Increasing European Fragmentation (Agenda)
Video Transcript:
Editor’s Note: Transcripts are generated using speech-recognition technology. Therefore, Stratfor cannot guarantee their complete accuracy.
Video Transcript:
Colin Chapman: Like a year-12 student who has flunked an exam, Europe's leaders have gone off to their Christmas parties and pledged to come back to the seemingly intractable problem of fixing the 27-nation European Union budget early in the New Year, and that probably means February. There's a 13 billion-euro gap between the German-led countries of the north and those of the south, which now appears to include France. As Lithuania's president put it in bizarre terms, the atmosphere was surprisingly good because the divergence of opinions was so great, there was nothing to argue about.
Welcome to Agenda. I'm joined by Stratfor's Europe analyst Adriano Bosoni. Adriano, can I ask you first, there's not just one division, north versus south, there's also eurozone versus non-eurozone, and then there's France versus Germany. And some of the newer members like Poland and the Czech Republic are getting restless. It looks to me like a long time before this gets resolved.
Adriano Bosoni: What we are currently seeing in the European Union is that countries are protecting their own national interests and this is creating divisions in Europe. These divisions have several layers. What we saw first as soon as the crisis began a few years ago was a north-south divide with more developed countries in the north protecting their interests and being wary about giving bailouts or financial assistance to the less-developed countries in this south. But what we are seeing now is that those divisions are getting deeper and debates about the EU budget is a clear signal of that. We see countries like the United Kingdom or Sweden fighting for a reduction or at least a freeze in the EU budget, but other countries such as France are worried that that could reduce the subsidies that they receive in their agricultural sector. And at the same time you have countries in Central and Eastern Europe like Poland, Hungary or Romania who are worried that they could see a reduction in the development funds that they received. And that's only one part of the story -- there are divisions in issues of eurobonds, which is something that France would like to see happening and Germany doesn't, and the banking union or the creation of a separate budget for eurozone countries. So yes there are many, many divisions in Europe and the political fragmentation is getting deeper.
Colin: Now there's two very interesting things seem to be happening. First, France under President Hollande is not just at odds with Germany but his relationship with Chancellor Angela Merkel has deteriorated. Second, France seems now to be putting its own house at risk, could I put it that way, rather than putting it in order.
Adriano: Well during the presidential campaign, Francois Hollande promised to focus on growth measures instead of austerity measures, but now he's in charge and he has realized that the reality is harsher than he expected. The French economy is slowing down. France has a trade deficit, a relatively high budget deficit and most important the French economy is losing competitiveness. In this context, Hollande has been trying to apply tax hikes and some spending cuts, which has upset some of the French population. And we see his approval rates plummeting in recent weeks. But this is also creating tensions within this socialist government because a big part of the Socialist Party doesn't like the way Hollande is handling the economy. So I think that France will be forced to apply some structural reforms next year. And I definitely think that a labor reform will be one of the key aspects that Hollande will have to deal with in 2013.
Colin: Where will this lead him in his relationship with a somewhat-militant French trade unions? Can we look toward more strikes?
Adriano: Well the crisis has not arrived in France yet, but if the French economy keeps slowing down and Hollande pushes too hard for this labor reform, we will definitely see some strikes next year, yes.
Colin: And then there's Britain, outside the eurozone of course but still in the EU. But as you suggested earlier, it seems to be playing a more positive role in contrast to the negativity in recent months.
Adriano: Well the British Prime Minister David Cameron is in a very complex situation, especially at home. There's a large sector of the Conservative Party and there's also a large sector of the British population who think that the contributions that the United Kingdom is making to the European Union are way higher than the benefits that they are getting from the EU. And they suggest or they ask that the U.K. renegotiates its position in Europe and some are you noticing that the U.K. should withdraw from the European Union. I honestly don't think that the U.K. will leave the European Union anytime soon because Britain is interested in being a part of the common market and it's interested in having a say at the negotiation tables. So I don't think that Britain is willing to lose that and Britain knows that's if it was to remain a key player in the international arena it has to be a member of the European Union.
Colin: And of course most of its exports go to Europe, and London wants to remain a global financial center and not see it moved to Frankfurt. Both its exports and its financial center would be at risk if it left the EU.
Adriano: Yes, exactly. But what London does want it to recover as much sovereignty as possible in sensitive issues such as some tax rebates or home injustice affairs -- issues that are very important for the U.K. So while I don't think that U.K. will leave the European Union in the coming years, I do expect London to try to have a harder stance on the European issues and try to recover as much sovereignty as possible.
Colin: And adding to all these problems we've just talked about is what you might call a growing regionalism in the EU. Catalonia may split from Spain; Scotland might -- I said might -- vote to leave the United Kingdom. What happens then? Do these countries automatically get EU status? Or do they join the queue behind countries that are begging to join, like Serbia?
Adriano: Well this is certainly a controversial issue. They European Commission has made it clear that if any state separates itself from any EU member, that new country will have to apply for membership like any ordinary country, which means that Catalonia, Scotland or whoever decides to separate itself would have to apply for EU membership. This is already creating concerns in Catalonia because the Catalan businesses are worried that they could lose access to the Spanish markets or to the European markets. So what's important about this is that the European crisis is threatening the territorial unity of some European countries, with Spain and Belgium being the most advanced cases. But in other countries we are seeing that the crisis is threatening the links of solidarity between regions within a country. In countries such as Italy or Germany, we are seeing the wealthier regions feeling that the poorer regions are a burden and asking the central government for renegotiations of the schemes of distribution. So that's something very important for us to keep a close eye on.
Colin: Adriano, thanks very much should be my guest today. You of course can read Adriano's analysis at www.stratfor.com. Thanks for being with us; see you next time.
