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I think today's EU deal is another example of why the "bad equilibrium" view is probably more appropiate to describe the eurozone than either wishful thinking optimism or this annoying tendency to announce its demise every 10 minutes... https://twitter.com/jonsindreu/status/1285568495942500352
It is true that it is a landmark moment for the EU and that there is a chance for an "institutional inertia" to set in now that a counter-cyclical instrument for EU fiscal policy exists (perhaps even issuing enough debt to create another safe asset).
In the face of diaster this is good, because it means money will flow to offset the worst outcomes. That being said, ECB implicit debt mutualization sort of did that already. Let's remember that the grant money (what matters) isn't a lot here: 2% of GDP.
Sure, Italy and Spain could receive around 4% and 5% of GDP, which isn't nothing. In a way, though, I feel it has more to do with how we've globally moved away from a full austerity regime than any new permanent level of integration.
Back to the bad equilibrium enduring: The eurozone always does enough to survive, but not a lot more. For one, the accord on the broader MFF is simply disappointing on many levels.
Mostly, though, the insistance on policing, "reforms" and "emergency breaks", even if there isn't a clear path towards enforcement, suggests that we can very easily revert back to an earlier state (even with domestic-level austerity) as GDP improves.
Here's the reality: No universal "reform" will make Spain and Italy escape the middle income trap without industrial policy. But industrial policy in the EU is just another arm for the promotion of the core export-led model (it relaly can't be anything else, they have the money).
This may be a bit pessimistic, but I do think that all signs point there beyond what the headline allocations of grants to each country end up being. International division of labor matters. https://www.wsj.com/articles/beware-the-losers-from-europes-green-reconstruction-11590752795
Think about the UK's regional problems, which ar ehuge. Here we at least on paper want the priphery to stop being so peripheral. This is simply an impossible political project for the EU to embrace, because it is DESIGNED to be an export market for the core.
Does this mean an implosion? No! Bad equilibria can endure for centuries (as I mentioned, I'm from Catalonia, so I know) and distirbutionally many people within the periphery have gained. With the immediate monetary tensions solved, this can last for a long time.
In a way, I feel this EU deal is more of a symbol of this than either a Gestalt switch towards political integration nor a symbol of failure. The structure has adapted to keep existint as what it basically already is. I could, of course, be wildly off the mark!
As a background to this: Let's remember that the EU already had to suspend deficit rules and relax competition ones in order for the core to make it through Covid, and underscore the mutualization power of the ECB to once preserve the bloc...
They could have just allowed Italy and Spain to tap their own debt markets to unleash as much fiscal policy as they needed (I mean, formally they did). https://www.wsj.com/articles/now-is-not-the-time-for-coronabonds-11585732314
This was the alternative model. Finding a cooperative mechanism to do LESS was a way for the eurozone to protect the equilibrium it already found itself in. We shouldn't forget that. Again, self preservation, sure. Could the new institutions matter? Perhaps.
Will it finally create the convergence that the bloc truly needs to shift the equilibrium? Here's where I'd say "nein."
