On Monday 23 April, the Spanish economy minister unveiled his position on expansion of Economic and Monetary Union (EMU) ahead of the eurozone summit which, at the end of June, is due to come up with a roadmap on the question.
The Spanish government’s proposals are not revolutionary vis-à-vis the European Commission’s views published in December 2017 (see EUROPE 11920) and current debate (see EUROPE 11988), Madrid has come up with some new elements which deserve attention.
One of the is the eurozone’s budget capacity which the Spanish authorities suggest should be a separate fund, created using a mechanism whereby member states would contribute in positive economic periods to be able to help countries in the event of a severe economic shock.
This would allow a strengthening of the contra-cyclical nature of national budget policies. The fund would, however, be quite modest and would not allow significant action in the event of an economic shock affecting the entire eurozone, says Madrid.
A second instrument attached to the EIB would be established using public financial guarantees, following the model of the European Strategic Investment Fund (ESIF), the financial arm of the Juncker Investment Plan. Using leverage, it could provide substantial support for private investment in countries facing a downturn in their economy.
Spain does not specify whether the guarantees and funds would be linked to a specific eurozone budget.
Two-step creation of EDIS. As desired by major European leaders, Madrid put the priority in the short-term for strengthening of the EMU on concluding the Capital Market Union aspect of Banking Union in the eurozone.
The Spanish authorities focus particularly on the latter point with the two-step creation of a European deposit insurance scheme (savings guarantee scheme) (EDIS). The first stage would be a period of re-insurance and not involve risk-sharing among participating countries. It would concentrate on setting up milestones for cutting back non-performing loans.
Only after a new assessment by the European Commission of reduction of bank risks by the financial instruments covered, an EDIA mechanism for risk-pooling might be set up. It would have a special fund fed by contributions from banks, the size of the contribution deeding on the bank’s risk exposure.
With these two layers of ring fencing, Spain might meet the concerns of northern countries that refuse to allow their bank sector to be used to take on problems seen in the past in other countries’ banks.
Madrid wants the June summit to set a detailed timeline for the EDIS coming on stream.
Incorporating the ESM into the EU's institutional framework. Echoing the European Commission’s proposal, the Spanish economy minister says that the current European Stability Mechanism (ESM), the eurozone’s permanent bailout fund, should be incorporated into the EU's institutional set up ‘in the long term.’
Spain does not specifically mention a European Monetary Fund (EMF), but the Spanish government would like the ESM’s role to be strengthened in the design and monitoring of financial aid schemes for struggling eurozone countries, without removing powers from the European Commission. (Original version in French by Lucas Tripoteau)