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13.01.2016 | 16:04

UBS: The Future of Europe

Europe’s governance structure, patched up after the global financial crisis, was tested in the Greek crisis last year – and passed. But the recent refugee chaos and the coming UK referendum are reminders that the structure is not mature enough yet. The uncertainty hanging over Europe raises questions about where the continent is headed and what forces are shaping it.

“The wake-up call was brutal.”

That’s how Jean-Claude Juncker, president of the European Commission, characterizedthe European debt crisis. Europe’s governance structure, patched up afterthe global financial crisis, was tested in the Greek crisis last year – and passed. Butthe recent refugee chaos and the coming UK referendum are reminders that thestructure is not mature enough yet. The uncertainty hanging over Europe raisesquestions about where the continent is headed and what forces are shaping it.

Investor George Soros, speaking of negative internal forces, argues that the Germanchancellor “has always done the absolute minimum necessary to preservethe euro.” The Eurozone has become a union of debtor and creditor nations withdecades of both low growth and the threat of populism on its horizon. Given asafety net that remains too small, and huge internal economic imbalances, its governancestructure is ill-prepared to handle major crises, in our view.

Among the positive forces at play, support for the euro, which is near all-timehighs, is key. Greater public backing for the European project is set to solidify longterm in response to geopolitical pressures arising from the demographic boom inEurope’s neighboring regions. This should encourage the next quantum leap inintegration, which historically has been driven by political rather than economicneeds.

The continent’s success depends on adopting deep structural reforms, improvingthe currency union’s shock-absorbing capacity, putting broader fiscal supportmechanisms in place and achieving greater democratic legitimacy at the Europeanlevel. Members must become more integrated so they can rise above localinterests. The answer is more Europe, not less. As former French President NicolasSarkozy remarked, without Europe and the euro, conflict would resurface on thecontinent. The stakes are high. We invite you to join us in exploring why we thinkEurope has a long-term future, albeit one filled with surprises along the way.

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