Prospects for the EU in 2017

Analysis

Although all four crises troubled the EU in 2016, the salience of each will shift in the coming year: tensions between the EU and Poland will come to a head, whereas the migrant crisis is likely to decrease in prominence. Brexit will remain in the headlines, but gradually become less central to other EU leaders as negotiators focus on the technical aspects of the divorce.

Democratic backsliding

Since its election in late 2015, the Law and Justice (PiS) government in Poland has made controversial moves extending partisan control over public media, the civil service and the judiciary (see POLAND/EU: Constitutional crisis will not end soon - June 13, 2016).

Critics see this as part of PiS leader Jaroslaw Kaczynski's effort to follow the model pioneered by Hungarian Prime Minister Viktor Orban to establish a semi-authoritarian 'illiberal democracy'.

The European Commission has reacted by deploying -- for the first time -- its 'Rule of Law' mechanism. If the government fails to resolve the situation, the Commission can trigger Article 7 of the Lisbon Treaty, which could lead to the imposition of penalties (including the suspension of Poland's EU voting rights) for serious and persistent violations of the EU's fundamental values.

In July, the Commission gave the government three months to comply with a series of remedies. However, Prime Minister Beata Szydlo announced on October 27 that her government had no intention of complying and suggested the Commission stop meddling in Poland's domestic affairs. Faced with such defiance, the Commission is likely soon to trigger Article 7.

Invoking the procedure will force other EU member states to take a stand: either supporting the Commission's call for the Polish government to restore the functioning of its constitutional court and respect EU values, or siding with the PiS government.

Before penalties can be imposed, member states must agree unanimously. However, Orban has declared that he would veto the imposition of any sanctions. Thus, the EU looks set for a bruising battle over democracy and the rule of law in 2017.

The migrant crisis

The salience of the migrant crisis has declined in recent months, with the number of arrivals down dramatically compared to last year due to the combined effects of the closure of the Balkan route and the EU-Turkey deal.

However, the number of migrants dying in the Mediterranean hit an all-time high this year as more attempted the dangerous crossing from North Africa to Italy.

The EU has taken important steps on common border security which will be expanded in 2017, but EU leaders remain at odds over resettlement. Italy has overtaken Greece as the top country for arrivals and Italian Prime Minister Matteo Renzi has pledged to veto the EU budget if other countries do not agree to accept a fair share of asylum seekers (see ITALY: Further EU support in migrant crisis unlikely - September 5, 2016).

Meanwhile, Orban is claiming an anti-immigration mandate based upon the recent referendum he organised in Hungary (which failed due to low voter turnout) and is threatening to sue the EU over the system of mandatory refugee resettlement quotas it agreed last year.

That scheme -- to relocate 160,000 refugees from Italy and Greece to other EU member states -- has only succeeded in relocating approximately 6,000 and could break down entirely in 2017.

Meanwhile, the EU-Turkey migrant deal could collapse next year due to the autocratic turn in Turkey and the government's refusal to meet demands the EU set in exchange for visa liberalisation. If that happens, Turkey could release a new wave of migrants into the EU (see TURKEY: Davutoglu departure may unravel EU deal - May 9, 2016).

Brexit

The High Court not withstanding, the UK government remains determined to trigger Article 50 to begin the withdrawal process from the EU by the end of March 2017. The EU will probably take a firm line in its negotiations with London, insisting that the United Kingdom cannot maintain its position in the EU's single market unless it also makes budget contributions to the EU and accepts free movement of workers and the application of EU law (see EU: A united front points to tough Brexit negotiations - October 31, 2016).

Moreover, the EU will insist on delaying detailed negotiations over its future relationship with the United Kingdom until the terms of divorce (such as the division of assets and outstanding liabilities) are settled.

The United Kingdom's current approach to Brexit may prove untenable and a hard Brexit with negative repercussions on the UK's economy is likely.

Euro-area crisis

Tensions between EU budget watchdogs and struggling countries of the euro-area periphery such as Portugal, Spain and Italy will continue in 2017. The EU will struggle to impose its budget discipline on these states given the unpopularity of austerity and their tepid levels of growth.

Italy will remain at the epicentre of tensions: if Renzi survives the outcome of the constitutional reform referendum in December, he will continue to attack the EU's failed austerity policies and demand greater fiscal leeway, especially if he has a bank bailout to deal with. If he falls, Italy would enter a period of instability, with negative repercussions for economic performance and fiscal discipline (see ITALY: Referendum 'no' vote could trigger crisis - October 24, 2016).

National elections

While it seeks to address these intersecting crises, the EU will attempt to demonstrate progress in areas such as security cooperation and trade. However, significant initiatives may be put on hold until mid-year as France and Germany face elections.

The French presidential election will be held in two rounds in April and May 2017, followed by National Assembly elections in June. It is not clear yet who is going to run for the centre-right Republicans -- former President Nicolas Sarkozy and former Prime Minister Alain Juppe are frontrunners -- but the Socialists' weakness in polls suggests that France is set to experience a shift to the right, if not fully to the far right.

Meanwhile, Germany will hold its federal parliamentary election in September 2017. Recent polls suggest Chancellor Angela Merkel and her Christian Democrats will return to office, though possibly with new coalition partners (see GERMANY: Merkel is likely to remain chancellor - October 3, 2016).