Where Does the EU go From Here?

European Commission, ECB and IMF agree that Greece has fully implemented the prior-action programs that were agreed as a pre-requisite for formal bailout talks. So the official negotiations for a third Greek aid program can begin. The question now is whether there are any lessons to be learned from this latest Eurozone crisis and where it will lead the Eurozone and the wider EU in the future. Peripherals push for greater risk sharing and a fiscal union, Germany is fearing a further erosion of the Eurozone‘s founding principles.

For this process to be a success, there is the need for a greater fiscal integration, which includes a joint bond issuance and a continuation of the current shift in monetary policy towards re-inflating economies and thus helping indebted consumers and governments. This would work only as long as Germany remains a credible stability anchor and markets focus on the benchmark to assess the overall risks of Eurobonds. But Germany, while still on course for robust growth this year, is also heading for a serious loss of competitiveness as wage costs are spiking. At the same time, the property market is at risk of overheating and with relatively low levels of overall household wealth and the need to build up private pension portfolios, the pressure of the low interest rate policy is rising.

What is clear is that Greece is likely to revisit the same situation is just left, as its populous is not interested in an EU that is based on austerity and lack of government run society. Germany on the other hand is trying to prop up a continent that has different values and will continue to be frustrated by the lack of interest in the Germany way of life. Either way, tensions are likely to brew, until another crisis arises.

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