The Business covered the recent APRA announcements and their impact on the mortgage market and the banks who use the internal ratings. The segment includes comments from DFA.
Category: Economics and Banking
FED Announces Further Capital Uplifts For GSIB’s
The Federal Reserve Board approved a final rule requiring the largest, most systemically important U.S. bank holding companies to further strengthen their capital positions. Under the rule, a firm that is identified as a global systemically important bank holding company, or GSIB, will have to hold additional capital ranging from 1.0 to 4.5 percent of each firm’s total risk-weighted assets to increase its resiliency in light of the greater threat it poses to the financial stability of the United States.
The final rule establishes the criteria for identifying a GSIB and the methods that those firms will use to calculate a risk-based capital surcharge, which is calibrated to each firm’s overall systemic risk. Eight U.S. firms are currently expected to be identified as GSIBs under the final rule: Bank of America Corporation; The Bank of New York Mellon Corporation; Citigroup, Inc.; The Goldman Sachs Group, Inc.; JPMorgan Chase & Co.; Morgan Stanley; State Street Corporation; and Wells Fargo & Company.
“A key purpose of the capital surcharge is to require the firms themselves to bear the costs that their failure would impose on others,” Chair Janet L. Yellen said. “In practice, this final rule will confront these firms with a choice: they must either hold substantially more capital, reducing the likelihood that they will fail, or else they must shrink their systemic footprint, reducing the harm that their failure would do to our financial system. Either outcome would enhance financial stability.”
Like the proposal issued in December 2014, the final rule requires GSIBs to calculate their surcharges under two methods and use the higher of the two surcharges. The first method is based on the framework agreed to by the Basel Committee on Banking Supervision and considers a GSIB’s size, interconnectedness, cross-jurisdictional activity, substitutability, and complexity.
The second method uses similar inputs, but is calibrated to result in significantly higher surcharges and replaces substitutability with a measure of the firm’s reliance on short-term wholesale funding. As seen during the crisis, reliance on this type of funding left firms vulnerable to runs and fire sales, which may impose additional costs on the broader financial system and economy.
Under the final rule and using the most recent available data, estimated surcharges for the eight GSIBs range from 1.0 to 4.5 percent of each firm’s total risk-weighted assets. Because the final rule relies on individual GSIB data that will change over time, the currently estimated surcharges may not reflect the surcharges that would apply to a GSIB when the rule becomes effective.
“A set of graduated capital surcharges for the nation’s most systemically important financial institutions will be an especially important part of the strengthened regulatory framework we have constructed since the financial crisis,” Governor Daniel K. Tarullo said. “Like the higher leverage ratio requirements we will apply to these firms, they reflect the relatively new, but very significant, principle that the stringency of prudential standards should vary with the systemic importance of regulated firms.”
In response to comments, the Board modified several aspects of the proposal’s second method to more accurately reflect a GSIB’s systemic importance. Additionally, the Board released a white paper on Monday describing how the surcharges were calibrated. The paper details the methodology used to set a GSIB’s surcharge at a level that would reduce the impact of its failure to near the impact of the failure of a large bank holding company that is not a GSIB.
The surcharges will be phased in beginning on January 1, 2016, becoming fully effective on January 1, 2019.
APRA Increases IRB Capital Adequacy Requirements for Residential Mortgages
APRA has announced that capital risk weight for banks using the internal risk-based model will increase from 16% to at least 25% from 1 July 2016. These changes, which chime with the recommendations from the FSI, will apply mainly to the big four and Macquarie and will tilt the playing field slightly back towards a more neutral balance with the smaller players who use the unchanged standard approach. That said the regional’s still have to hold more capital, at around 35%, and still have to pay more for that capital, so it will not create a level playing field.
The changes will require the banks to raise more capital (we think about ~$11bn to meet these revised ratios), throttle back mortgage lending growth or lift interest rates charged to borrowers or cut rates to savers. Further changes will probably follow in the light of evolving international developments, including the upcoming Basel IV. The changes as announced were expected, and it is unlikely overall banking profitability will impacted much at all, though the banks will squeal.
The Australian Prudential Regulation Authority (APRA) has today announced an increase in the amount of capital required for Australian residential mortgage exposures by authorised deposit-taking institutions (ADIs) accredited to use the internal ratings-based (IRB) approach to credit risk.
