The European Union has more problems to settle than Brexit | Business

AAt the time of Brexit, the UK attracts even more attention than normal. Each fragment of official data and each opinion poll were closely examined by leavers and remnants.

Of course, much less attention has been paid to what is happening in the rest of the European Union, where recent news has been poor. The frustration of the leaders of the 27 other EU countries vis-à-vis Theresa May lies in the fact that Europe has many problems to solve, Brexit is not even the most serious of them.

The main problem of the EU is that its economic model has aged with its population. Europe has many world clbad companies but, unlike the United States, none of them has been created in the last 25 years. In the golden age of Europe, Volkswagen was a rival of Ford and Siemens could compete with General Electric. But there is no European Google, Facebook or Amazon and in the emerging technologies of the fourth industrial revolution, such as artificial intelligence, Europe is nowhere.

China is progressing faster than Europe in the development of machine learning and is counting companies that pose a threat to the Silicon Valley giants. That's why China rather than Europe is the main target of Donald Trump's tariff war.

When drawing up the plans for the euro 30 years ago, it was badumed that the single currency would allow the single market to operate more efficiently and thus generate faster growth. This did not happen. The performance of the euro zone countries has not worsened, but a political capital so invested in the monetary union project that we do not want to accept as much.

Last week, three separate events underscored the magnitude of the economic challenges Europe faces. First, the latest health check of the euro area economy showed that growth remained chronically low. Italy is suffering from its fifth recession in two decades, while the German economy, dominated by exports, is hard hit by the slowdown in the global economy. Germany has escaped recession only through the skin. In the second half of 2018 and early 2019, the situation has not improved much. The euro area as a whole seems to be growing by 0.2% in the first three months of the year, unchanged from the last three months of 2018.

There was a brief period during which large doses of stimulus from the European Central Bank (ECB) raised the growth rate of the euro area. But the impact of zero rates and the process of creating money known as quantitative easing (QE) is now blurred. A real solution to Europe's growth problems lies in solving the design flaws of the monetary union, which has been blatant since the financial crisis of last year.

The lack of political support for the single currency proved to be costly in 2008-09. While the United States and the United Kingdom have moved quickly to reduce interest rates and adopt unconventional monetary policies such as QE, the euro area has taken much longer to move up a gear . This was partly due to the ultra-conservative character of the ECB, which imported its culture from the German Bundesbank, but also to the fact that there was no mechanism for making such swift decisions in Washington and London. . Like any convoy, the euro zone has moved at the speed of its slowest ship.

This had two important consequences: it took much longer for the eurozone to return to growth; and its banks ended up with large amounts of unproductive loans. The Americans socialized the bad debts of the big American banks, which allowed them to start lending again. European banks remain weak and extremely vulnerable to another economic slowdown. That's why the second highlight of last week was the announcement by two of the largest German banks – Deutsche and Commerzbank – of merger talks.

Italy is tired of waiting for monetary union. Its banks are in a worse state than Germany. Rome has no control over monetary policy and its attempts to boost growth by creating a larger budget deficit have violated Europe's tight fiscal rules. Last week, the Italian government announced that it would be the first EU country to participate in the Belts and Roads Initiative of China – an attempt to link Asia, the Middle East, Africa and Europe to a series of ports, railways, bridges and other infrastructure projects. . Italy's willingness to participate in the attempt to reconstruct the ancient Silk Road is testimony to its desperation to revive its economy by any means available. It also reflects the diminished status of Europe in the global hierarchy.

Emmanuel Macron is convinced that the solution to Europe's economic problems is closer integration. The French president wants the eurozone to have its own finance minister in charge of the tax and spending policy of the single zone. Macron needs the support of Germany and Angela Merkel has not been overflowing with enthusiasm. It's not hard to see why. German exporters have been successful in getting out of the monetary union and Merkel knows that German taxpayers should finance their spending in the poorest countries of the eurozone.

Macron's plan has logic. The eurozone is a half-finished project, lacking the political structure that would give it a chance to function. Moreover, if Europe continues to underperform economically, the alternative to closer integration is disintegration. Not immediately, because the return to the national currencies or the changeover to a hard and soft euro would be fraught with difficulties. The critical moment will only come when the next recession will set in. It may not be so far away.