31st Mar 2023

EU economic governance inevitable, Belgian PM says

  • Leterme: "It's about Europe's financial stability and it's not an ideological debate about federalism" (Photo:

Belgian Prime Minister Yves Leterme has said that joint economic governance among some or all EU member states is an inevitable consequence of the creation of the euro.

Speaking in an interview with EUobserver about the prospects for setting up a future European Debt Agency (EDA) and a European Monetary Fund (EMF), Mr Leterme predicted that current resistance to the plans will melt away in the coming years.

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"You can have doubts about the political will today ...but the idea of strengthened economic government has been put on the table and will make progress. In the end, the EDA or something like it will become a reality. I'm convinced of this," he said.

"It's about Europe's financial stability and it's not an ideological debate about federalism. I myself am a federalist. But more integration and deeper integration are simply logical consequences of having a single currency."

Mr Leterme floated the debt agency proposal in the press on 5 March.

The agency would be a new EU institution based at the European Investment Bank in Luxembourg. It would help EU governments to borrow money more cheaply by selling bonds guaranteed by all participating states and channeling funds to national treasuries.

A back-of-the-envelope calculation shows that if markets bought the bonds at an interest rate just 0.1 percent lower than today, the EU as a whole could save €6.6 billion.

The EMF plan was put forward by Germany and involves the creation of a new fund to grant emergency loans to countries at risk of sovereign default.

Both proposals would require EU states to give up fiscal decision-making powers and to co-ordinate national budgets at the EU level to a far greater extent than today. They could also require financially sound EU countries to prop up their insolvent cousins.

The EMF would most likely need a new EU treaty, which forbids eurozone bail-outs as things stand. But the EDA could be set up on the basis of Article 136 of the existing treaty on "the proper functioning of economic and monetary union," Mr Leterme's advisors say.

The Belgian leader may raise the debt agency plan at the EU summit on 25 March. It would be "interesting" for EU leaders to discuss it further at the informal, monthly summits proposed by EU Council President Herman Van Rompuy, he said.

The EDA could initially be set up outside EU structures if need be. "We can do a lot of things on an intergovernmental basis, a kind of coalition of the willing, a coalition of the willing of most of the eurozone countries," Mr Leterme explained.

'Doubt in their eyes'

The global financial crisis and the more recent Greek debt crisis have caused a shift in EU thinking.

Recalling an extraordinary EU summit in October 2008, which took place a few weeks after the collapse of the US investment bank, Lehman Brothers, the Belgian premier said: "We saw the doubt in the eyes of [French and German leaders] Mr Sarkozy and Mrs Merkel. You could feel that they were thinking that sharing the risks, the common approach is not necessary because they were big enough as countries to save their own banking systems."

But today, he said: "Even Mr Sarkozy and Mrs Merkel realise that if this was to happen again and there was a problem for one of their banks, it would not be easy to avoid a common approach."

Mr Leterme cautioned that on the one hand, pro-integration countries must strike while the iron is hot: "[The Greek crisis] creates a momentum which we have to seize."

But on the other hand, the EDA requires a deep technical analysis best made away from the volatile emotions surrounding the Greek bail-out case. "The problem is that you should not do this at the moment when it is at the core of the public debate. You have to be able to do it in a more theoretical way, a scientific way," he said.

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