25th Oct 2016

EU leaders to consider eurozone budget, reform 'contracts'

  • Council meeting room: EU leaders will later this month consider giving more oversight powers on employment, pensions and social areas to the European Commission (Photo: Valentina Pop)

EU leaders meeting later this month in Brussels will try to iron out disagreements on a new eurozone banking supervisor and consider further steps to deepen the economic union, such as a eurozone budget and binding "contracts" on reforms.

According to draft guidelines discussed on Wednesday (3 October) by EU ambassadors for the summit conclusions on 18-19 October, member states should consider "individual contractual arrangements with the European level on the reforms they commit to undertake and their implementation."

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The idea, although controversial, is not new. Germany has long fought to have more supervision of national decisions on budgets, labour market reforms, pension schemes or retirement age in member states.

It sees this as a quid pro quo for its approval of the Greek, Portuguese, Irish and now Spanish bailouts, the setting up of a permanent bailout fund, and the tacit endorsement of a bond-buying scheme by the European Central Bank.

EU officials familiar with the discussions among member states say it is still too early to say whether to expect a deal at the October summit on this extra layer of supervision.

The same goes for the idea of having a budget for the 17 eurozone countries only.

"There seems to be more impetus behind it, but the most we can expect is for member states to say they are willing to explore it," one EU official told this website.

French finance minister Pierre Moscovici has already floated the possibility of a eurozone budget being used for unemployment benefits in countries under particular pressure, such as Spain where over a quarter of the workforce is out of a job.

But, said the EU source, the budget would rather needed to be 'new money' on top of the common EU budget for 2014-2020 currently being negotiated. Otherwise these negotiations risked being completely derailed.

A unanimous decision among all 27 members would be needed to allow for any non-standard use or splitting of the EU budget.

Meanwhile, the EU commission is planning to come up with its own blueprint on how eurozone budget could be achieved

One idea is to have loan guarantees on the back of the EU budget used for eurozone states only. This could be in the form of what is now the nearly exhausted European Financial Stability Mechanism (EFSM) - a €60 billion fund used for the Irish and Portuguese bailouts.

Another idea is to have "own resources" - such as a financial transactions tax - fund this eurozone-only pot.

At least nine countries have to endorse the idea for the tax to come into force. So far, only Germany, France and Austria have written to the commission in support of it.

The commission blueprint is only expected to be issued after the October summit, but before a November meeting of EU leaders aimed at sealing a deal on the next EU budget for 2014-2020.

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