Brussels, 17/10/2012 (Agence Europe) - EU27 heads of state will meet on Thursday and Friday of this week for a summit paving a way for decisions in December about a roadmap on boosting economic and monetary union (EMU), but may well discuss the situation of countries that have applied for aid (Greece and Cyprus) or that may request aid from the eurozone in the future (Spain). On Wednesday 17 October, rumours were growing about Spain waiting until after the summit to ask for aid after receiving assurances at the summit about the strings to be attached, but the EU institutions are playing down the rumours because negotiations are ongoing and there is calm on the money markets at the moment. The summit will also examine the situation in Syria, Mali and Iran.
In an interview published on Wednesday 17 October with five European newspapers, French President François Hollande said that a solution to the debt crisis was very close at hand because good decisions had been taken at the summit on 28-29 June and the leaders now had the duty of applying them - firstly by definitively regulating the situation in Greece, which has been doing so much and must be assured that it will remain in the eurozone; then by responding to the demands of countries that have made the requested reforms and which should therefore be able to raise finance at a reasonable interest rate; and then by introducing Banking Union, for example. He said he wanted all these questions to be settled by the end of the year and added that it was important to introduce growth stimulus measures by means of the Growth Pact drawn up in June 2012 (see EUROPE 10645).
On Thursday evening, President of the European Council Herman Van Rompuy presented the leaders with his progress report on greater integration in financial, budgetary, economic and political areas - particularly within the eurozone (see EUROPE 10709). Drawn up in cooperation with the presidents of the Eurogroup, the ECB, the European Commission and the European Parliament, the report focuses on practical measures that do not require changes to be made to the EU treaties, which will be discussed in December.
European bank supervision. The summit will stress the importance of fast action on the financial front and the setting up of the single eurozone bank supervisory system under the aegis of the ECB. In the Van Rompuy report and the European summit's draft conclusions document, said a European source, the importance is stressed of agreement being reached by the end of the year, because some countries do not feel the need for speedy action, although others insist that a common bank supervisory mechanism must be set up. Germany, for example (the source refused to mention countries by name). The creation of a European bank supervisory system would pave the way for the European Stability Mechanism (the creation of which has been hailed by Europe's leaders) bailing out banks directly without worsening the public debt of the countries where the banks are officially registered.
Berlin is dragging its feet, not wanting the ESM to bail out banks until the bank supervisory mechanism has been fully set up. Who will decide when the mechanism has been fully set up? The European source says it will be an ECB decision. The European summit will stress the need for the future bank supervisory mechanism to respect the integrity of the single market and treat all participating countries equally (particularly non-euro countries which are not happy about joining a mechanism they would not be able to influence). This would require changes to the draft bank supervisory legislation on the table about decisions taken at the European Banking Authority. The European bank supervisory system would report to the European Parliament and the Council of the EU.
On direct bank bailouts by the ESM, the leaders will reiterate the decisions taken by the June summit (see EUROPE 10645). Technical talks have already started on changing the way bank assets are dealt with. The eurozone has differing views on the focus of the talks - Germany, Finland and the Netherlands refusing to touch legacy assets. The above-mentioned European source says the summit will not discuss this because it is unlikely to resolve anything and might be damaging at this stage. The summit will simply ask finance ministers to come up with the rules.
The summit will discuss the second phase of EMU reinforcement, but the language will be less forceful here because some member states are not able to take a view on measures to introduce greater integration. The summit will simply take note of the Commission's intention to submit draft legislation to introduce a common bank restructuring mechanism once there has been a harmonisation of the current national savings guarantee and bank bailout systems.
Solidarity - eurobonds vs eurozone budget? On budget questions, the European summit will stress the need for decisions later this year on the two draft items of legislation (the two-pack) to adjust the Stability and Growth Pact (in addition to the six-pack of 2011). The European source says that there is a very widespread view among the member states that the two-pack will transfer huge powers over budget discipline to EU level, but the macroeconomic imbalances proceedings may be further tightened up in the future. This clashes with the recent statement by the German finance minister, Wolfgang Schäuble, that further budget tightening was needed and greater powers in this connection for the euro commissioner (see EUROPE 10711). Hollande calls instead for greater powers and a longer term of office for the head of the Eurogroup.
France says that at each stage of integration taking the form of greater surveillance of national powers by the EU there should be the introduction of solidarity mechanisms. Hollande says he knows how sensitive his German friends are to the surveillance question - who should do the monitoring and offending countries paying the price. He said he agreed with this, but budget union must be accompanied by partial pooling of debt by means of eurobonds - to which Germany says “Nein”.
The European source says the matter had got into a dead end, but to get out of the impasse, Berlin and Frankfurt had suggested setting up budget powers for the eurozone. A budget for the eurozone would enable Germany to provide finance without being held responsible in the long-term for debt generated by partner countries. France likes the idea, but President of the Commission José Manuel Barroso says that countries are keener about boosting discipline than about demonstrating solidarity. Some delegations view a separate budget with suspicion (asking where the solidarity lies), while others, like the United Kingdom, back the idea, seeing it as the materialisation of a separation between the eurozone and the rest of the EU.
Everything will depend on the reason why the eurozone wants a budget. Germany says a eurozone budget would back countries introducing structural reforms as recommended in the budget and economic recommendations of the European Council. France says the budget could be used to help countries affected by assymetrical problems, similar in a way to the aid from the EU to non-euro countries with balance of payment problems.
The Van Rompuy report and draft European summit conclusions document of 17 October include the suggestion for eurozone budget powers and giving the eurozone the power to borrow money. These ideas should not, however, interfere with the current budget talks on the EU's multiannual financial framework. The Van Rompuy report goes further, mooting the idea of eurozone countries jointly issuing short-term eurobills to help struggling countries raise finance and jointly manage excess debt for a short period of time (debt over and above 60% of national GDP) by means of a redemption fund.
Member states should be able to sign contracts with the EU institutions under which they pledge to introduce macroeconomic reforms, suggests the Van Rompuy report, which would help countries take ownership of the budget and economic recommendations laid down for them by the European Council without requiring changes to the EU treaties. This would cover all countries, even the more competitive ones, but the contents of the contract would clearly be different for the latter.
Democratic legitimacy. European leaders say that boosting EMU should be accompanied by greater democratic legitimacy for the EU institutional set-up. The draft European summit conclusions document says that democratic control and responsibility play out at the level where decisions are taken and the European Parliament will have an important part to play in this connection. A European source says that details had not been gone into in this connection because everything will depend on the reforms to be taken and because Brussels didn't want to dictate how member states should behave. (MB/transl.fl)