A debate that encompasses the entire EMU. Today this section has a modest educational goal: try to clearly understand the wide ranging debate underway on the Economic and Monetary Union (EMU) and to explain what the Commission will propose this Wednesday. This is a debate scattered into several sections: the emphasis placed, according to the circumstances, on the functioning of the Stability pact or on the budgetary deficits of such or such country, or the plans aiming for the co-ordination of economic policies. Each of these elements has its specific importance, but we should not loose sight of the substantial unity of the whole. I warned you: this account will be a somewhat pedantic.
What the European Commission is preparing. The Commission is preparing two initiatives that will not overlap, but which will sometimes be confused and mixed (even by Ministers). The first aims to improve, as quickly as possible, the co-ordination of economic policies by the countries of the Euro area, through measures that may be taken without modifying the present legal framework of EMU (nor the Treaty provisions, nor the stability pact). A letter from Commissioner Pedro Solbes to the Ecofin Council already partially anticipated these intentions, and the Council dedicated a preliminary debate to this subject, which permitted for the realisation of the existence of a certain lack of enthusiasm (euphemism) towards certain guidelines.
The second initiative targets, on the other hand, the institutional innovations to be made in the Treaty to better balance EMU, which for the moment limps, as its monetary leg is solid while its economic leg is fragile. The text that the Commission is approve this Wednesday is situated in the context of its first written contribution to the Convention on the future of Europe. These guidelines where already anticipated by Commissioner Pedro Solbes in his speech on 2 May before the Economic Forum Brussels.
Distrust from a few Ministers. Let us begin with the first plan. The Barcelona Summit called for the Commission to present "in good time", before the spring 2003 European Council, proposals to better co-ordinate economic policies. The Commission intends to do so before the end of the year; the letter cited by Pedro Solbes opened the dialogue with Finance Ministers by indicating a few guidelines, suggesting "common standards" for the management of national economic policies (they initially spoke of a "code of conduct", terminology abandoned in order to avoid any confusion with the code that already exists concerning the presentation of the stability and convergence programmes). This document, summarised in our Bulletin of 16 April, pages 12/13, covers the reliability of statistics, the follow-up of the undertakings made by the Member States when the Council approved the "Board Economic Policy Guidelines" (BEPG), the guarantee that national budgets be sustainable in the long-term (that is to say that they take into account the ageing of the population). These points infer sometimes fundamental questions, for example, the need for reliable and serious growth previsions on which the Member States base their budgetary policies, which is not always the case at present. Though a single point surprised the Ministers: the call for each national stability programme to be the object of a preliminary exchange of views within the Eurogroup, before being approved. This is impossible, this is an attack on the powers of the national parliaments, stated some Ministers, the Irish Minister asserted that it is this kind of interference by the Commission in the national affairs that provokes the rise of the extreme right (!). There was no debate on the basis of the guidelines from Mr Solbes; the ministerial remarks sometimes gave the impression of seeing not suggested "common standards", but rather medium-term reforms that the Commission is preparing for the Convention.
The Commission now has a few months to consider and develop its document. No doubt, it will take into account the remarks made by the Ministers, but while not forgetting that it is not it who chose the timetable: the deadlines result from the Barcelona Summit and the duration of the Convention.
An autonomous Eurogroup and with greater powers. Thus we arrive at the institutional revision of EMU that the Commission will submit to the Convention. Perdo Solbes anticipated, in the above-mentioned speech, the two key elements. The first consists of transforming the present Eurogroup into an Ecofin Council gathering together the countries of the Euro area, with the full participation of the Commission. At present, the meeting so of Euro area Finance Ministers are of an informal nature and the Community method is not applicable: no decision can be taken and the Commission is simply invited. Formal, "enhanced co-operation" between countries in the eurozone (already suggested by Jacques Chirac back in December) would end up creating a ECOFIN Council mark II, with a restricted membership but all the powers of an EU Council, including the option of taking binding decisions. This change would remove the anomaly whereby eurozone countries cannot take fully autonomous decisions concerning themselves and is vital in the prospect of enlargement since in a few years time the eurozone countries will be in a minority on the current ECOFIN Council.
