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Expect further European integration but not a ‘big bang’ change

The European Union is changing. The U.K.'s historic decision to leave the bloc, the growing anti-EU sentiment in some countries, and, more recently, the election of President Emmanuel Macron in France are molding the EU.

According to political analysts, the path forward is further European integration, but don't expect sudden changes, even though France has just elected a pro-European leader.

"I think further integration is inevitable, especially if member states want to make the euro zone sustainable in the long term. However, I don't expect any 'big bang' institutional changes," Antonio Barroso, managing director at Teneo Intelligence, told CNBC via email.

Historically, we have seen that European leaders are quite averse to making changes to European treaties on a regular basis. But they could take intermediate steps in the meantime.

Daniel Gros, director of the European think tank Center for European Policy Studies, also said that "it is very realistic to expect further integration. But change will take time. Nothing much will change immediately."

In the near term, German and Italy – two key European countries – will be concerned with national elections and France will want to reform its economy first. As a result, we are unlikely to see European leaders approving deep changes to the existing framework.

French President Emmanuel Macron (L) is greeted by German Chancellor Angela Merkel (R) prior to talks at the Chancellery in Berlin on May 15, 2017.
John Macdougall | AFP | Getty Images
French President Emmanuel Macron (L) is greeted by German Chancellor Angela Merkel (R) prior to talks at the Chancellery in Berlin on May 15, 2017.

"Macron has said that he needs to reform France first, before he can discuss deep euro area reforms with Germany," Gros from CEPS recalled. "He is not asking for German taxpayers' money nor Eurobonds. So the most likely compromise will be resources for more investment."

In June 2015, the European Commission published the so-called Five Presidents Report in which European Commission President Jean-Claude Juncker, along with European Council President Donald Tusk, Eurogroup President Jeroen Dijsselbloem, former European Parliament President Martin Schulz and European Central Bank President Mario Draghi outlined their ideas for how to further integrate the euro area. They admitted the possibility of a debt mutualization instrument – Eurobonds, and the creation of a euro zone finance minister.

"I predict that we might have at some point somebody called initially finance minister, but with few powers over and above those of the (European) Commission today," Gros said. The executive body oversees countries' economic performances and has the ability to fine them if they do not comply with certain rules, though such power has never been used.

"I think that a euro zone finance minister, some reshuffling of European funds to get closer to a euro zone unemployment insurance and further policy harmonization are the most feasible next steps," Carsten Brzeski, chief economist at ING, told CNBC via email.

"The real huge steps towards financial burden sharing, tax harmonization and loss of national sovereignty are still highly unlikely to happen, even though they should," he added.

The European Union has begun discussing what path to take now that the U.K. is preparing to leave the Union. The European Commission has put five options on the table but it is too soon to see which one the 27 will opt for.

No matter the path that will be chosen, France's new president will be a crucial figure.

"If Macron gets France going, we will have fewer tensions in the euro zone and the need for more federalist structures will actually diminish," Gros from CEPS said.

However, Brzeski from ING noted that Germany has emphasized that France needs to reform its economy before any big changes happen at the European level.

"This French reform effort will be highly needed to convince the German public that topics like Eurobonds, a euro zone finance minister or simply the loss of national sovereignty, can be stomached," Brzeski said.

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