Brussels, 22/06/2015 (Agence Europe) - The 'five presidents' report' published on Monday 22 June endorses ideas already mooted with a view to completing economic and monetary union (EMU) in 2025.
The document will be discussed at the European Summit on Thursday 25 and Friday 26 June, where the eurozone will also be seeking a solution to the Greek question in order to avoid Greece being forced out of the single currency (see related articles).
“The euro is more than just a currency. It is a political and economic project. All members of our Monetary Union have given up their previous national currencies once and for all, and permanently share monetary sovereignty with the other euro area countries,” state the authors of the report piloted by the European Commission and drawn up together by the presidents of the European Commission, European Council, European Central Bank, Eurogroup and the European Parliament. The authors say that the euro is one of the successes of European integration. They add: “Europe's Economic and Monetary Union (EMU) today is like a house that was built over decades but only partially finished. When the storm hit, its walls and roof had to be stabilised quickly. It is now high time to reinforce its foundations and turn it into what EMU was meant to be: a place of prosperity based on balanced economic growth and price stability, a competitive social market economy, aiming at full employment and social progress.”
The report lists measures to be introduced under the current treaty by 2017 in the economic, financial and budget domain to boost the legitimacy and institutional architecture of eurozone economic governance.
In order to encourage economic convergence, a eurozone system of competitiveness authorities could be set up. They would be independent and report to the politicians, having the job of monitoring countries' competitive performance and analyse the adjustment of pay in line with productivity. Full use should be made of the penalties foreseen in the Stability and Growth Pact (which detects macroeconomic imbalances), including for countries like Germany that have excessive surpluses. A closer monitoring of commitments under the European Semester is also foreseen, particularly for employment and social policy.
In the budget domain, the report calls for the creation of a European Fiscal Board to analyse countries' performance and send recommendations to the Commission ahead of the latter's European Semester decisions.
Completion of EMU will require completion of Banking Union in the eurozone. After bringing the supervision and resolution arms of Banking Union on stream, the five presidents recommend setting up a European deposit (savings) insurance scheme since they describe the current system of a harmonising of member states' savings guarantee schemes as “vulnerable.” “A possible option would be to devise the EDIS as a re-insurance system at the European level for the national deposit guarantee schemes. Just like the Single Resolution Fund, the common EDIS would be privately funded through ex ante risk-based fees paid by all the participating banks in the Member States.” There could be an easing of the very strict direct bank recapitalisation system at the European Stability Mechanism (ESM). The report fully backs the plans for a Capital Union to encourage the financing of European companies from non-bank sources.
In order to boost EMU's democratic legitimacy, the report recommends boosting the role of the European Parliament and greater involvement of national parliaments in defining the direction of social and economic policies. The Budget Pact and the Single Resolution Fund should be brought into the Community fold. The presidents say that EMU should have “a unified external representation” at international bodies such as the IMF.
EMU in the medium-term. Explaining their view of EMU in the longer-term, the five presidents endorse the idea of creating eurozone fiscal capacity (which would require a change to the treaty, see EUROPE 10746 and 10819). “All mature Monetary Unions have put in place a common macroeconomic stabilisation function to better deal with shocks that cannot be managed at the national level alone,” they say. The presidents suggest that initially, this could be done by the European Fund for Strategic Investments (EFSI), the financial arm of the Juncker Investment Plan (see EUROPE 11329), even though the EFSI acts for the wider EU. Based on the 'Community Method,' this financial capability should not lead to transfers of money from one country to another, and should not lead to an easing of budget discipline. Neither should it replace the eurozone's permanent bailout fund.
Aware of the problems that member states are finding in implementing reform commitments they make at European level, the five presidents say “the convergence process towards more resilient economic structures should become more binding. This would be achieved by agreeing on a set of common high-level standards that would be defined in EU legislation.(...) The common standards should focus primarily on labour markets, competitiveness, business environment and public administrations, as well as certain aspects of tax policy (e.g. the corporate tax base)”. Respect of these standards would be analysed under the European Semester and could be a precondition for the granting of aid under the eurozone's own fiscal capability.
Debt pooling on the back burner. The report doesn't even mention the idea of partial pooling of eurozone nations' debt.
The report's authors consider other measures that could give EMU greater democratic legitimacy. They discuss Eurogroup, the informal body of eurozone finance ministers, the chairing of which could be turned into a permanent job post-2017. If confirmed by the European Summit, this timeline would remove Spanish finance minister Luis De Guindos from the race to become the next head of Eurogroup in place of the current head, Jeroen Dijsselbloem, whose current term of office expires in mid-July (see EUROPE 11337). The five presidents say that some budget and economic decisions could be taken jointly by a “eurozone treasury.” Finally, the European Stability Mechanism should be gradually incorporated into the Community fold. (Mathieu Bion)