The choreography could not have been better this week. The leaders of the eurozone’s three largest economies took the stage at the World Economic Forum in Davos one after the other to deliver the same message. In the era of Donald Trump’s “America First,” the leaders of Italy, Germany and France all spoke up to oppose protectionism and embrace multilateralism.

Cooperation will start at home, they pledged: the euro area will strive to forge closer ties starting this year. As French President Emmanuel Macron put it, “we need more ambition to have a more sovereign, united and democratic Europe.”

In an era of security, trade and currency tensions, such a show of unity is encouraging. However, scratch below the surface and what becomes clear is that it is also misleading. Europe may stand against economic nationalism, but its governments remain resistant to acquisitions from abroad -- even from within the European Union. And while a grand coalition government in Germany is the best hope for unlocking institutional reform in the eurozone, red lines remain over the completion of the banking union and the creation of a fiscal union.

Start with trade: The single market is a remarkable achievement, which has severely limited the ability of governments to prop up national champions. However, when a national player becomes a takeover target, politicians tend to ignore the principles of the single market. Last year, Macron initially blocked a takeover of French shipyard STX by Italy’s Fincantieri. He then reversed course, after the Italians gave up their insistence on an outright majority of the company. The French government will lend Fincantieri an additional 1 percent stake, giving it control for 12 years.

Meanwhile, Spain has been throwing road-blocks in the way of Italy’s Atlantia, which is trying to purchase Abertis Infraestructuras, the Spanish infrastructure company and toll-road operator. Finally, France’s Vivendi is having to put up with increasing government scrutiny over its ownership of Telecom Italia, after Rome asserted the so-called “golden power” rule. This can give the Italian government a say over the strategic decisions of the Telecom group.

The EU is also full of divisions over how to reform the eurozone. At Davos, Bruno Le Maire, France’s finance minister, said that “everything is on the table” when it comes to completing the monetary union. But if you dig a little deeper, differences start to emerge. Take the banking union project, which is needed to ensure that governments are not left alone in dealing with financial problems. Most politicians and technocrats, including the European Central Bank, agree that the banking union needs a joint deposit guarantee scheme, which ensures that individual countries can rely on a common pot of money to compensate depositors in case of failure.

Germany and the Netherlands have made it clear that they first want to see European banks reduce the levels of nonperforming loans sitting on their balance sheets, and place limits on the amounts of sovereign bonds lenders can hold. Several other eurozone countries disagree. Speaking at Davos, Pier Carlo Padoan, Italy’s minister of finance, said he was “very concerned” about such plans that limit sovereign debt holdings, as they could create market instability. His French colleague Bruno Le Maire agreed with him. “It’s also a red line for us,” he said. “Touching the issue of sovereign debt would be a political mistake.”

Of course, these disagreements are not new. The optimists believe that what matters is a new climate of collaboration between member states, no doubt helped by the economic recovery. As a senior EU official in Davos told me, the hope is that some of these red lines will turn into “pink lines.” France would like the eurozone to reach some meaningful progress on institutional reform by June. Governments are also working on creating a meaningful backstop to the “single resolution fund” -- which was created to handle the orderly restructuring or winding down of a bank -- to ensure that the authorities have enough money to do so.

The eurozone is certainly in a better place than it has been for quite some time. Its defense of multilateralism and opposition to protectionism is also in striking contrast with the rhetoric coming from the US administration. However, while we should rejoice for the EU’s newfound unity, we should not fall for it. For all the Davos display, the path to a truly closer union has only just begun.


Ferdinando Giugliano
Ferdinando Giugliano writes columns and editorials on European economics for Bloomberg View. -- Ed.

(Bloomberg)