It's crunch time for the European Union as multiple crises stretch union to the limit, says Economist Intelligence Unit

James Nickerson
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Migrants On Greece's Lesbos Island
Greece is dealing with two crises at once (Source: Getty)

The European Union is facing a multitude of crises that have pushed it to its limit, experts have warned.

The region's problems are far from disappearing, and are instead being exacerbated by questions on issues such as freedom of movement, security and democracy.

The report from Economist Intelligence Unit (EIU) comes ahead of the UK's referendum on EU membership, the ongoing migrant crisis and Greek debt crisis.

And while Europe can "muddle through" each individual crisis, if this year was to bring the plethora of problems together the EU could fall apart.

"A potential Brexit, instability in Greece, and the migration crisis could all come to a head in mid-2016, and if that happened it could push the EU over the edge," the report said.

In the UK the Remain camp has extended its lead in recent polling, but the IEU thinks that the risk of Brexit has risen as a result of Prime Minister David Cameron's "botched budget", the resignation of Iain Duncan Smith and a "fumbled response to the Panama leaks".

Read more: Remain support rises ahead of vote but many undecided, according to new poll

A recent YouGov poll would, however, disagree. While Cameron's approval ratings dropped, the public (by-and-large) don't think he did anything wrong with regard to his tax affairs.

Instead, his ratings dropped over the EU, especially in the wake of the government's pro-EU leaflet that was sent to households across the UK.

Aengus Collins, country forecast director at the Economist Intelligence Unit said: "Policymakers appear increasingly unable to understand and respond to the desires of their electorates. This is leading to voting patterns that could have lasting destabilising effects."

"Nowhere are people more jittery about electoral risk right now than in the UK.

"We're sticking with our years-old forecast that in June the UK will vote to remain in the EU - the pull of the status quo will strengthen as the vote draws closer and the risks of Brexit crystallise - but all the momentum has been with the "leave" campaign in recent weeks and nothing can be taken for granted."

Tory MEP Syed Kamall, who leads the Euopean Conservatives and Reformists in the European Parliament, told City A.M there was a host of problems with the EU not associated with the UK referendum.

"Regardless of the outcome of the British referendum it is clear the EU has many frayed edges and loose threads just waiting to be pulled. For years we have drifted from one crisis to another from the euro, to migration, to conflicts on several fronts," he said.

"Crises cannot always be predicted but some of our biggest crises have been caused when one or two countries fail to play by the rules of the club, and too often the EU sees a crisis as an opportunity to extend its powers, rather than to bring countries together in greater cooperation. Until the knee jerk reaction to every crisis ceases to be 'more Europe', I believe these crises will continue to mount."

Indeed, aside from the UK, the EIU points to the migrant crisis as a "much graver risk" to Europe than the financial and economic crisis that preceded it.

"Europe's crisis was primarily economic in character to start with, but it has deepened since then. The economic issues haven't gone away, but they are now compounded by even more fundamental questions relating to borders, sovereignty, culture, security and democracy," the report said.

"The euro zone responded to financial crisis by repeatedly “kicking the can down the road”, but that’s not an option when thousands of refugees and migrants are arriving every day.

"The EU-Turkey deal has bought some breathing space, but it is beset by formidable political, legal and practical problems. If it collapses, we are back at square one and facing a crisis with the potential to pull the EU apart."

That same EU-Turkey deal is speculated to be under some strain at current. It has cut flows across the Aegean, but relies on sweeteners for Turkey, including short-term visas for Turkish citizens in the Schengen area.

However, the Financial Times reports that a number of countries are trying to explore options to make the concession more politically palatable, prompting angry responses from Ankara.

Still, the EIU expects that national governments and supranational institutions will manage to "muddle through" most of Europe’s crises over a medium-term horizon, albeit at a significant political and economic cost.

Read more: European leaders agree deal with Turkey to help stem the flow of migrants

But Greece is the exception to this rule. While all eyes are focussed on the Brexit debate, it is more likely than not that Greece will have left the euro zone by 2020. The report places a 60 per cent chance on Greece leaving the EU by 2020.

It is questionable whether any Greek government, of any political complexion, could implement the measures required under the third bail-out programme.

A Grexit would represent a huge political failure for the bloc, with potentially destabilising consequences: the principle of irreversibility would have been shattered, the IEU adds.

Nonetheless, it is the challenges put together than pose the greatest risk. Other than migration, the Brexit referendum and Greece, the EIU points to a host of other challenges.

Other prevailing risks include a deepening reliance on monetary policy in the EU, the productivity slump, the risk that Russia poses and the rise of populist movements.