I'm returning to how the Eurogroup works and what its president's intentions are, because of the importance and significance of this dossier. Coordination or budgetary policies in Euro zone countries and management of a common currency determine the economic evolution of the EU to a large extent and therefore, the confidence of citizens in European construction. Following confirmation that Jean-Claude Juncker will head Eurogroup in 2007-08, Mr Juncker made a number of declarations in interviews and provided a pretty clear idea of this aims and intentions. I am referring, in particular, to what he said after the Eurogroup meeting (EUROPE 9261) in interviews to “Les Echos” and “The Financial Times”.
A feeling that the job is unfinished. Why did Mr Juncker agree to a new mandate? In an effort to complete, in favourable conditions, the work he began two years ago and which has not yet produced all its results. Three objectives have essentially already been accomplished: a) “the appearance in Eurogroup of an esprit de corps which was not that evident at the beginning”. Juncker particularly noted “with satisfaction” the exemplary assiduity of minsters at meetings; b) the observation that “all ministers are now convinced of the need for coordination of economic policies and that faced with the monetary pole of the EMU, a structured economic and policy pole is needed”; reform of the Stability Pact, which was not that easy to begin with and “greater visibility of the Euro beyond our borders”.
In what sense is the task incomplete? No-one would find the reply surprising: “We have not succeeded in putting a binding instrument in place that we had been planning on two years ago. During the course of my new mandate, I am going to implement everything to improve budgetary governance” in the Euro zone. How? “I think that the current a posteriori examination mechanism of national budgets does not allow for them to be sufficiently influenced. I want to have more prominent talks in June or July every year on the budgetary talks of Member States to possibly modify the budgets This collective management and Euro zone solidarity should enable us to obtain more coherent budgets. Our few timid attempts have so far not produced a great deal”.
Better management of the fruits of growth. What's the reason for this semi-failure? Mr Juncker's response to “Les Echos” will surprise no-one, “Our monetary union is young. I need much more time than I had thought, for learning to manage our common currency. Finance ministers all too often have a tendency to prioritise national interests. We are now stressing the need to use the fruits of growth to reduce the level of debt and public deficits, so that the mistakes of the 1990s and the misuse of these 'funds', are not repeated. This time all the ministers are committed to resisting any siren calls, because a country with debt has no funds”. This concept had already been made explicit in examples contained in Mr Juncker's declarations following the Helsinki meeting (EUROPE 9261 already mentioned). The president has the impression that the three big countries in excessive deficit - France, Germany and Italy (in Italy, the annual budgetary deficit is severely aggravated by the level of debt) - do not this time intend to relent in their efforts to achieve healthy budgets. In the exchange of views between ministers on national budgets next year, experts consider that one of the difficulties lays in the difference of budgetary calendars in Member States. In order to be efficient, exchanges of views on respective budgetary strategies and the definition of common objectives have to take place before the budgets are definitely worked out by way of national procedures: but timetables do not coincide.
A bit of clarity on the dialogue between the two presidents. Although bolstering the weak wing of Economic and Monetary Union (EMU) is the main priority of Mr Juncker, the second priority is logically the quality of his permanent dialogue with Jean-Claude Trichet, president of the European Central Bank (ECB), an issue, that according to the accepted formula, has been the subject of much speculation. Here is how the president of Eurogroup describes the situation (in an interview already cited in “Les Echos”): “I believe that it is indispensable to intensify this dialogue. I often see Jean-Claude Trichet, and we regularly telephone each other. In April, however, I wrote to him proposing that we have a systematic macro-economic dialogue on medium term economic choices and between Eurogroup and the ECB and social partners. What already exists is guilty of an excess of formalism. It is above all the quality of the dialogue that needs to be strengthened in an effort to achieve a satisfactory end. But I do note that the ECB president has still not replied to me in writing”. The interview to the Financial Time (also dated 11 September) had a different tone: “We need to put a stop to this Trichet-Juncker story…We have said that we have an excellent relationship and that this cooperation will be increased…I am a great proponent of the bank's independence. The idea that Eurogroup harbours the wicked intention of undermining the independence of the ECB is totally false” (EUROPE 9261).
Mr Trichet pointed out that monetary policy is the responsibility of his institution and that the Treaty organises dialogue in a way that is totally clear. Within the limits of the Treaty, discussions with the president of Eurogroup and Commissioner Joachim Almunia present no problem at all.
I tried to find out more about the matter and a top level European figure (who will remain anonymous because I do not have any authorisation to quote him) gave me his opinion. His impression is that relations between Juncker and Trichet are in fact excellent and that they have a high regard for each other. There are more Telephone calls between them and cooperation will get stronger. Nonetheless, the ECB president will not agree to a codification of procedures or make commitments that go beyond those indicated in the Treaty because personnel changes and presidencies do not last forever and if in the future Eurogroup was presided by someone who was less respectful of the ECB's autonomy, what then? Will a minister attempt to impose his views on interest rates? Mr Trichet does not want his successors at the presidency of the ECB to reproach him for having made commitments that went beyond those demanded in the Treaty.
That said, the recent reference made by Nicolas Sarkozy to Article 111 of the current Treaty (the Article that confers the Council with competency on Euro exchange rates and general currency orientations) can be added to the dossier. This can indeed stir up a number of new interpretations and the accompanying polemic. Debates on the organisation of the dialogue should not spill over into the problems of substance. Asked about the hike in interest rates, Mr Juncker said that he was convinced that the ECB was taking the impact of its monetary decisions on growth, into account and, “judging by the evidence, the last interest rate rises have not affected economic recovery in Europe”.
A situation of potential conflict. This overall view would not be complete if I ignored a final point: relations between Eurogroup and the Ecofin Council. Some Euro zone ministers, assiduous in their attendance of Eurogroup meetings are less so in more expanded official sessions. Mr Juncker acknowledged that this could lead to the conclusion that absentees are “neglecting a wider solidarity that goes beyond the Euro zone. This is the feeling that the Swedes and British, as well as the new Member States sometimes feel”. But he added, “this does not correspond to reality”. It is good that at least someone is certain of this.
In fact, the situation does contain a level of conflict. The Euro zone is the economic heart of the Union; the most important debates on economic and monetary developments take place within it, the Euro asserts itself and the majority of other currencies have no choice but to adapt to its evolution. Finding themselves in this situation, Euro zone governments are aspiring to detach themselves from the procedures agreed to at the time, out of respect for the British, who believe that Eurogroup is an informal body and official decisions, even those on the Euro, are taken by the Ecofin Council. Is it reasonable that Euro zone countries cannot in total autonomy take decisions on their currency when for a few more months they are still in a minority? This is even more important given that it is because of their freedom of choice that Great Britain, Sweden and Denmark (even if the legal situation is different) remain outside the Euro but that they could, if they so wished, rapidly join the Euro. We can therefore understand why Euro zone countries want to make Eurogroup autonomous. Protocol No. 12 of the draft Constitutional Treaty would give Eurogroup an official status and a stable presidency (two and a half years).
To what extent should countries that don't want to take part in the Euro have their word to say about how it is managed? In his “Mémoires”, Jacques Delors said that it was “vital” to develop initial “reinforced cooperation” around the Euro and that it possessed “the legal possibility of going further” and that it had real powers and binding procedures on economic coordination, including the setting up of a “European Cyclical Regulation Fund” (paid into during the good years and supporting economic activity during tougher economic periods) and a minimum of harmonisation in taxation.
The problem of Eurogroup's autonomy will not arise tomorrow but it is a problem of immediate concern.