The break-up of the European Union may be a question of “when” and not “if”, credit ratings agency Moody’s has suggested. The agency warns that, despite attempts at reform, the European project remains perilously at risk from even a “small” crisis.
Critics of the European Project have long decried the anti-Democratic nature of the reforms put in place following Europe’s sovereign debt crisis, which accompanied the global financial downturn of 2008.
But analysts at Moody’s have a different reason for criticising the reforms. They say the systems put in place, which include the European Stability Mechanism, the European Banking Authority and other structures “strengthen” the system, but add that institutional reform and euro area integration “remain unfinished,” as does the creation of a European Banking Union.
“We have seen substantial institutional changes in Europe over recent years,” said Colin Ellis, Moody’s Managing Director, Chief Credit Officer EMEA, and co-author of the report. “However, as significant as these steps were in political and economic terms, great vulnerabilities remain in the euro area.”
Specifically, the failure to fully consolidate the Union into an integrated entity has left its constituent parts vulnerable to a public backlash as resentment over high unemployment in some states, and being asked to shoulder an ever greater financial burden in others grows.
In other words, they fear that a Brexit could lead to populist parties across Europe rising up and pulling down the European Union.
“Even if the EU survives its current challenges largely unscathed, even a ‘small’ future crisis could threaten the sustainability of current institutional frameworks, if it coincided with negative public sentiment and populist political developments,” the report warns.
“This can create the impression that the question is when the system breaks, rather than if.”
The report comes as Mervyn King, the former governor of the Bank of England, warned that the Eurozone faced “unpalatable choices,” and would have to pick between four options: economic “depression” in southern member states, higher inflation in states like Germany, permanent fiscal transfers or a “change of composition of the euro area”.
There was “a limit to the economic pain that can be imposed in pursuit of a federal Europe without risking a political reaction,” he told a Frankfurt audience, reports the Telegraph, adding: “There are no empires in Europe anymore and our leaders would do well not to try to recreate one.”