Plans for Political Union Unravel in Europe

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from The Wall Street Journal,

Quest to Ensure Euro’s Long-Term Survival by Forging Deeper Union Is Fizzling.

European vs US recovery gap since 2007

Europe’s quest to ensure the euro’s long-term survival by forging a deeper political union out of crisis is fizzling out.

A European Union summit, starting Thursday, was originally intended to pave the way for tighter coordination of economic policies, but now is expected to make little progress. Many European officials say they are losing hope of reaching a deal in the next year to build elements of a common government for the 17 countries that use the euro, including shared spending, borrowing and support for banks and depositors.

Germany is leading the resistance. In Vilnius, Lithuania, last month, German Finance Minister Wolfgang Schäuble orchestrated a revolt against a proposal to let EU officials decide when euro-zone banks should be wound down or restructured.

The proposal was part of a so-called banking union in which Europe as a whole would stand behind its lenders. Many countries favor the concept because it would take pressure off weaker countries to support their banks alone. But German officials see parts of it as a green light for EU bureaucrats in Brussels to spend Germany’s money to rescue banks in Ireland or Spain. Mr. Schäuble mustered a coalition in Vilnius to block the proposal, recruiting EU members such as the U.K. that don’t use the euro and don’t want more powers for Brussels.

The quest for a deeper union was born last year at the height of financial-market panic in Europe, when fear was widespread that the euro might collapse. The crisis showed that sharing one currency among 17 countries with separate policies is an unstable formula. Although financial markets have calmed since then, the euro zone still is struggling with debt, unemployment and impaired banks, especially in Southern Europe.

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