Discrepancies between Italy and the EU over its expenditure, the trade dispute with the US and political quagmires such as the Brexit talks and the migration challenge cloud EU prospects ahead of the tenth anniversary of the collapse of Lehman Brothers.

The conclusion of Greece’s bailout programme “marks a moment which is very important, I would say even historic, for all of us,” the commissioner for Economic Affairs Pierre Moscovici said on Monday (20 August).

Greece became the last EU country to end a lifeline provided by eurozone partners, following eight years of crisis, austerity, financial instability and market turbulences that almost blew up the euro area. 

The end of the bailout era comes as all member states’ deficits are below the 3% GDP threshold and all their economies are growing.

But as the tenth anniversary of the fall of Lehman Brothers on 15 September approaches, Europe is not in celebration mode.

“This is the calm before the storm,” an EU official said.

Clouds are gathering over Italy. The government led by the anti-establishment Five Star Movement and far-right La Lega is expected to take its dispute with Brussels to a new level.

Disagreement over the Italian national budget would add to a tense relationship between Rome and EU partners.

By mid-October, Italy will have to submit its draft budget plan for coming year. The populist executive is set to cut taxes and increase social spending, risking a breach of EU fiscal rules.

The expected clash over Italy’s public accounts will come against the backdrop of recent market volatility triggered by the fall of the Turkish lira.

The Italian government is already playing war drums. Last week, the leader of La Lega, Matteo Salvini, blamed the EU’s fiscal rules for the collapse of a bridge in Genoa. 

Meanwhile, the other strong man of the Italian executive, the leader of 5SM, Luigi di Maio, played down the possibility of “attacks” by investors later this month.

But he warned that “if someone wants to use the markets against this government, they should know we won’t be blackmailed.”

Going South

While the Italian government has opted for a confrontational stance with EU institutions, Spain’s Socialist Government is seizing the flexibility of the Stability and Growth Pact, the EU’s fiscal rules, to find some breathing space. 

EU officials praised the “smart” application of the pact by the Economic minister Nadia Calviño, a former senior EU official. 

She revised the structural adjustment for next year to 0.4% from 6.5% of GDP, the primary objective for Brussels once the country exits the excessive deficit procedure.

Despite the fact that Spain would miss deficit targets this year and next, EU officials pointed out that “Spain is not Italy”, given that Madrid would not breach fiscal rules after applying the flexibility built into the pact, and is committed to implementing an adjustment of around €4.5 billion (0.4%).

However, the Socialist minority government led by Pedro Sanchez failed to get the Parliament’s backing for the new fiscal path as his junior partners did not support the new targets.

The left-wing party Podemos said this week that it would not sign for the draft budget unless the government scraps the Budget Stability Law.

Failing to pass a draft budget for next year would prove the weakness of Sanchez’s minority government and could trigger snap elections in the months to come.

Tariffs remain 

But Italy and Spain would not be the only concerns for European decision-makers after their summer break.

Despite a ceasefire in the trade war agreed on by Commission President Jean-Claude Juncker and US President Donald Trump last month, US tariffs on European steel and aluminium remain in place.

America’s protectionist push continues to sound alarm bells in Brussels. The Commission had warned that the impact on global supply chains could bring forward the next recession.

And even when EU member states are not the targets of Trump’s ire, their economies are becoming collateral victims, as Italy and Greece experienced during the Turkish turbulences, triggered by US’s increased tariffs on Turkey’s steel and aluminium exports.

The troubled waters on the economic front would add to urgent challenges that are far from being solved: the migration issue and UK’s orderly exit from the EU.

Member states still need to agree on details of the “controlled centres” approved by EU leaders to stem the number of arrivals to the Union. But the reform of asylum rules and the review of the Dublin principle to share the responsibility of dealing with people seeking protection is beyond reach.

Meanwhile, the EU and the UK aren’t progressing as expected in the Brexit negotiations. With particular issues such as the Irish border and the future relationship with the City of London outstanding.

“The negotiations are now entering the final stage,” said EU’s chief Brexit negotiator Michel Barnier on Tuesday. “We have agreed that the EU and the UK will negotiate continuously from now on,” he added.

The uphill return for EU leaders contrasts with the clearer horizon they found last year.

“We must complete the European House now that the sun is shining and whilst it still is,” Juncker warned September last year during the State of the Union address.

“When the next clouds appear on the horizon – and they will appear one day – it will be too late,” he told the MEPs,

Officials would rush to point out that progress was made not only over the past months but since the outset of the crisis on dossiers such as digital, and the EU is now equipped with a rescue fund and a half-completed banking union.

But since last September, the “window of opportunity” slowly closed in front of member states’ eyes to strengthen the euro area.

As the tenth anniversary of the financial meltdown nears, EU leaders would wish that Juncker was wrong and it is still not too late to complete the European House.