Submitted by George Friedman and Jacob Shapiro via MauldinEconomics.com,
What will the year ahead look like for Europe? 2017 will be another chapter in the European Union’s slow unraveling… a process that has been underway for over a decade.
The EU is a union in name only. The transfer of sovereignty to Brussels was never total, and member states are independent countries… each with their own interests at stake.
Here are the major forces at work.
1. The Italian Crisis
Italy’s banking crisis has played a key role in the destabilization of its domestic politics. The main problem is the Italian banking sector’s high rate of non-performing loans (NPLs). Approximately 17% of all loans from Italian banks are NPLs, according to the European Banking Authority. The bank currently making headlines, Banca Monte dei Paschi di Siena, had 45 billion euros ($47.4 billion) worth of NPLs and other doubtful loans when its problems came to light in 2016.
But the issue here is not simply money. The balance sheets of Italian banks don’t exist in a vacuum. If the European Central Bank were to bail out Italy, it would mean, in effect, that all of Europe would be paying for the bailout.
Greece, which had austerity forced upon it, would cry foul.