EMMANUEL MACRON’S VICTORY in the French presidential election has given the European project an injection of sorely needed optimism. With the eurosceptical populists temporarily vanquished, fears of an EU breakup have tempered and cautious enthusiasm for greater economic integration has risen. The new French president is leading the charge toward greater integration. He's already called for a common Eurozone budget, parliament and finance minister, and he and his phalanx of German-speaking ministers (both the new PM Edouard Philippe and new economy minister Bruno Le Maire are fluent in the tongue of young Werther) have begun work on the critical task of convincing Berlin that ever-greater union will not institutionalize a system of permanent transfer between Germany and the currency bloc's have-nots.
Italy has emerged as a vocal ally in Macron's quest. Earlier this week Finance Minister Pier Carlo Padoan called on European leaders to seize the pro-EU momentum and not “waste” the opportunity for reform. That same day, caretaker Prime Minister Paolo Gentiloni met with Macron to chart a path forward on integration — part of which includes resuscitating the long-delayed proposal for a European banking union.
The union, which would transfer macroprudential risk monitoring and oversight responsibilities from national governments to the EU, was proposed in 2012 as part of the response to the Eurozone crisis. Pieces of it, such as a single rulebook and supervisor for Eurozone banks, are already in place. Full implementation, however, has stalled on the reluctance of northern states to pool risk and bear the responsibility for bailing out their profligate southern neighbors.
But the sudden rise of Macron has breathed new life into the plan. Our signal built to track digital attention to EU banking reform has trended upward since May 1.
In the public statements following this week's Franco-Italian leaders' meeting, it was, unsurprisingly, Gentiloni who explicitly mentioned the banking union. Italy, whose banks continue to fester under a pile of rotten loans, is especially keen to mutualize financial risk across the Eurozone. For months it has been negotiating a bailout with the EU and ECB for the irredeemably troubled Monte dei Paschi, the world's oldest and arguably sickest bank.
It now seems a deal may be forthcoming next month, followed by others addressing smaller regional lenders — some of which are the main drivers of volatility in our signal for Italian banks, which has continued to tick upward this month.
The challenge for Macron and the Italians is persuading the Germans. Berlin has called Macron's reform ambitions “not realistic.” The signals below show that in stark contrast to the Italians, German attention to the banking union has remained muted. For the proposal to stand a chance, the Franco-Italian alliance will have to warm Berlin to the idea that a more integrated banking system is in everyone's interest. ⏪
Gordon LaForge is a Predata analyst. Contact: email@example.com.