With two years of its mandate left to run, the European Commission headed up by Jean-Claude Juncker on Wednesday 6 December tabled a series of proposals aiming to make Economic and Monetary Union (EMU) an area more adept to respond to future financial and budgetary crises, open to all those wishing to join it and based on an accountable decision-making mechanism.
“It is this Commission’s most significant proposal”, said the Commissioner for the euro, Valdis Dombrovskis, who steered the internal work at the European institution. “The future of Europe is the euro and the future of the euro is Europe”, said his opposite number for Economic and Financial Affairs, Pierre Moscovici, quoting from his illustrious predecessor Jacques Delors, who said that “the euro protects but does not dynamise”.
All consider that the economic situation, marked by a return to growth, is conducive for such proposals. Politically, the fact that there has been no German government since the end of September has not slowed the pace of the Commission’s work, which has been fired up by Macron’s speech at the Sorbonne on the future of the EU (see EUROPE 11870). And the prospect of the Social Democrats getting back to business in Berlin could even lead to hopes that a Franco-German agreement on an increased integration of the Eurozone will be easier to obtain between now and the European elections of spring 2019.
The proposals on the table, which aim to translate into reality Juncker’s state of the union speech (see EUROPE 11861) and the Commission’s areas for reflection on the future of the Eurozone issued at the end of May (see EUROPE 11799), will be discussed at the Eurozone Summit in extended format, on Friday 15 December. It is hoped that decisions will be made at a subsequent summit in June, in line with the working programme of the European leaders put together by the President of the European Council, Donald Tusk (see EUROPE 11888). These proposals are closely linked to others on the multi-annual financial framework post-2020, anticipated for May 2018.
Making the ESM a Community instrument. Central to the package presented on Wednesday is a draft regulation (requiring the unanimity of the member states) aiming to transform the European Stability Mechanism (ESM) into a European Monetary Fund (EMF) by the middle of 2019.
As well as its change of name, the aim will be to set the Eurozone’s permanent bailout fund in the Community legal framework, as the ESM is currently an inter-governmental organisation based in Luxembourg, and has been since autumn 2012 (see EUROPE 10705).
With a view to reinforcing the democratic legitimacy of the financial crisis management measures in the Eurozone, the Commission is proposing that the EMF come under the control of the Council of the EU, but also of the European Parliament. “By making it into a Community organ, we will make it more answerable to the European Parliament, without weakening the national parliaments”, Moscovici stressed.
Urgent decisions concerning financial support of the EMF can be made more quickly by reinforcing the option of using the super-qualified majority already in place (85% of votes at the Governing Council).
It is worth noting that the Commission has rejected the position of Wolfgang Schäuble, the former German finance minister, calling for an automatic restructuring instrument for sovereign debt as soon as a state requests a financial bailout plan (see EUROPE 11880). This was an absolute red line for France.
Budgetary stabilisation instrument. In order to maintain the level of investment in the EU in the event of an asymmetric macro-economic shock affecting only a handful of countries, a European investment protection scheme could be set up after 2020.
At this point, the Commission is suggesting a budgetary assistance model subject to strict conditional criteria (e.g. prior respect of the EU budgetary macro-economic supervision framework) that should not lead to permanent budgetary transfers, which has traditionally been a red line for Germany. It is not making progress on the budget for this instrument which, according to Günther Oettinger, will depend on the size of the ‘revenue’ plank of the post-2020 EU budget.
The Commission favours an instrument to stimulate investment over other tools that have been considered, such as a 'rainy day fund'. Despite the success of the ‘Juncker’ plan, we are continuing to suffer from an investment deficit, said Moscovici, stressing that the EU had not yet returned to its pre-crisis level in this area.
Towards a pre-Euro support instrument. The Commission also hopes to provide a support instrument for member states wishing to join the Eurozone, after 2020.
Oettinger reported expressions of interest from Croatia and Bulgaria. With the exception of the United Kingdom and Denmark, the seven other non-Eurozone countries are obliged to adopt the single currency one day.
