World Economy

ECB’s Praet Warns of European Fragmentation

No European country “taken separately” would have as much weight with the US and China
The European Central Bank headquarters in Frankfurt.The European Central Bank headquarters in Frankfurt.

European Central Bank officials pushed back against a key populist promise, saying European countries risk becoming irrelevant on the global stage if they put national sovereignty above joint institutions.

“It’s kind of dishonest to say ‘I can regain control'. It’s an interconnected world and small countries know that,” ECB executive board member Peter Praet said in a speech in London, channeling one of the catchphrases of pro-Brexit campaigners.

The point was echoed by governing council member Francois Villeroy de Galhau, who in an interview said no European country “taken separately” would have as much weight with the US and China, Bloomberg reported.

The warnings precede a season of elections where nationalist parties promising to claw back power from Brussels are likely to make inroads. They aspire to ride the same wave of international disillusionment against globalization, free trade and multilateralism that fueled the UK’s vote to leave the European Union and President Donald Trump’s election in the US.

For the ECB, such promises could damage the economy, rather than restore prosperity, Praet said.

Nasty Things

“Regaining control as a nation state in a multilateral environment is extremely complicated. It’s an illusion,” Praet said at the event in London. He added that he’s optimistic over Brexit talks but “things can turn nasty very quickly”.

UK Prime Minister Theresa May intends to initiate formal talks by the end of March on leaving the EU, with the aim of making good on the Leave campaign’s promise to “take back control” of immigration and government budgets. In France, Marine Le Pen has promised to renegotiate the country’s membership of the EU and leave the euro if she is elected president in April.

Villeroy de Galhau, the Bank of France governor, has often warned that an exit from the euro would push up the cost of France’s debt and harm competitiveness.

He restated the point in an interview with L’Usine Nouvelle magazine, adding that France’s role globally would be diminished after such a move.

Divorce Bill

A number of EU states, including Germany, Italy, France and the Czech Republic have expressed their approval for the European Commission’s plan to demand that the UK pay a hefty compensation bill before the Brexit talks will even start, RT reported.

French Prime Minister Bernard Cazeneuve, Italian Minister for EU affairs Sandro Gozi and a number of senior German diplomats have backed the European Commission’s calls for the UK to come to an arrangement on the “divorce settlement” before any negotiations on the future of British relations with the EU could take place.

According to the Financial Times, Gozi called the possibility of parallel talks on the terms of the UK exit from the bloc and its future trading relationship with the EU "a bad idea".

The view was later echoed by the Czech lawmakers, who also issued a statement backing the commission’s demands.

 “Although an agreement on a future relationship between the United Kingdom and the EU is, from a long-term perspective, a key part of the process, it should be preceded by an agreement on the basic outline of the conditions for the UK’s withdrawal from the European Union, which will serve as the framework for negotiations on future relations,” the statement says, as cited by the Guardian.

On February 23, Austrian Chancellor Christian Kern told Bloomberg that Brexit “is for sure going to be costly [for the UK] because there are a lot of financial obligations. The check should be around €60 billion, that’s what the European Commission has calculated and this will be part of the negotiations,” the official said.

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