On Friday, 14 December, at the euro area summit, the Heads of State or Government of the Twenty-Seven instructed the Finance Ministers to work, by June 2019, on drawing up a proposal for budgetary capacity for the euro area limited to instruments to support convergence and competitiveness.
“I am quite happy [...] although I would have liked a spontaneous creation of a 'yes' to the stabilisation function” for the euro area budget, Jean-Claude Juncker, President of the European Commission, declared at the end of the meeting.
Not surprisingly, the euro area summit gave Europe's senior finance ministers a defined mandate on fiscal capacity for the euro area (see EUROPE 12158).
As a reminder, discussions took place at the Eurogroup on this subject in November and December (see EUROPE 12140, 12152), on the basis of a previous mandate from European leaders (see EUROPE 12052).
But this is a sensitive subject. In May, the European Commission proposed creating fiscal capacity, including an investment stabilisation function for the euro area and the countries participating in the ERM II Exchange Rate Mechanism (see EUROPE 12031). A first Franco-German roadmap took up this idea in June and considered the creation of a European Unemployment Stabilisation Fund (see EUROPE 12044, 12043). The aim was to support a country hit by an asymmetric economic shock.
In the face of hostility from several northern European countries, primarily the Netherlands, the idea of limited fiscal capacity to support convergence and competitiveness has gradually taken precedence over a stabilisation function in order to move discussions forward. This is reflected in the Franco-German proposal of November (see EUROPE 12140).
“If an agreement is reached, it will be very good news [...] It will be a first step forward", said a French source on the eve of the euro area summit, preferring to stress the progress made in recent months, rather than on today’s abandonment of the idea of creating a stabilisation function.
From a legal point of view, this budgetary capacity should be reflected in a budget line integrated into the multiannual financial framework 2021-2027 (see EUROPE 12159). As yet undecided, the amount of the envelope to be allocated to it will include the overall amount of the EU budget post-2020. But we are moving towards funding and governance of nineteen or more countries if member states that have joined the ERM II system decide to participate.
Although a mandate has been given for further discussions, differences of interpretation remain.
"What we have today is very much in line with some elements of the French proposal, but also very much in line with what we, the Netherlands, have put in our government agreement", said Mark Rutte, the Dutch Prime Minister.
"We are defending more ambitious measures in terms of fiscal capacity such as unemployment insurance", said Pedro Sanchez, the head of the Spanish government. "I am not abandoning either the idea or the desire [to have a stabilisation function]", added Emmanuel Macron, the French president.
Backstop of the SRF and reform of the ESM. The Heads of State or Government of the Twenty-Seven also gave the go-ahead to the two agreements on the establishment of a common backstop for the Single Resolution Fund (SRF), a function that will be the responsibility of the European Stability Mechanism (ESM), and on the reform of the ESM.
"A year ago, we promised concrete steps to strengthen the EMU [Economic and Monetary Union]. Today, we did deliver on this promise," said Donald Tusk, President of the European Council, referring to these two points.
The activation date of the backstop has yet to be set. It will depend on the level of reduction in non-performing loans in the euro area banking system. If this level of reduction is estimated to be sufficient, this SRF instrument of lender of last resort may be operational in 2020.
And on the reform of the ESM, the Eurogroup will be responsible for preparing a proposal for a revision of the Treaty governing the functioning of the organisation by June 2019.
EDIS. It should be noted that the declaration calls on the Finance Ministers to continue their work on the Banking Union. Without saying so, they refer to the European Deposit Insurance Scheme (EDIS).
As a reminder, the last meeting of the Eurogroup reverted work on the creation of such a tool to the technical level, while discussions are almost at a standstill today (see EUROPE 12150).
See the text of the statement: http://bit.ly/2LhbqwB (Original version in French by Lucas Tripoteau)