Brussels, 06/12/2012 (Agence Europe) - The president of the European Council, Herman Van Rompuy, unveiled a roadmap to European heads of state on Thursday 6 December on a three-stage approach to establishing a genuine economic and monetary union (EMU) by boosting its financial budget, economic and democratic aspects. The document sets out the idea of giving the eurozone its own budget capacity to help eurozone nations reform their economies. This type of solidarity overshadows other budget solidarity tools that could pool a portion of sovereign debt and the question of changes to the treaty is also ignored. The roadmap will form the basis of the talks at the upcoming meeting of heads of state at the European Summit on 13 and 14 December.
The first, relatively consensual, stage in boosting EMU would run until the end of next near and include two objectives - tighter budget discipline and the establishment of banking union to ensure that bank problems do not automatically generate or worsen sovereign debt problems. Along with implementation of the Stability and Growth Pact (including the “six-pack” and “two-pack”), Van Rompuy says a permanent coordination system for national economic policies in the process of being formulated will be required, as laid down in the budget pact. For banking union, the top priority is introduction of a eurozone bank supervision scheme under the aegis of the ECB (see EUROPE 10744). Alongside this, inter-institutional talks need to start on harmonising national bank bailout and deposit guarantee scheme. Immediately afterwards, a common bank restructuring system will be set up, with the creation of a special EU body separate from the ECB. This system might be attached to the European Stability Mechanism (ESM), the eurozone's bank bailout fund, said Van Rompuy. It should be budgetarily neutral in the medium-term by ensuring that state aid is paid for after the event by contributions from the financial industry.
Eurozone budget capacity. The growing interdependence of European economies leads to a need for greater integration of countries' economic policy in the future. As instructed by the European Summit in October (see EUROPE 10744), former Belgian prime minister Van Rompuy explores the feasibility of having a special eurozone budget separate from the EU27's multiannual financial perspectives but still within the EU's legislative and institutional system. All eurozone countries would be required to join this, and non-euro countries would be free to join if they so desired.
The roadmap describes a second stage (2013-2014) when member states could receive flexible, targeted, temporary and limited incentives to introduce economic reforms set out in contracts between themselves and the European Commission. The reforms laid down in the contracts would arise from the country-specific recommendations endorsed each year by the European Summit in June as part of the European Semester. They would have to be introduced within a given timeframe to remove microeconomic, industry-specific and institutional bottlenecks (youth unemployment and failings in the legal system, for example) in the countries in question. This idea of contracts was mooted by Germany. It does not require any changes to the treaty, although Van Rompuy does not mention treaty changes at all.
In the longer-term, post-2014, the eurozone's budget capacity could be used to facilitate adjustment to economic shocks. This might require changes to the treaty and could take the form of insurance that countries concerned would contribute to (or benefit from) according to the situation in the economic cycle. The roadmap sets out two approaches to setting up such a mechanism - one macroeconomic and the other microeconomic.
No debt pooling. How would such a eurozone-specific budget capacity or fund be financed? Without giving any indication of figures, Van Rompuy simply suggests money from national budgets and/or “own resources.” Some countries have suggested using income from the new financial transactions tax could be used to this end. Most importantly, the eurozone budget capacity would have the ability to borrow money: “A euro area fiscal capacity could indeed offer an appropriate basis for common debt issuance without resorting to the mutualisation (pooling, Ed.) of sovereign debt.”
In line with the European Summit's guidelines, Van Rompuy points out that boosting the democratic legitimacy of the process would take place at the level where decisions are taken. The European Parliament would need to play a greater role in the European Semester and the European Commission, responsible for applying the Stability and Growth Pact and monitoring application of the contracts between itself, the member states and the ECB, would be accountable to the Parliament, as would the European Central Bank in its role as bank supervisor. Ownership of this process at national level is essential, said Van Rompuy, because budget powers are covered by national sovereignty. The Budget Pact is also important to this end, with its regular meetings between the relevant Parliament committees and representatives of national parliaments. For further information, see:
http://www.consilium.europa.eu/uedocs/cms_Data/docs/pressdata/en/ec/134069.pdf (MB/transl.fl)