Europe’s Three Interlocking Crises – from Geopolitical Futures

by Marilou Long on January 26, 2016

in Banks,Foreign Markets,Geopolitical

 

George Friedman, the founder of Stratfor, has started a new firm called Geopolitical Futures.  It is a subscription service, but you can sign up for a free email distribution list.  From today’s Reality Check email:

Prince Klemens von Metternich, the architect of the European continental system that emerged after Napoleon’s defeat, once remarked that any plan conceived in moderation must fail when the circumstances are set in extremes. The European Union developed and expanded during a time of relative prosperity. A new Russia, emerging from the ruins of the former Soviet Union, transformed as energy prices rose. But the favorable circumstances of the past decades no longer exist. Europe is now entering the new phase in a set of interrelated crises that the continent’s current system was never effectively designed to address.

Our 2016 forecast predicted that Europe will grapple with three interlocking challenges this year: the European Union’s economic problems, the refugee crisis and Russia’s relationship with Europe and the U.S. We noted that Germany is key to all three of Europe’s dilemmas and that 2016 will be a year of significant fragmentation in Europe. This week, Europe’s three crises are each progressing to another stage, augmenting the region’s challenges.

Europe’s economic challenges are not only a threat to the continent’s prosperity and stability, but also test the relationships among the European Union and its member states, especially those with Germany. The focal point of the European Union’s economic troubles is now Italy, where non-performing loans are posing a challenge to the stability of the county’s banking sector. On Jan. 26, Italian Finance Minister Carlo Padoan will meet with EU Competition Commissioner Margrethe Vestager to negotiate the price of a potential state guarantee for lenders who want to sell their non-performing loans. The EU rejected an earlier Italian plan to create a so-called “bad bank,” and Rome is now attempting to craft a plan that would allow banks to offload bad debts with some government assistance while skirting EU rules on state aid. The future stability of Italy’s banking system depends in large part on the EU’s ability to allow for flexible and timely solutions to the problem of non-performing loans.

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