The European Commission therefore proposes providing technical support to any state requesting it for the management of its public finances and to carry out the necessary reforms in several areas of economic activity.
Before 2020, this support will be paid for out of the structural reforms support programme, whose resources will be doubled, rising to €300 million by 2020.
A European finance minister. The European institution firmly believe that assuming no major changes, the position of European finance minister, which would also cover the posts of Commission Vice-President and Eurogroup President, could come about in time for the next Commission to be set in place.
This would mean that the mandate of two and a half years of the Eurogroup President-elect, Mário Centeno, would have to be revised (see EUROPE 11918).
Creating this position along the lines of what already exists in the field of foreign affairs would give greater visibility and legitimacy to European action in the field of economic governance and budgetary surveillance, the Commission considers. This future European minister would indeed be more accountable to the European Parliament, the legitimate body at European level to exercise democratic control.
Including the Budgetary Pact in EU law. The Commission is also proposing a directive to enshrine the entire raft of rules of the Treaty on the stability, coordination and governance in the EMU (TSCG) in EU law by mid-2019, particularly Title III on the ‘Budgetary Pact’. This inclusion is provided for by the TSCG itself.
Essentially, introducing the ‘Budgetary Pact’ into the EU legal order, which requires the member states to respect a budgetary balance (‘golden rule’), makes it possible to vote these rules using the ordinary legislative procedure, whilst the TSCG is currently a conventional treaty of international law.
Moscovici took pains to stress that the flexibility currently authorised under the Stability and Growth Pact will still apply following the entry into force of this directive.
‘Backstop’ for Banking Union. The Commission is proposing to set a ‘backstop’ in place by mid-2019, through the future European Monetary Fund (EMF), in the form of a credit line or guarantees directly available to the Single Resolution Board.
As the EMF would act as a last-resort lender, the mechanism would be activated only if the resources of the resolution fund, the financial arm of Banking Union in the Eurozone, were not enough to cover the costs of resolving the bank in question. It would, moreover, be budgetarily neutral, as any contribution from the EMF to the resolution fund would be recovered ex post from the banking industry.
The amount available for this mechanism should be limited to €60 billion, according to the text. However, the Commission is proposing that the Governing Council of the EMF be permitted to increase the ceiling to respond to unexpected financing needs stemming from resolution operations.
The principle of a backstop for Banking Union was approved in 2013, when the ‘resolution’ plank of Banking Union was made flesh. At the time, Germany made a statement refusing to agree for the ESM to take such a role. The Commission, however, argues that this is actually the most practical and effective solution, as the ESM would be able to fall back on its proven experience and expertise in borrowing on the markets, even against tougher backdrops.
Finalisation of Banking Union. In its roadmap, the Commission calls for the adoption, in 2018, of several texts currently being discussed by the European legislator: - the package on reducing banking risks, which was presented in November 2016 (see EUROPE 11916); - the proposed directive on insolvency and restructuring; - the European Deposit Insurance System (EDIS).
“The more private risk-sharing we can achieve, the less public risk-sharing we will need in the EMU”, said Dombrovskis.
The European institution has, furthermore, announced that it plans to legislate in 2018 on creating European securities backed by sovereign bonds for the Eurozone, to follow up on the work of the European Systemic Risk Board.
Completion of the CMU. Finally, the Commission has set itself the deadline of mid-2019 for the adoption of all the legislative initiatives underway related to the Capital Markets Union (CMU).
These include the revision of the competencies and governance of the three European supervisory authorities (ESMA, EBA, EIOPA), the revision of the ‘EMIR’ regulation on European market infrastructure, and the proposed pan- European personal pension product.
Between now and 2025, moreover, the Commission is planning to make progress on issuing a no-risk European asset ('euro area safe assets') and to change the regulatory treatment of sovereign exposures, whilst continuing with the implementation of initiatives related to the CMU. (Original version in French by Mathieu Bion, Lucas Tripoteau and Marion Fontana)