This change will mean that, for ADIs accredited to use the IRB approach, the average risk weight on Australian residential mortgage exposures will increase from approximately 16 per cent to at least 25 per cent.
The increase in IRB mortgage risk weights addresses a recommendation of the Financial System Inquiry (FSI) that APRA ‘raise the average IRB mortgage risk weight to narrow the difference between average mortgage risk weights for ADIs using IRB risk weight models and those using standardised risk weights’. The increase is also consistent with the direction of work being undertaken by the Basel Committee on Banking Supervision (Basel Committee) on changes to the global capital adequacy framework for banks.
The increased IRB risk weights will apply to all Australian residential mortgages, other than lending to small businesses secured by residential mortgage. The increase is being implemented through an adjustment to the correlation factor used in the IRB mortgage risk weight function for each affected ADI. In order to provide these ADIs sufficient time to prepare for the change, the higher risk weights will come into effect from 1 July 2016.
The residential mortgage portfolio is the largest credit portfolio for ADIs and, in aggregate, IRB accredited ADIs hold the material share of these exposures. Therefore, strengthening the capital adequacy requirement for residential mortgage exposures under the IRB approach will enhance the resilience of IRB-accredited ADIs and the broader financial system.
The increase in IRB mortgage risk weights announced today is an interim measure. It is not possible to settle on the final calibration between the IRB and standardised mortgage risk weights until changes arising from the Basel Committee’s broader review of this framework are complete. Further changes to IRB mortgage risk weights will be considered over the medium term in the context of these broader international developments.
You can listen to my comments on ABC Radio National today on the APRA move.
FED to Modify its Capital Planning and Stress Testing Regulations
The Federal Reserve Board has proposed a rule to modify its capital planning and stress testing regulations. The proposed changes would take effect for the 2016 capital plan and stress testing cycles.
The proposed rule would modify the timing for several requirements that have yet to be integrated into the stress testing framework. Banking organizations subject to the supplementary leverage ratio would begin to incorporate that ratio into their stress testing in the 2017 cycle. The use of advanced approaches risk-weighted assets–which is applicable to banking organizations with more than $250 billion in total consolidated assets or $10 billion in on-balance sheet foreign exposures–in stress testing would be delayed indefinitely, and all banking organizations would continue to use standardized risk-weighted assets.
Banking organizations are currently required to project post-stress regulatory capital ratios in their stress tests. As the common equity tier 1 capital ratio becomes fully phased in under the Board’s regulatory capital rule, it would generally require more capital than the tier 1 common ratio. The proposal would remove the requirement that banking organizations calculate a tier 1 common ratio.
The Board is also currently considering a broad range of issues related to its capital plan and stress testing rules. Any modifications will be undertaken through a separate rulemaking and would take effect no earlier than the 2017 cycle.
Comments on the proposal will be accepted through September 24, 2015.
The Case For Tighter Financial Integration In Asia
The IMF released a working paper “Drivers of Financial Integration – Implications for Asia” which is highly relevant given that deeper intraregional financial integration is prominent on Asian policymakers’ agenda despite the fact that financial integration lags behind trade integration and that Asian economies maintain stronger financial links with the rest of the world than with other economies in the region. The paper concludes that financial integration in Asia could be enhanced through policies that lower informational frictions, continue to buttress trade integration and capital market development, remove restrictions to foreign flows and bank penetration, and promote a common regulatory framework.
Ever since the Asian financial crisis, Asian policymakers have embarked in a number of initiatives to foster regional cooperation and financial integration. This drive has been motivated to a large extent by the desire to enhance resilience against the vagaries of global financial markets by developing a local-currency denominated bond market and beefing up regional reserves. The “Manila Framework” was developed in 1997 as a “ new framework for enhanced Asian regional cooperation to promote financial stability”. Other important steps toward regional financial integration include liquidity support arrangements through the Chiang Mai Initiative Multilateralization, the Asian Bond Fund, the Asian Bond Market Initiative, and financial forums such as the Association of Southeast Asian Nations Plus Three and the Executives’ Meeting of East Asia–Pacific Central Banks. The Association of Southeast Asian Nations (ASEAN) has also outlined plans to foster capital market integration, including by building capital market infrastructure and harmonizing regulations.
In spite of these efforts, though, the empirical evidence indicates that regional financial integration lags behind trade integration and that Asian economies maintain stronger financial links with the rest of the world than with other economies in the region.
