EU Ponders Canada Trade Deal's Fate -- And Its Own
October 23 2016 - 2:42PM
Dow Jones News
Simon Nixon
Perhaps the European Union's problem is too much democracy
rather than too little.
Until last week, few outside Belgium even knew of the existence
of Wallonia, let alone that this region with a population of 3.5
million had a parliament with the power to block trade deals backed
by the rest of the EU, with a combined population of 500
million.
Now Wallonia's objections may have killed the EU's Comprehensive
Economic and Trade Agreement with Canada, which was supposed to be
ratified by all 28 EU leaders and Canadian Prime Minister Justin
Trudeau this week.
The EU is giving Belgium until Monday evening to decide whether
it will agree to sign the deal, Belgian and EU officials said.
Even if Wallonia can be persuaded to change its mind, CETA's
future isn't assured. The deal can only be provisionally applied.
The most contentious aspect of the deal -- the creation of
independent dispute arbitration tribunals which will allow
investors to sue governments if they believe national rules have
been set that breach the terms of the agreement -- must still be
ratified by each of the EU's 37 national parliaments and
assemblies.
There is strong opposition to CETA in several countries
including Germany, Austria and France. What happens if it is later
rejected by a national parliament isn't clear say EU officials:
there is no precedent.
The real harm from CETA's potential failure lies not so much in
the loss of a much-needed but largely speculative economic boost
but in the damage to the self-confidence of the EU itself, not
least in its own leadership.
Over the past 18 months, as it has struggled to manage a series
of crises ranging from the Greek debt crisis to the migration
crisis to the trauma of the Brexit referendum, the draining of
confidence in the EU's long-term future has been palpable.
The EU measures its self-worth by its ability to find common
solutions to common problems. Yet it now finds that not only are
many of the EU's problems of its own making -- reflecting past
decisions to create the euro and abolish internal borders without
putting in place the structures to withstand shocks -- but that the
task of finding common solutions has become far harder.
It was never easy to get 28 governments to agree, but once they
had struck a deal, they could usually be relied upon to secure
parliamentary approval. But as is clear from the CETA debacle and
the growing opposition to eurozone bailouts, this is no longer the
case as insurgent parties of left and right pull the ground from
under mainstream pro-European parties.
Now some policy makers wonder whether the EU could find an
effective political response to any future shock. This is worrying
given the multiple risks to the EU outlook.
The EU last week dodged a bullet when the rating agency DBRS
maintained Portugal's investment grade rating: a downgrade would
have left Portuguese government bonds ineligible for purchase by
the European Central Bank, in all likelihood necessitating a new
bailout. But a new Portuguese bailout may still be necessary unless
Lisbon can soon persuade the private sector to provide much-needed
capital to its banking system.
Nor is there any sign of a breakthrough in the long-running
standoff between Germany and the International Monetary Fund over
the timing and quantity of debt relief for Greece, raising the
specter of a new Greek debt crisis when it inevitably runs out of
money again next year.
Meanwhile, Italy tops the list of many EU policy makers'
worries: Rome last week dared the European Commission to reject its
new rule-breaking budget just ahead of a referendum which could
trigger the fall of Prime Minister Matteo Renzi's government and
reignite doubts over the country's financial stability.
Indeed, some European officials privately fear that the eurozone
is just one shock away from disaster -- a disaster that has so far
only been averted by the ECB's bond-buying program, which has eased
the fiscal pressure on eurozone governments, allowing them to
borrow and spend their way to a modest recovery.
Yet the ECB's money printing operation is already running into
serious political constraints as it looks for ways to overcome a
scarcity of bonds eligible for it to buy under its current
self-imposed rules. It has given itself until December to decide
whether to start buying bank debt, or buy government debt at prices
that guarantee it will face losses, or switch the focus of its
bond-buying away from Germany toward less creditworthy countries
such as Italy. Whichever it chooses risks a political backlash.
How can the EU respond to this worsening political climate and
persuade its citizens of the benefits of seeking common solutions
to common problems?
The one area where the Commission believed it could make a
difference was trade, over which the EU in theory has exclusive
power to act on behalf of member states.
Yet now the EU's member states have effectively taken back
control of trade policy too. Mr. Trudeau recently asked what the
point of the EU is if it can't do a trade deal with Canada. It is a
question that in their despairing moments some EU officials ask
themselves.
(END) Dow Jones Newswires
October 23, 2016 14:27 ET (18:27 GMT)
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