Ironically, the more Eurocrats try to integrate the EU through imposition of fiscal, monetary, banking, and political straitjackets, the closer the Union comes to disintegration.

By Don Quijones, Spain & Mexico, editor at WOLF STREET. His blog: Raging Bull-Shit.

As of a few days ago, the European Union has a new government and president to run its affairs. In the deeply dysfunctional model of European “democracy,” neither the Commission not its President were elected by European voters. Only the 400-odd comfortably closeted MEPs had a chance to vote on them.

The new President is Jean-Claude Juncker, a man who notoriously confessed to lying only when the going gets tough and who, as prime-minister of Luxembourg for close to two decades, is largely credited with reinventing the tiny landlocked principality into one of Europe’s largest tax havens and dirty money channels (just behind Switzerland and the City of London).

As the European Corporate Observatory observes, the Commission he leads includes:

An ex-petroleum company president as climate commissioner (Miguel Arias Cañete); an ex-corporate lobbyist in charge of financial services (Jonathan Hill); a former vice-president of the industry lobby group Le Cercle de l’Industrie in charge of economic policy (Pierre Moscovici); an ex-Goldman Sachs financier as research commissioner (Carlos Moedas); and the former political no.2 to a Czech multi-billionaire as consumer commissioner (Vera Jourova).

Now this newly unelected, highly compromised Commission faces the mother of all jobs: to prevent the stagnating Eurozone economy (now in its seventh year of on-off crisis) from going completely off the rails. What’s more, it must somehow pull this off at a time of growing tensions between and within the governments of EU member states, as well as rising public hostility to the European Project itself.

A Disunited Union

As the past week has revealed, the cracks are already beginning to show in Europe’s flimsy façade of Brussels-imposed unity. In the last 48 hours alone:

• The Italian government, much to the ire of former Commission President Manuel Barroso, posted on its website a “strictly confidential” letter it had received from the Commission’s economic chief, Jyrki Katainen. The letter outlined additional austerity measures to “streamline” the nation’s finances – measures that Italian Premier Matteo Renzo has repeatedly rejected.
• France’s deeply unpopular prime-minister Francois Hollande demanded that EU budget rules be adapted to support economic growth, French-style.
• The British PM David Cameron bewailed a €1.7 billion surge in Britain’s EU membership fees, prompting one Daily Telegraph writer to wonder whether Brussels is intentionally seeking to push Britain into leaving the EU.

As if that were not enough, on Thursday 14 EU Member States, including the UK, Spain, Ireland and Denmark, sent a letter to Juncker urging him not to make any concessions to MEPs on investor-state dispute settlements (ISDS) in the Transatlantic Trade and Investment Partnership (TTIP). One can only assume that the other 14 EU Member States are not so convinced by the need to include ISDS as part of the ultimate deal; most importantly, as I reported a few weeks ago, those countries include Germany.

Granted, such spats have been part and parcel of European politics for decades. The problem is that they are growing at precisely the time when strong unity is most needed in order to complete the full integration of the Eurozone economies. Of even greater concern to Brussels, a growing number of so-called “populist” movements (meaning any party or politician even mildly opposed to the current state of affairs) are beginning to challenge even the basic ideas and mechanisms keeping Europe together.

The Rise of “Populism”

In Italy, recent months have seen the early stirrings of the Great Lira Revolt, lead by Beppe Grillo’s 5 Star Party Movement. “We must leave the euro as soon as possible,” said Mr Grillo, speaking at a rally over the weekend. “Tonight we are launching a consultative referendum. We will collect half a million signatures in six months – a million signatures – and we will take our case to parliament, and this time thanks to our 150 legislators, they will have to talk to us.”

For other Southern European nations, it’s arguably already too late. In Spain debt galloped across the €1-trillion mark this year. However, unemployment remains stubbornly on the wrong side of 25 percent, despite the fact that many of the nation’s best and brightest have long left for brighter shores – or at least shores with jobs.

As a direct result of austerity imposed from abroad and an endless stream of political scandals at home, Spain’s establishment now faces a dual threat: first, the breakaway of its richest province, the North Eastern region of Catalonia (most likely followed by the Basque Country); and second, the Phoenix-like rise of Podemos (“We Can”), a left-wing political party that is very successfully courting desperate, disaffected voters with the promise of an end to austerity and political corruption, not to mention an independent audit of the nation’s debt.

In crisis-ridden Greece Alexis Tsipras’ Syriza Party is hotly tipped to win the next elections. Given the current coalition government’s razor-thin majority, that could come a lot sooner than Brussels would like, especially considering that Syriza advocates a “significant” write down on Greek government bonds, a reversal of the economic reforms imposed by the Troika, and also a full audit of its public debt.

Perhaps most worrisome for the eurocratic elite, the cracks are beginning to branch out from Europe’s periphery to its core. In France, Marie Le Pen’s National Front continues to make hay while the approval ratings for Francois Hollande, already the most unpopular president of France’s 54-year-old 5th Republic, plumb new depths. Even Europe’s reluctant sugar daddy, Germany, has witnessed a surge in popularity for its anti-euro party, Alternative for Germany. This, in turn, heaps even greater pressure on Merkel’s coalition government to put a stop to Arch Alchemist Mario Draghi’s mad plan to buy up every dodgy financial product not yet nailed down.

No Reason to Panic

All the while, fears are growing about just how many of Europe’s ailing and failing banks will fall short of the mark in the ECB’s soon-to-be-released stress tests. At the last provisional count, the number had shot up from 13 to 25, representing close to 20 percent of the 130 banks assessed.

According to the EU’s latest rules on bank failures, some of those banks will have to be wound down; others may be bailed in and/or bailed out (or indeed both); the rest will be gobbled up by one of the continent’s strategically vital institutions (Deutsche, Santander, BNP Paribas, HSBC… they’re all waiting in line, just salivating at the prospect of getting even too-bigger-to-fail). Naturally, the whole process will go perfectly smoothly… as long as everyone makes sure that “financial market players don’t panic” (not my words, but the comforting words of the New York Times).

Taken together, the recent developments in Europe do not bode well for a continent already boasting unprecedented levels of debt while also locked in an escalating tit-for-tat trade war with its most important neighbour and biggest gas supplier, Russia. To make matters worse, there is a growing reluctance among countries on the periphery to bear the brunt of the social and economic pain of monetary union (hence the rise of Podemos, Syriza, 5-Star…), while in Germany and other core countries there is a growing reluctance among the public to fund what it sees as the reckless profligacy of Southern Europe.

Unless Germany steps up to the plate soon to temporarily stop the rot – namely by giving Draghi the green light to unleash his no-holes barred bond buying program, followed by the mutualization of Europe’s debt through the creation of euro bonds – Europe’s fragile unity could unravel surprisingly quickly.

Ironically, the more the Brussels elite tries to forcefully integrate Europe through the imposition of monetary, banking, fiscal and political straitjackets, the closer the Union comes to disintegration. Given the EU’s glaring democratic deficit and blatant disregard for the lives of most Europeans, that may not be such a bad thing. By Don Quijones. An exclusive for Wolf Street.

In Spain, the policy of the national government has been to threaten Catalonia and sow seeds of discord in its fragile coalition government. Now it’s reaping the spoils. Read… Spain’s Divide and Unconquer of Catalonia

Enjoy reading WOLF STREET and want to support it? You can donate. I appreciate it immensely. Click on the beer and iced-tea mug to find out how:

Would you like to be notified via email when WOLF STREET publishes a new article? Sign up here.