With Emmanuel Macron’s victory in France, the populist threat to the EU has receded. But, asks Brian Caplen, longer term the bigger issue is who will pay for it?

For the past six months, worries about the future of the EU have focused upon the rise of extremist parties in the Netherlands and France. With the defeat of the far right, anti-EU candidate Marine Le Pen in the French presidential election over the weekend, markets have breathed a collective sigh of relief. But their elation may be premature. 

The bigger risks to the EU are its funding and the prospects of a Greek-style meltdown in a larger economy, such as Italy. The buck stops with the German taxpayer, who may eventually tire of picking up the bill. 

The EU budget is currently €145bn, which as the European Commission website is keen to explain, is about 1% of the total gross national income of the 28 member states, and therefore small in relative terms. All the same it is the equivalent of Hungary's GDP and larger than Slovenia's and Slovakia's added together. 

Brexit blows a big hole in the EU budget, however. The UK is the second largest net contributor after Germany, and contributing €12bn a year – significantly more than France does. Poland is the biggest recipient, followed by the Czech Republic. Unless the EU can extract that money from the UK as the price for accessing the single market (a sensible solution that would suit both parties), there is going to be a huge row about funding. Germany’s deputy finance minister, Jens Spahn, says the EU budget will need to shrink rather than Germany increasing its contributions. No doubt other countries will see things differently. 

But an even bigger threat to the EU is that one of the larger eurozone economies gets into trouble. The Greek crisis remains unresolved and the view of the IMF is that Greece was not granted a sufficient write down of its debts to allow it to recover. Why not? Because to do so was too politically sensitive in Germany, where taxpayers resented paying for mistakes made in Greece, as they see it.

If German taxpayers don’t want to pay for Greece how will they feel if Italy (an economy eight times larger than Greece) gets into trouble? German companies have prospered from the eurozone but taxpayers may conclude (as did UK and US taxpayers in the financial crisis) that the profits have been privatised while the losses are to be socialised. 

When it comes to the future of the EU it is time to stop worrying about the rhetoric of the likes of Geert Wilders or Beppe Grillo and start paying more attention to the ordinary people that pay the bills.​

Brian Caplen is the editor of The BankerFollow him on Twitter @BrianCaplen

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