This paper takes a fresh look at the status of financial integration within Asia and at possible factors hindering progress, focusing on portfolio investment and banking claims. More specifically, it attempts to address the following questions: how financially integrated are Asian economies within the region? Has Asia’s regional financial integration increased? And how does it compare to other regions? What are the drivers of financial integration? And, hence, what are the implications for Asian policymakers pursuing deeper regional financial integration?
To answer these questions we first review recent trends in the share of cross-border holdings of portfolio investment assets and bank claims within Asia compared to outside the region. Next, we estimate the home bias—that is, the tendency to invest more in one’s home country than abroad—in Asia and other regions. Then, through a gravity model, we study the main drivers of financial integration—focusing in particular on the role of regulations—and use the results to draw implications for Asia.
The paper finds that the degree of financial integration within Asia has increased, but remains relatively low, especially when compared with Asia’s high degree of trade integration. Moreover, financial linkages within Asia are less strong than those within the euro area and the European Union, but tighter than those in Latin America. The home bias is found to be particularly strong in Asia, limiting cross-border financial transactions within the region.
The gravity model estimates indicate that cross-border portfolio investment assets and bank claims increase with the size and sophistication of financial systems and the extent of trade integration. In addition, restrictions on cross-border capital flows, informational asymmetries, barriers to foreign bank entry, and differences in regulatory and institutional quality create obstacles to financial integration.
Hence, initiatives to advance Asian policymakers’ agenda toward deeper regional integration could include steps to further promote financial market development and trade linkages, and reduce informational asymmetries through increased financial disclosure and reporting requirements. Lowering regulatory barriers to capital movements and foreign bank entry, as well as harmonizing regulation, especially for investor protection, contract enforcement, and bankruptcy procedures, appear particularly important.
Note: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
Guidelines for identifying and dealing with weak banks released by the Basel Committee
The Basel Committee on Banking Supervision today published the final Guidelines for identifying and dealing with weak banks.
Weak banks are a worldwide phenomenon. They pose a continuing challenge for bank supervisors and resolution authorities in all countries, regardless of the political structure, financial system and level of economic and technical development. All bank supervisors should be prepared to mitigate the incidence of weak banks and deal with them when they occur.
A weak bank can be defined in various ways. In this report, it is “one whose liquidity or solvency is impaired or will soon be impaired unless there is a major improvement in its financial resources, risk profile, business model, risk management systems and controls, and/or quality of governance and management in a timely manner”. In cases where a bank is no longer viable, or likely to be no longer viable, and has no reasonable prospect of becoming viable once again, the authorities should resolve the institution without severe systemic disruption and without exposing taxpayers to loss, while protecting its critical functions. It may well be that the bank as a legal entity ceases to exist, but it should do so in a way that seeks to ensure continuity of access to the critical functions necessary to maintain financial stability and confidence in the financial system.
In the light of the significant post-crisis developments in financial markets and the regulatory landscape, the Committee has updated its 2002 Supervisory guidance on dealing with weak banks. Key changes include:
- emphasising the need for early intervention and the use of recovery and resolution tools, and updating supervisory communication policies for distressed banks;
- providing further guidance for improving supervisory processes, such as incorporating macroprudential assessments, stress testing and business model analysis, and reinforcing the importance of sound corporate governance at banks;
- highlighting the issues of liquidity shortfalls, excessive risk concentrations, misaligned compensation and inadequate risk management; and
- expanding guidelines for information-sharing and cooperation among relevant authorities.
Part I of the report discusses the underlying supervisory preconditions for dealing with weak banks and techniques that will allow the supervisor to identify problems. These phases include preparatory work on recovery and resolution issues. Part II concerns the corrective measures available to turn around a weak bank and, for resolution authorities, tools for dealing with failing or failed banks.
A consultative version of this paper was published for comment in June 2014.
Will Shadow Banking Regulation Be Sufficient?
The Financial Stability Board (FSB) has launched a peer review on the implementation of its policy framework for financial stability risks posed by non-bank financial entities other than money market funds (“other shadow banking entities”). The objective of the review is to evaluate the progress made by FSB jurisdictions in implementing the overarching principles set out in the framework – in particular, to assess shadow banking entities based on economic functions, to adopt policy tools if necessary to mitigate any identified financial stability risks, and to participate in the FSB information-sharing process. However, DFA’s initial take is that the proposed approach is relatively light-handed, and may not be sufficient. You can read our analysis of shadow banking and why it should be better regulated here.