The EU would therefore have two ECOFIN Councils - one with all Member States that would have powers for decisions covering the whole of the EU and guaranteeing the Community nature of co-ordination of economic policy and the other restricted to eurozone countries and covering economic policy in the eurozone in the way that the ECB is responsible for eurozone monetary policy. The second Council would gradually be extended to the UK, Sweden and Denmark as they join the euro and then later to the new Member States that meet the criteria for joining the euro themselves.
Greater control of national economic policies. The second Solbes proposal is just as revolutionary - the BEPG (Broad Economic Policy Guidelines) for both the EU and individual Member States should no longer be Commission recommendations but formal proposals under the Treaty. What's the difference? The Council does what it likes with a recommendation but it can amend a Commission proposal by unanimous decision; at the moment it is too easy for the Council to "adapt" the BEPG for countries, weakening the coherence of the EU's economic policy. Also, the European Parliament is involved in proposals. This institutional change would make the process of co-ordinating economic policies stronger and more democratic. In particular the Commission's power to monitor respect of BEPG by Member States would be strengthened because its capacity to intervene in the event failure to respect a decision would be much more effective than for a simple recommendation.
Pedro Solbes' text is more concise in fact in both aspects and I will take full responsibility for explaining it. It is easy to predict serious reluctance on the part of finance ministers with regard to the legal changes to the BEPG. Some critical, or at least perplexed, reactions have arrived at the European Parliament too. According to CDU MEPs Karl von Wogau and Hartmut Nassauer, the Commission would become all powerful in economic and monetary terms if the Council needed unanimous decision-making to amend its budget proposals; and they see the accumulation of parameters and conditions to be respected by all Member States as running the risk of turning into a planned economy at EU level (see EUROPE of 9 May, p.11). But let's not race too far ahead. We are not yet debating the issue on the ECOFIN Council (or Eurogroup) or at the European Parliament. The Convention's autonomy has to be respected (where both the Council and the EP are represented) and the first debate will therefore take place under Valéry Giscard d'Estaing's responsibility. On Wednesday we'll know in detail what the Commission proposes and will then see what the Convention does with it.
Debate surrounding the deadline. The third pillar of the current debate over EMU concerns the Stability Pact and its application (particularly with regard to budget deficits) and potential review. I won't repeat here what I wrote on 18 April 2002 or the trend of various economists to consider the Pact as over rigid. Since then, the controversy has focussed on the concrete cases of countries, like France, that give the impression of wanting the 2004 deadline for returning to a balanced budget to be postponed. It's a classic scenario - every new government says it is astonished, or in a disastrous situation, concerning the state of public finances as left by the previous government, by the hole in the budget that is much bigger than could have been predicted, etc. A common refrain. Explosive declarations then gradually give way and the desire to respect European constraints (agreed together in fact in Community bodies) is reaffirmed. The orientations are clear - they have to be respected without excessive dogmatism. In this column on 19 April, I wrote that the return to balanced or surplus budgets in all Member States will be such a turning point in European economic history that a year longer or a year shorter is simply a detail, the important thing is that the path has been traced out and the objective remains unchanged, give or take a year. Several weeks later, I read Jacques Delors: "I do not share the obsession with budget rigidity expressed by the governors of central banks and some politicians whereby a zero budget has to be reached at whatever cost". The important thing, according to Delors, is a genuine co-ordination of economic policy, meaning the ECB must have dialogue with the EMU economic pole. This implies for me that if such genuine co-ordination is established the Commission itself might allow a degree of flexibility in the timetable in exceptional circumstances. Without changing the principles or the objectives (not that any Member State is requesting this).
(F.R.)