In its latest report, the UK-based Centre for Policy Studies (CPS) says there are "existential challenges looming for the EU" and that if it fails to reach an agreement over Britain's new relationship — after the UK leaves the EU — then the situation will worsen.
"Euroskeptism is spreading like wildfire across Europe. A 'no deal' scenario with Britain is likely to exacerbate the EU's existential challenges, rather than reduce them," the report says.
The report highlights the major issues facing the EU: problems within the eurozone — including the Greek and Italian economic woes — the migrant crisis, youth unemployment and the rise in euroskepticism.
1) EU appears confident in its Brexit negotiating position. Yet the bloc faces existential challenges: https://t.co/2cIr6vIhAW— CPS Think Tank (@CPSThinkTank) 1 June 2017
"The 'open door' policy pursued by Angela Merkel has also created enormous tensions with the Visegrad group of countries (Poland, Czech Republic, Slovakia and Hungary). In November 2016, the Visegrad group ratified their refusal to accept EU refugee quotas. This, among other factors, has led to recrimination from many EU and European leaders," the report states.
"The EU has formally launched infringement proceedings against Hungary and President Emmanuel Macron has previously said that he would seek sanctions against Poland."
Migrant and Debt Crises
The report concludes that, in 2015, the European Union effectively lost control of its external border. At its peak in October 2015, there were 6,000 undocumented crossings into Greece every day. The situation was brought under control by the EU-Turkey migrant deal, which has led to arrivals falling to a snail's pace. However, this has led to an increase in the numbers crossing the Mediterranean.
"The Greek debt crisis is still a major potential source of instability for the eurozone. With a debt to GDP ratio of nearly 180 percent, Greece's fiscal position is widely viewed as unsustainable," the report says.
"Debt relief for Greece is a very contentious issue, with Greece's European creditors suspending debt relief measures after the Greek Government engaged in unauthorized spending in December 2016. The German Government has been very resistant to any debt relief, particularly in an election year when Angela Merkel is already facing a number of domestic political challenges. Regardless of considerations related to the electoral cycle, this will no doubt be a difficult sell to the populations of creditor countries," the authors say.
Moreover, the CPS says the Italian banking system remains one of the eurozone's major weak spots. Italian banks have suffered around US$404 billion in non-performing loans, which is approximately a third of the eurozone's total.
The European Central Bank's last stress test on Italian banks has also raised major concerns about Banca Monte dei Paschi di Siene, which obtained a negative result in the adverse scenario. Italian bank stocks have plummeted over the past year.