The summarized terms of reference provide more details on the objectives, scope and process of this review. A questionnaire to collect information from national authorities has been distributed to FSB members. The responses will be analysed and discussed by the FSB later this year. The peer review report will be published in early 2016.
As part of this peer review, the FSB invites feedback from financial institutions, industry and consumer associations as well as other stakeholders on the areas covered by the peer review. This could include comments on:
- institutional arrangements needed to define and update the regulatory perimeter to capture new forms of shadow banking if necessary to ensure financial stability;
- types of information that may be necessary to assess shadow banking risks for entities identified as having the potential to pose risks to the financial system;
- possible ways to enhance public disclosure of shadow bank entities’ risks; and
- the design of policy tools to mitigate identified financial stability risks.
Feedback should be submitted by 24 July 2015. Individual submissions will not be made public.
Transforming shadow banking into resilient market-based finance is one of the core elements of the FSB’s regulatory reform agenda to address the fault lines that contributed to the global financial crisis and to build safer, more sustainable sources of financing for the real economy. The FSB has adopted a two-pronged strategy to deal with these fault lines. First, it has created a system-wide monitoring framework to track financial sector developments outside the banking system with a view to identifying the build-up of systemic risks and initiating corrective actions where necessary. Second, it is coordinating and contributing to the development of policy measures in five areas where oversight and regulation need to be strengthened to reduce excessive build-up of leverage, as well as maturity and liquidity mismatch, in the system.
One of these five areas is assessing and mitigating financial stability risks posed by non-bank financial entities other than money market funds (“other shadow banking entities”). Based on the G20 Roadmap agreed at the St Petersburg Summit, the FSB developed a high-level policy framework for other shadow banking entities in August 2013. The framework focuses on the underlying economic functions (i.e. activities) of non-bank financial entities instead of their legal forms, and sets forth key overarching principles that authorities should adhere to in their oversight of non-bank financial entities that are identified as posing shadow banking risks that threaten financial stability.
FSB and Financial Benchmarks
The FSB published an interim progress report on reforms to existing major interest rate benchmarks (such as LIBOR, EURIBOR and TIBOR, collectively the “IBORs”) and in the development and introduction of alternative near risk-free interest rate benchmarks (termed “RFRs”). The Reserve Bank of Australia (RBA) is working with AFMA and ASIC, to develop a risk-free benchmark for the Australian dollar.
The report examines progress toward the FSB’s recommendations for reforms in this area, developed by the Official Sector Steering Group (OSSG) and published in July 2014, namely:
- There should be a strengthening in existing IBORs and other reference rates based on unsecured bank funding costs by underpinning them to the greatest extent possible with transactions data. These enhanced rates are termed “IBOR+”.
- Steps should be taken to develop alternative RFRs, given that there are certain financial transactions, including many derivatives transactions, that are better suited to reference rates that are closer to risk-free.[1]
Since July 2014, the administrators of the most widely used IBORs – EURIBOR, LIBOR and TIBOR – have all taken major steps in this regard. These steps have included reviews of respective benchmark methodologies and definitions, data collection exercises and feasibility studies, consideration of transitional and legal issues, and broad consultations with submitting banks, users and other stakeholders.
While the FSB recommendations were directed at the three major IBORs, OSSG member authorities, benchmark administrators and market participants from other jurisdictions, including Australia, Canada, Hong Kong, Mexico, Singapore and South Africa, have also taken steps towards reforming the existing rates in their own jurisdiction, given the importance of these rates to their domestic markets and their role as international financial centres.
With regards to the Australian dollar, the Reserve Bank of Australia (RBA) is working with AFMA and ASIC, to develop a risk-free benchmark. Using OIS would allow a term RFR but raises issues around construction of a robust benchmark. An alternative realised rate-based synthetic term reference rate, based on ex post compounding of the overnight cash rate (which already exists as a robust overnight RFR), does not raise these issues but it is unclear if it would be as useful to market participants. Progress on this is occurring with the aim to have such a benchmark operational by Q2 2016. Once a risk-free benchmark is operational, the RBA will work with market participants, AFMA and ASIC to coordinate a transition towards referencing such a rate, rather than a credit rate, where appropriate. The market has demonstrated a general willingness to participate in this process.
