A tough sell

Spain’s recently unveiled proposals for deeper integration within the eurozone highlight one of the 19-member bloc’s fundamental problems - namely, that its most wealthy countries resent subsidising the poorer ones. In a paper submitted to the EU in February, but only released by the Spanish ministry of economy this week, Mariano Rajoy’s conservative government argues for a common banking union, a shared unemployment scheme and mutualised debt among countries that use the single currency. The document reveals that Spain is calling for more eurozone integration than both France and Germany - the two countries likely to put up the most resistance to its request for greater financial support from Brussels.

New French president Emmanuel Macron has already indicated that he is against debt mutualisation - presumably with countries like Italy (debt: 132% of GDP) and Greece (debt: 177% of GDP) in mind more than Spain, whose 99% debt-to-GDP is only three per cent higher than France’s 96%. Germany has also repeatedly declared itself in opposition to a similar notion of joint Eurobonds - EU debt vehicles that would result in shared liabilities among eurozone members.

You can well imagine, then, what these two countries will make of Spain’s suggestion of a common unemployment insurance scheme. As of December last year, France’s unemployment was at 10% and Germany’s was at just 3%. Although much reduced from a crisis-high of 26% in 2013, Spain’s jobless rate is still the second highest in the EU (after Greece), at 18%. Inevitably, if the eurozone’s most affluent members paid into a mutual insurance scheme used to support the EU’s unemployed, most of the funds would be directed abroad - a fact which makes the proposal a tough sell for Rajoy’s government, to say the least.

Spain must also bear in mind that greater integration within the eurozone works both ways. It can only reasonably expect increased financial support from Brussels - because that is essentially what it’s asking for - if it makes greater efforts to meet the EU’s fiscal targets, especially its budgetary targets. And questionable as these are (is it really a good idea to impose a 3% deficit limit on all EU countries, regardless of the varying strength of their economies?), Rajoy’s government has a woeful track record here, having failed to meet Brussels’ deficit-reduction goals every year it’s been in office.

The wider context of Spain’s appeal for economic reform within the EU is, of course, the very future of the soon-to-be 27-member bloc itself. Few would (or should) doubt that the EU project needs seriously rethinking and restructuring, and indeed Spain’s ability to influence reform will be strengthened by its importance in the upcoming Brexit negotiations. The great question for a post Brexit Europe, though, is whether the deeper fiscal integration proposed by Spain will strengthen it or destroy it altogether.