Friday

19th Oct 2018

Commission presents plan for beefed-up eurozone

  • Juncker before his State of the Union speech. Wednesday's proposals will outline his views of deepened eurozone (Photo: European Parliament)

The European Commission will, on Wednesday (6 December), present its plan for a European monetary fund, an EU finance minister, and more coordinated policies with member states.

The package, which will include legislative proposals and positions papers, will be discussed by EU leaders at a euro summit on 15 December as part of a larger effort to relaunch the EU after Brexit and the financial crisis.

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  • The package is part of a larger effort to relaunch the EU after Brexit and the financial crisis (Photo: Richard Holt)

The EU executive's proposal will be at the centre of a debate between supporters of an EU that is focused on the eurozone, and those who want to keep close links between the 19 euro countries and the eight other members states.

"Two leading principles are particularly important," EU finance commissioner Pierre Moscovici told journalists on Monday.

"We have to move forward with Europe's unity through more convergence within the eurozone and at the level of the whole EU. And we have to make the governance of the eurozone more democratic and more efficient," he said.

The main part of the commission plan is a legislative proposal to transform the European Stability Mechanism (ESM) - the EU emergency fund established in 2012 - into a proper European monetary fund by 2019 or 2020.

The fund, which is leading the current Greek bailout, would have more power and more independence from the member states.

"There is a growing consensus that the ESM will play a stronger role in the future, for instance in the design and negotiations of any future adjustment programme," the fund's chief Klaus Regling said on Monday.

He added that the ESM could also have a role in the so-called fiscal capacity, "this pot of money, facility or credit line to finance public goods."

He noted that many states would like to keep the ESM as an intergovernmental body, but he insisted that EU leaders should discuss "substance" before going into "political discussions on the legal framework."

The upgraded ESM could also have a mandate to provide a backstop for the bank single resolution fund (SRF), Regling said.


The backstop - a mechanism to step up bail-out capacities for failing banks - is considered as a necessary element to complete the banking union.

While the SRF is currently funded by the banks themselves, an additional mechanism is needed to provide more support in case of a larger crisis that would deplete the existing fund, EU officials argue.



The backstop, which could be a credit line from the ESM or financial guarantees from states, would prevent a financial crisis from becoming a public debt crisis when government have to bail out the banks, as it was the case after the 2007-2008 crisis.

'Double hat' minister

In his State of the Union speech in September, the commission's chief, Jean-Claude Juncker, insisted that the eurozone did not need a budget, but "a strong euro area budget line within the EU budget."

On Wednesday, the Commission will leave the discussion over the budget for next spring, when negotiations about the 2021-2025 EU budget will start.



It is however expected to confirm its intention to increase resources for the Structural Reform Support Service, a unit that helps member states to reform their economies as well as administrative structures.

The SRSS, which is used by euro and non-euro countries, is considered by the commission as one of the best instruments for convergence between EU states and economies.

Demands for expertise from more than 20 states are now five times higher than the SRSS capacity, an EU official said, adding that this not concern only "problematic" countries.

To manage a deepened eurozone, the commission is also advocating the creation of a EU finance minister.

As Juncker already announced in his speech, the commission will propose that the future minister wears a "double hat" - he would be an EU commissioner as well as the president of the Eurogroup, the informal body of eurozone finance ministers.

The idea has already been rejected by several member states, who do not want to give too much power to the commission.

No details and rumours

Wednesday's proposals have already triggered a debate over to what extent EU community bodies - the commission or a beefed-up ESM - will prevail over member states, and to what extent they will impose a model of fiscal orthodoxy.

Details remain however uncertain, as the commission has been trying to prevent leaks as much as possible. But rumours abound.

Last Friday, after 8PM, the Commission issued an unusual statement denying German media reports that it would "weaken the deficit criteria of the Stability and Growth Pact".

On Monday, a French article said that the EU executive was about to enshrine in EU law the so-called golden rule that imposes a balanced budget in member states.

The reports, the commission spokesman said, show that "no one knows what they are talking about."

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The EU Commission chief hopes that as Emmanuel Macron pushes for euro area countries to integrate further creating a multi-speed Europe, central European members will be more inclined to join the single currency. Are they?

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EU leaders will discuss at their summit next week the commission's proposals, which include a European Monetary Fund and an EU finance minister - but no eurozone budget, as proposed by French president Emmanuel Macron.

Analysis

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