OSSG members have also made concrete progress in identifying potential RFRs. In particular, detailed data collection exercises have been undertaken in key markets, and work is now underway to identify potential RFRs, where these do not currently exist. In addition to authorities in the euro area, Japan, UK and US, several other OSSG members are also working with industry in local markets to develop RFRs in their respective currencies.
The OSSG will continue to monitor progress in implementing the FSB’s recommendations in the year ahead, and will prepare an updated progress report for publication by the FSB in July 2016.
The FSB has been established to coordinate at the international level the work of national financial authorities and international standard setting bodies and to develop and promote the implementation of effective regulatory, supervisory and other financial sector policies in the interest of financial stability. It brings together national authorities responsible for financial stability in 24 countries and jurisdictions, international financial institutions, sector-specific international groupings of regulators and supervisors, and committees of central bank experts. The FSB also conducts outreach with approximately 65 other jurisdictions through its six regional consultative groups. The FSB is chaired by Mark Carney, Governor of the Bank of England. Its Secretariat is located in Basel, Switzerland, and hosted by the Bank for International Settlements.
Financial Stability and Monetary Policy
Released by the Bank of England, “Don’t just do something, stand there”… (and think) was David Miles final speech as an external MPC member reflects on the past six years of low interest rates, the lessons we can take from the financial crisis and where monetary policy might go from here. In particular he discusses the value of using macro-prudential tools versus interest rates in tackling financial instability.
Speaking at the Resolution Foundation, David explains that when he joined the MPC in June 2009, interest rates had already been cut to the record low of 0.5% and the Bank bought £75 billion of government assets via its quantitative easing programme. At the time no one on the Committee would have predicted that more than six years later Bank Rate would still be 0.5%; that the Bank would have made a further £300 billion of assets purchases and none would have been sold; that inflation would be 0% and that the market implied Bank Rate three years ahead (mid 2018) would be only around 1.6%.
“All this is a sign of the enormous and lasting disruption that came after the financial crisis of late 2008.”
Conditions, however, have started to change and now “the case for beginning a gradual normalisation in the stance of monetary policy is stronger than at any time since I joined the committee over 6 years ago.” Having been called an “arch-dove” in the past some might think it “bizarre” for David to say this. But, he says, “they should not; the ‘hawk – dove’ labels are pretty silly because they suggest some unchanging genetic tendency towards favouring one type of policy; anyone who was like that would be very ill suited to be on the MPC.”
Dealing with the aftermath of the financial crisis has proved exceptionally hard, but there are lessons we can take from it for both financial stability and monetary policy. First, “the best way to handle the risks of incurring huge costs from another financial crisis is to control leverage in the financial sector”. Since the crisis, policy makers have debated the value of using macro-prudential tools versus interest rates in tackling financial instability. David argues that the UK is going down the right route by increasing capital requirements and reducing leverage in the banking sector rather than “skewing monetary policy towards trying to stop financial instability problems”.
Second, we have learnt more about the dynamics of the effective lower bound (ELB) and the efficacy of QE. When central banks the world over cut interest rates to their ELB many believed that the risks of self- reinforcing deflation and protracted slumps had increased sharply and that asset purchases were not likely to help much. In the end, only a few OECD countries experienced outright deflation and falls in short term inflation expectations were temporary.
Turning to the likely future path of monetary policy, given the current outlook David finds that though “it is not all good news” we are in “a much better place than we have been: unemployment is down to just under 5.5%; annualised GDP growth has been near 3% for several quarters; consumer and business confidence has risen sharply over the past year or so; the household saving rate is low and suggests that spending is not being held back by expectations of low near term inflation; wages are rising; the availability of finance has risen and its cost fallen; corporate profitability looks solid.”
So where might Bank Rate be heading? “That question could be couched in terms of so called r* (the appropriate interest rate to keep inflation on track and demand in line with productive capacity)”. A number of factors might mean that this rate will be “significantly lower than in the past”, four important ones are: increased credit spreads, fiscal headwinds, secular stagnation and demographics. David concludes that the combination of these factors, and their various weights, could lead to a rough estimate of r* three years or so down the road of around 2.5 – 3%, relative to the 4.5 – 5% prior to the crisis. This lower range is “some way north of the conditioning assumption used at the time of the May Inflation report of just under 1.5%.”
