Brussels, 14/12/2012 (Agence Europe) - Happy with the way the sovereign debt crisis was dealt with in 2012, European heads of state gave themselves on Friday 14 December an extra six months to draw up a detailed roadmap on boosting the social, economic, budget and policy arms of economic and monetary union (EMU), a roadmap that will not materialise until after the 2014 European elections. Meanwhile, work on banking union will continue apace in order to restore permanent confidence in Europe's banks.
“Even if the worst of the crisis is behind us, much more needs to be done. The starting point is simple: for countries that share a common currency, economic policies are a matter of common interest,” explained the chair of the European Council, Herman Van Rompuy. The EU27 asked him to prepare for the June 2013 summit measures, a roadmap and a timeline for each of the following: “a) coordination of national reforms; b) the social dimension of the EMU, including social dialogue; c) the feasibility and modalities of mutually agreed contracts for competitiveness and growth: individual arrangements of a contractual nature with EU institutions could enhance ownership and effectiveness. Such arrangements should be differentiated depending on member states' specific situations; d) solidarity mechanisms that can enhance the efforts made by the member states that enter into such contractual arrangements for competitiveness and growth.” We ran out of time before the meeting, so we gave ourselves a deadline at the end of the meeting, said Belgian prime minister Elio Di Rupo. We'll have to work out by June 2013 what parameters determine a country's competitiveness, which is far from simple, said the German chancellor, Angela Merkel.
Signing contracts. The president of the European Commission, José Manuel Barroso, said that Europe's leaders wanted to concentrate on what can be done right now and details of the agreement on contracts to be signed in connection with economic reforms for which financial aid is supplied will have to be fine-tuned and will not emerge until after the European elections in 2014. Barroso said the Commission would come up with contracts on structural reforms backed by financial aid, which would be adjusted to suit the needs of the country in question, the idea being, said Di Rupo, to ensure convergence among national economies. Italian prime minister Mario Monto said that the idea was to move from the Lisbon Strategy to the EUROPE 2020 Strategy and make the competitiveness pacts operational with action for competitiveness and solidarity mechanisms to act as a genuine stimulus to get countries to become more competitive and boost their growth. On fears that such contracts crushed national sovereignty, Van Rompuy said that they would encourage countries to take greater ownership of reforms. Merkel said everything to do with competitiveness is in the hands of the nation states and therefore national parliaments would have to be consulted. The prime minister of Luxembourg, Jean-Claude Juncker, said the exact nature of these contracts, along with the rewards and penalties, had yet to be decided upon.
What form will the financial aid for countries signing such reform contracts take? Merkel said a solidarity fund for such contract could be set up, and be limited in time. She said she was talking about a very small budget, some €10, €15 or at most €20 billion. Paris and Berlin believe this amount could be raised from the new financial transactions tax. Who would manage the fund? Eurogroup and the European Commission, said Merkel.
Several ideas France is keen on, like a budget for the eurozone and partial pooling of eurozone debt, are not mentioned in the Summit conclusions document, because they would require changes to the EU treaty, something that not all member states are prepared to countenance. The French president, Francois Hollande, said every time an integration instrument is suggested, there must be solidarity to put it into practice. Juncker said that the four presidents had made suggestions that clearly move beyond the political willingness of some member states, so work will continue on ideas that were not decided upon at the summit. He said the four of them had probably been over-ambitious because there were only four of them.
Van Rompuy said he had not been instructed to work on this until the end of June, but the Commission is always free to come up with proposals in this connection even without specific instructions to this effect. Barroso said that all doors remained open for the ideas set out in the Commission's blueprint and Van Rompuy's new roadmap. Barroso said he was determined to keep up the momentum of reform (see EUROPE 10740 and 10746). When I arrived, all that was being talked about was budget discipline, but now people are talking about growth and a new institutional set-up, which is a very good development, said the Spanish prime minister, Mariano Rajoy, certain that the tough reforms being applied in his country would soon start to bear fruit.
Annual Growth Review. The European Summit endorsed the five priorities set for the Commission's Annual Growth Review in 2013: pursuing differentiated budget consolidation; restoring financing of the real economy; promoting growth and competitiveness; dealing with unemployment and the social impact of the crisis; and updating the civil service.
With France's backing, Italy suggested a different way of dealing on countries' balance sheets with public investment to boost growth. The conclusions document said that options available in the existing EU budget set-up for striking a balance between the need for productive public investment and budget discipline objectives can be exploited under the preventative arm of the Stability and Growth Pact. Monti said this is very important to him, and Di Rupo said that for countries coming out of the excess deficit infringement proceedings, there is scope for dealing with some investment in a new way on the balance sheet.
The European Council asked for the recommendation on a guarantee of work for young people to be adopted early in 2013. Barroso said that within four months of the end of their educational year, young people should find work or professional training. Greece, Portugal and Spain put pressure on the other countries to have the Annual Growth Review examine in the future the problem of youth unemployment.
Banking Union. Pleased with the agreement in principle by the ECOFIN Council to set up a eurozone bank supervision system under the aegis of the ECB for the 6,000 or so eurozone banks, (see EUROPE 10751), the EU27 call on the legislator to pull out the stops to move the banking union idea forward before the European elections in 2014.
Among countries participating in the European Stability Mechanism (ESM), “an operational framework, including the definition of legacy assets, should be agreed as soon as possible in the first half of 2013, so that when an effective single supervisory mechanism is established, the European Stability Mechanism will, following a regular decision, have the possibility to recapitalise banks directly.” The idea here is to break the current link between bank problems and public debt problems so that struggling banks' woes do not lead to sovereign debt issues. At one point, Spain hoped such direct bank bailouts would be possible for its banks from the ESM, but the European Summit in October poured cold water over this. How exactly bad debts from the past (legacy assets) are to be dealt with remains a moot point.
The EU27 urged the co-legislators to reach agreement by June 2013 on legislation to harmonise bank bailout schemes and savings guarantee schemes. To this end, the Council will have to reach agreement by April and any agreement reached “must strike a good balance between countries of origin and host countries.”
Bank restructuring. Next year, once the draft legislation on the eurozone bank supervision system and national bank bailout and deposit guarantee systems has been adopted, the Commission will unveil a bank bailout system for the eurozone in the form of a Recovery and Resolution Directive, which would set up a special eurozone body independently of the ECB. The mechanism would aim to protect taxpayers and be neutral in the medium term when it comes to its budget, which means that the financial industry would have to cough up the cash provided in the immediate term by the state as emergency bank bailout cash. Van Rompuy's idea of making this eurozone bank bailout body part of the ESM was not taken up by the heads of state.
Hollande promised that taxpayers would not have to bail out banks in the future, pointing out that France is in the process of restructuring its banks to hive off speculation from retail banking. (MB, MD/EH/SP/LC/AN/FG/transl.fl)