European finance ministers are expected to reach a political agreement setting out the modalities for a fiscal capacity for the euro area at the enlarged Eurogroup meeting on Thursday 13 June.
Their discussions on how to finance the future euro area budget and the aims of this embryonic instrument, based on the mandate given at the end of 2018 by the euro area summit (see EUROPE 12160/1), promise to be lengthy. On Wednesday, a diplomat only foresaw an agreement on Friday in the early morning.
With 2 days to go, it seems that the same differences remain on the same issues, although several diplomats report progress on all fronts (see EUROPE 12230/4, 12212/10).
The issue of financing fiscal capacity is central. While the size of the overall envelope will be decided during the negotiations on the multiannual financial framework (MFF) 2021-2027, it is the funding modalities that remain problematic. Fiscal capacity will be provided by the EU budget through the reform support programme. Several countries, including France and Germany, want additional resources from national budgets, or even possible European taxes, to be allocated to it, while remaining, in the execution of expenditure, within the framework of the MFF. This requires the development of a 19-way intergovernmental agreement (IGA) between euro area countries.
The Dutch, at the head of the Hanseatic League countries, remain reluctant to accept this idea. "The Netherlands are anxious not to increase their contributions to the euro area budget", admitted the national diplomat.
Another stumbling block is the purpose of fiscal capacity. The future euro area budget should be used to help beneficiary countries to make investments and carry out structural reforms. The question of using the budget to help an economy stabilize in the event of a macroeconomic shock remains open and will have to be decided on Thursday.
It should be noted that any financial assistance from the euro area budget will be co-financed by national funding.
ESM. Ministers are also expected to take note of the terms of the reform of the European Stability Mechanism (ESM), the permanent rescue fund for the euro area.
These discussions seem less controversial. "Tensions are no longer so high", said a second diplomat.
The main objectives of the reform of the ESM are: - to make the rescue fund the backstop of the Single Resolution Fund (SRF), the financial arm of the resolution component of the banking union in the euro area; - to facilitate the use of existing precautionary instruments (PCCL and ECCL credit lines); - to strengthen the role of the ESM in preparing for a financial rescue plan, while respecting the role of the European Commission.
In the future, this reform should ensure that the IMF is no longer involved in a rescue plan, according to the first diplomatic source.
The safety net for the SRF fund will be in place by 2024 at the latest, in accordance with the agreement on the 'resolution' component of the banking union. In 2020, the European Commission will produce a progress report on work to reduce financial risks. On this basis, a decision could be taken to anticipate the implementation of the backstop.
Italy. The Italian budgetary situation is not officially on the Eurogroup's agenda. But no one ruled out that this thorny issue would be raised on Thursday, after Member State experts gave a positive opinion on Tuesday on the European Commission's report on Italy's excessive public debt (see EUROPE 12269/1).
However, no decision will be taken before the July Eurogroup, as a four-month period has been running since the end of April. "It's not elastic", noted the first diplomat.
Greece. Greek social reforms, which could undermine the budgetary commitments made when the Greek rescue plan was finalised in Spring and Summer of 2018, are also not on the agenda of the ministerial discussions (see EUROPE 12269/2). After discussions at technical level at the beginning of July, the Eurogroup will take up this issue after the parliamentary elections.
On the sidelines of the Eurogroup and the Ecofin Council (see EUROPE 12273/10), the annual meetings of the EIB and the ESM will take place. (Original version in French by Mathieu Bion with Lucas Tripoteau)