A Happy Family

The EU’s biannual summit shows the organization is bereft with internal squabbling. But most Europeans would rather have an imperfect union than none at all.

The biannual summit of the European Union is meeting this week shortly after parliamentary elections that saw a record low turnout. The EU is now under a Czech presidency-a country led by a rabid anti-European-which has caused Prague's tenure to be marred by political instability. Under such adverse circumstances, it is hard to see how the heads of state or government could agree on the usually divisive issues that are on the agenda. Yet, agree they will, as they always do, because they have to. The problem is how poor the agreements will be.

Europe's leaders are trying to offer reassurances to Irish voters who rejected the Lisbon Treaty last year, which was meant to replace the grandly-named Constitutional Treaty that was rejected in 2005 by Dutch and French voters for reasons that have a lot to do with the title of the treaty and little with the content. In fact, both agreements are trying to fix the silly arrangements enshrined in an earlier treaty designed to operate after the 2004 enlargement, which has made the union grow from fifteen to twenty-seven members. It may all sound a recipe for disaster, but it is not. The mere fact that the European Union exists is a miracle, with no precedent. And it works-no doubt imperfectly-because at the end of the day, the large majority of Europeans have decided that it is far better to have an imperfect union than to return to the previous situation, which witnessed war after war over many centuries.

Nonetheless, there will be internal squabbling over the other big item on the agenda: bank supervision. Bank regulation and supervision are currently carried out at the national level. With increasing financial integration under way, this is a recipe for disaster, especially within the euro area. The European Commission is trying hard to foster competition in the banking sector, which is now characterized by national champions that enjoy market power. As banks start infringing on each other's turf, to the benefit of citizens and firms, the notion of national regulation and supervision becomes surrealist. The large local banks are less than enthusiastic to see foreign competition, and the national supervisors fear losing their prerogatives. A committee chaired by former IMF Managing Director Jacques de Larosière has come up with a convoluted plan that proposes to add a European-wide supervisor without eliminating national supervisors. This proposal is bound to generate turf battles, but the logic is that, gradually, the "federal" supervisor will overtake the national ones. American readers will be reminded of similar endless turf battles that have occurred since 1776. It takes time to forge a nation, and Europe is not even a nation.

In this case, the fight pitches Britain, which hosts Europe's biggest financial markets and favors a light touch, against France and Germany, which tend to regard finance as inherently devilish and in need of intrusive regulation. The economic crisis has suddenly filled the continental sails and greatly worries Britain. If you see any similarity between Europe's divided opinion and the domestic resistance (from American banks and some congressmen) to the new U.S. plan to reform bank regulation, you are quite right. The issues are not identical, but they are similar-except that the federal government long ago took control of this type of regulation in America.

Finally, the summit must decide whether it wants to reappoint José Manuel Barroso as head of the European Commission. He faces less of a threat from his political opponents on the Left, as they lost badly in the parliamentary elections. But they may be looking for an opponent. More bothersome for Barroso are the right-wing governments that have many bad reasons to postpone his confirmation. Some want to extract promises on the appointments of other commissioners. Others would wait until the Lisbon Treaty is ratified to appoint Barroso under the new rules of the game. But such groups really hope that the Irish will again vote no, which would create the kind of mess that smart politicians hope to navigate to their best interest. In the end, reason seems to be prevailing, and it looks as if Barroso will be nominated. Then he will have to be approved by the parliament, which promises to test his equanimity. Politics as usual in any democracy.

 

Charles Wyplosz is a professor of economics at the Graduate Institute in Geneva, Switzerland.