Although the recent Franco-German roadmap on deepening Economic and Monetary Union (EMU) went down well overall with the 27 finance ministers (all the EU except the United Kingdom) on Thursday 21 June, the matters of a specific Eurozone budget and the stabilisation function will require further discussion (see EUROPE 12044).
This roadmap served as the backdrop to the Eurogroup discussions in enlarged format, which was held between two negotiating sessions on the details for the end to the third Greek bailout plan (see EUROPE 12046).
It received a positive welcome, but not without disturbing the balance of power within the Council of the EU.
“The Commission has welcomed (…) the proposal by President Macron and Chancellor Merkel and there were many voices around the table tonight considering that this agreement can serve as a catalyst in this process”, said Pierre Moscovici, the Commissioner for Economic and Financial Affairs.
Echoing the suggestions of the European Commission (see EUROPE 12031), the Franco-German agreement on the creation of a specific Eurozone budget and a stabilisation function (to be used if a state is hit by an asymmetric shock) has come up against the misgivings of the Netherlands, Sweden and Denmark, according to one diplomatic source.
These countries argue that if the rules of the Stability Pact were complied with, there would be no need for an initiative of this kind at European level.
In the opposite corner, the countries of southern Europe seem more in favour of creating the instruments.
“It is clear that our discussions are less advanced on possible fiscal instruments the convergence and stabilisation in the EMU”, said Mario Centeno, the President of the Eurogroup.
As no informal agreement was reached, discussions on the fiscal capacity of the Eurozone will resume at a summit of the 19, Friday 29 June.
Banking Union. The completion of Banking Union, on the other hand, seems to be more consensual, although some countries are still calling for progress on the 'banking risk reduction' plank first.
At the centre of this debate is the creation of a common backstop for the Single Resolution Fund (SRF), a role that will be taken by the European Stability Mechanism (ESM).
On this point, there is an agreement in principle of the member states to revise the inter-governmental treaty on the ESM, the permanent bailout fund in the Eurozone.
It remains to be determined: - when the the backstop will be in place (as the deadline is 2024, or the end of the build-up phase of the Single Resolution Fund); - how big will it be (the Commission proposed €60 billion), and; - how will decisions to mobilise the ESM as a backstop be made (Germany is calling for a right of scrutiny for the Bundestag).
Another key issue is the creation of the European deposit insurance system (EDIS), the third pillar of Banking Union in the Eurozone.
Centeno and the Franco-German partnership hope to work on a roadmap after the Eurozone summit.
On Friday 22 June, the Ecofin Council took note of progress at technical level on the EDIS system. Both the Bulgarian finance minister, Vladislav Goranov, and the Commissioner for the euro, Valdis Dombrovskis, consider that this will make it possible to bring the dossier forward to political level under the Austrian Presidency of the Council of the second half of 2018.
At the European Parliament, the dossier is a deadlock.
ESM. The member states are also looking at extending the powers of the ESM in questions of sustainability of government debt even though, as for Banking Union, several delegations want progress to be noted first of all on risk reduction.
This will be done, in particular, by adopting the 'banking risk reduction' legislative package (see EUROPE 12026, 12045) and by taking note of a low level of non-performing loans.
According to France and Germany, there should be a gross NPL target of 5% and a net target of 2.5% a year.
On Friday, the Eurozone summit is expected to go into depth if not on the content, at least on the timetable of the future work. (Original version in French by Lucas Tripoteau with Mathieu Bion)