“Given that, and given that many of the after effects of the mess of 2008 do seem to have faded (e.g. the drying up of bank credit) then I think a first move up in Bank Rate soon is likely to be right. I do not attach great weight to the idea that starting this process will create great risks of dropping back into very weak growth, falling into negative inflation and engendering a splurge in risk avoiding behaviour. I attach more weight to the risks of waiting too long and then not being able to take a gradual path to a more normal stance for monetary policy.” David adds, “one thing the MPC will not do (and never has) is just follow another big central bank; it is a daft idea that we cannot raise rates in the UK before the US and also cannot be long behind them.
“As conditions change you change your view on what is right; and things have changed a lot in the UK in the past year or so and very largely for the better. Now is closer to the right time to start a gentle amble back towards a more normal setting for monetary policy…”
Greece: a Europe forged in one crisis may have laid the foundations for the next
Greece has just experienced a nasty reality check. For Europe, the reckoning might simply lie a little further down the road. The Syriza party and prime minister Alexis Tsipras secured a triumph in the elections of January 2015 based on promises to “tear up” the bailout agreements and put an end to austerity. Until a week ago, when the notorious referendum took place, the party and its leader seemed to stick by their conviction that an aggressive stance towards EU partners should and could broker a better deal for Greece, away from half-hearted compromises. This morning it became obvious that this was not possible.
The Greek government had to sign an agreement not too different from those to which previous governments agreed and which were opposed by Syriza – in fact, some of the measures the Greek parliament is being asked to pass were part of previous agreements but were never implemented. Was Syriza naïve? Were they populists? Probably a combination of the two.
Grexit not dead yet
At least for now, Tsipras seems like a leader who found the courage to assume responsibility and came to realise – the hard way – that the EU is all about compromise. Tsipras has now two choices: either follow the steps of previous Greek governments, equivocate and eventually fail taking the country with him or truly support the plan and try making a positive change out of a very difficult deal. Despite the deal, a Greek exit from the euro is closer than ever, particularly if he chooses the former.
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Something that could help Tsipras choose the latter is that his government is the first to enjoy very wide political support, at least for the moment. Because of the high stakes and high tension of the last few weeks, all political parties with a clear European orientation have backed Tsipras in the negotiations and seem to support the agreement. This is a weapon that no other government had before in promoting reforms. A Syriza-led government is also the best option for stability in Greece, given the popularity that Syriza and Tsipras enjoy and which should be respected.
But this does not mean that Tsipras would not face opposition or that anti-austerity or populism in Greece has ended. In fact, it is quite the opposite.
Eurosceptics
A sizeable proportion of Syriza MPs, including some of the party’s ministers, have made clear they do not support the agreement. The next few days will show whether this group will take control over the anti-austerity camp. At the same time, others, like members of the government coalition partner Independent Greeks or even far-right party Golden Dawn, remain opposed to the agreement. What happened this weekend would probably only fuel their euroscepticism.
But the way this deal was struck could have implications far beyond Greece. The nature of discussions between eurozone elites uncovered once more the huge distance between what goes on in Brussels and the European citizens. While discussions among the finance ministers of the eurogroup and at the Eurosummit were taking place, social media was filled with frustration over the apparently rather aggressive form of negotiations. International media, meanwhile, were keen to underline the lack of solidarity shown by eurozone countries, especially Germany.
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European leaders seem oblivious to that and the impact that this whole process could have had on euroscepticism across Europe. The leader of Britain’s anti-EU UK Independence Party, Nigel Farage, was quick to comment that if he was a Greek politician he would vote against this deal, and if he was a Greek who voted No in the referendum he would be protesting in the streets. Just a year after the European elections in 2014, there is a risk of a new wave of euroscepticism which the EU will have to address in the long term.
Crisis management
Jean Monnet, the French political economist, said in 1976:
Europe will be forged in crises, and will be the sum of the solutions adopted for those crises.
Indeed, the EU is the child of World War II and, after that, has evolved through many other crises. One could imagine a similar social media frenzy had the means existed during the failed European constitution of 2005 or even the so-called “empty chair” crisis of the mid-1960s when France withdrew its representatives from the European Commission.
Let’s hope this crisis improves the EU and allows it to progress; however much this latest crisis has been an important one for the public debate, it is by no means the first – and it probably contains the seeds of the next.
Author: , Lecturer in International and European Politics at University of Birmingham