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17th Apr 2021

Eurozone needs 'limited fiscal solidarity'

  • Having a separate eurozone budget borrow money is the latest idea on how to solve the euro-crisis (Photo: guysie)

The eurozone should consider introducing treasury bills, a special budget and a finance ministry in order to stabilise the future of the single currency, says an ideas paper published by EU council president Herman Van Rompuy on Friday (12 October).

The seven-page document, meant to spur discussions among EU leaders at next week’s summit, outlines the “specific challenges by virtue of sharing a currency.”

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It notes that while the EU has made progress to strengthen budget oversight and discipline among member states, this needs to be complemented by a “fiscal capacity” – shorthand for a separate eurozone budget.

This budget would cover new “fiscal functions” not currently covered by the EU’s longterm budget, says the paper.

The single currency budget could come into play when a euro country gets into economic difficulties by providing “some degree of absorption at the central level.”

But the paper is careful to reflect the worries of the more well-off euro states, putting in caveats to say that pooled money would not be a financial drip for debt-ridden countries.

Troubled euro states would receive “limited fiscal solidarity.” The paper notes that sharing budget resources should be structured in a way that they do not lead to “permanent transfers across countries” or undermine countries’ reform resolve.

A major, and likely controversial suggestion, is whether the “future fiscal capacity” could borrow although it notes that the balanced budget rule in the fiscal discipline treaty would have to be applied.

The paper also notes that the eurozone would have to have its own finance ministry “with clearly defined fiscal responsibilities.”

The paper revisits the consistently controversial idea of eurobonds – pooling debt – for a “limited and conditional basis” although it points out that this will require a transfer of budget powers to the EU level going beyond the already substantial new oversight the European Commission has been given since the onset of the eurozone crisis.

Giving an idea of the kind of policy areas that euro members will have to coordinate in future to help guarantee a stable eurozone, the paper points to integrated economic policies in “labour mobility or tax coordination.”

The notes also devotes several paragraphs to democratic legitimacy, with EU politicians increasingly concerned about the centralisation of state powers in Brussels without the overt awareness of EU citizens.

One possible solution is to “ensure debate” among euro and national MPs on the European Commission’s annual recommendations on how countries should be spending their national budgets.

EU leaders are to discuss the paper at the end of the next week in Brussels. Their debate is supposed to help Van Rompuy flesh out a “time-bound roadmap” for achieving economic and monetary union to be presented at a December summit.

However, there are already concerns about whether Van Rompuy will be able to keep separate these future-of-eurozone discussions from the fractious and concurrent discussions on the 2014-2020 EU budget, also due to be finalised in December.

"Of course the two will get mixed up," one EU official told this website.

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