Looking Beyond Juncker

Recent debt issues by the Italian bank Monte dei Paschi di Siena and others have shown that financing for banks is expensive. Investors need to be offered heavy discounts to persuade them to part with their money. As a result, some banks that suspect that their balance sheets will be revealed to be weaker than they have so far acknowledged are cutting back on lending. The continuing credit constraints are one reason that parts of the European economy remain weak.

So the three problems that Europe will face in the second half of this year are closely connected. The EU will need the strongest leadership team that it can find to steer through treacherous waters and implement crucial financial reforms. Just now, the signs are far from promising. There are few new faces or ideas on the horizon. We must hope to be surprised.

Howard Davies, former Chairman of Britain’s Financial Services Authority, Deputy Governor of the Bank of England, and Director of the London School of Economics, is a professor at Sciences Po in Paris.

Copyright: Project Syndicate, 2014.