The State of the European Union. The European Parliament faces its most important elections yet

THE STATE OF THE EUROPEAN UNION 80 banking union was marginally more ambitious, it merely called for the start of work to initiate political negotiations for the European Deposit Insurance System. Perhaps the most promising aspect of the summit related to the issue of whether the ESM might be enabled to perform an effective back- stop function in resolution procedures, with the possibility of accelerating the timeframe for im- plementing the resolution fund. However, fol- lowing the sense that Meseberg had expanded horizons, the euro summit generally represented a return to pursuing concrete objectives in those areas where resistance was minimal. Euro summit, December 2018 In this context, and in the light of ongoing ne- gotiations, great uncertainty surrounded the December euro summit. There was a degree of progress in some of the areas mentioned above. In particular, the heads of state agreed to estab- lish the Single Resolution Mechanism. In princi- ple, this should make it easier to recapitalize banks directly through the ESM. However, some of the details of this agreement remain to be clarified. For example, access to funds may con- tinue to be conditional upon compliance with fiscal rules by host countries. Furthermore, there continues to be a requirement on institutions to reduce their risk profile before the Single Resolution Mechanism can be introduced, with- out specifying, at least for the moment, what these risk reduction measures would be. On the other hand, the summit did support the creation of precautionary instruments as part of the ESM. As mentioned above, this could help facilitate rapid funding when countries find themselves in difficulty. However, the scope of these changes is unclear, as the ESM’s status as lender of last resort must be preserved. Overall, the December summit reached some agreements that strengthen the eurozone, such as increasing the capacity of the ESM, both by designing precautionary instruments and through its capacity as a backstop in resolution processes. However, the impact of such moves will depend on the small print of the final agree- ments. Moreover, the lack of progress towards creating an independent fiscal capacity, subordi- nating progress to unspecified risk reduction criteria for financial institutions, and the lack of genuine progress towards the creation of a shared deposit insurance scheme, reflect how difficult it is to make radical changes to the ar- chitecture of the eurozone. Conclusions Improving the architecture of the eurozone is a work in progress. Progress has been slow, but some improvements have been made over the past year, as described above, although these are still lacking in detail. The process is beset by small steps, long deadlines and obstacles to the implementation of any measures that are actu- ally agreed. Despite this, the instruments at the monetary union’s disposal to deal with shocks are more powerful than those available before the sovereign debt crisis. However, there are significant risks associat- ed with failure to undertake further reforms. In particular, the slow pace of decision-making – while perhaps inevitable in a process in which the parties have different interests and different visions of how the eurozone should operate – is very dangerous. The deterioration in the global economic environment in recent months, signs of reduced cooperation between countries, re- flected in rising protectionism, and a general increase in uncertainty, all pose a threat to the