That is where the disciplinary fiscal pact is supposed to come into play. Whether it will prove up to the task is doubtful.

For example, France - the new "sick man of Europe" by many accounts - is already trying to weaken a few criteria through President Francois Hollande of France's Socialist Party. Hollande has tried to modify deficit calculations by allowing "investments" to be eliminated; Germany stopped that move. However, there is now some leeway when it comes to interpreting the regulations on such calculations.

Whether France manages to come in under the 3 percent budget deficit mark in 2013 will be an important symbol for the rest of Europe. But right now, the two traditional workhorses of Europe, Germany and France, have widely differing views of Europe in 2013.

While Holland was busy announcing, "We'll see a stronger Europe next year with more solidarity," Merkel concluded before a European Parliamentary Committee that difficult times were to come. Whoever considers austerity measures and structural reforms in Europe superfluous, she said, "is sinning against the workers of Europe."

Angela Merkel walks in front of Francois Hollande
(Photo: REUTERS/Francois Lenoir)

Smiling on the outside, very different outlooks on the inside

Visions of Europe's future

Fundamental contradictions between the North and South will also dominate the next round of negotiations regarding a long-term EU budget. The first round failed at the end of 2012. It entailed - and still entails - the fourth and perhaps most important component of the long-term construction plan.

Prior to the next summit in July, the EU hopes to define exactly how it plans to reduce the economic differences between member countries. Such discussions will include the nitty-gritty details that tend to step on the toes of state sovereignty: labor market reforms, for example, or tax policy. Merkel believes that, without an amendment of existing EU treaties, nothing will change in the long term.

In general, Chancellor Merkel worries about the future. At December's EU summit, she revealed her proposal that members states should give further powers to the European Commission, the executive body of the EU comprised of the 27 heads of state making up the EU. The commission could then develop into a true government of the European Union and a secondary chamber of parliament for member states alongside the European Parliament.

Politician Angela Merkel stands out against a large numer of politicians due to her bronze-colored blazer amongst a backdrop of blue and black suits.
(Photo: REUTERS/Francois Lenoir)

Strong at home, but weak as a group - a fact Merkel would like to change

She also admitted, however, that she stands alone with her far-reaching ideas for the future of the EU - that they're even something of an illusion.

Yet during the crisis, the EU has already enacted a number of policies that, prior to the crisis, would have scarcely been thought possible.

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