Eurozone needs further reform, Juncker paper says

The strategy paper adds that governments must implement “a consistent strategy around the "virtuous triangle" of structural reforms, investment and fiscal responsibility”.

Failure to do so would consign the currency bloc to a prolonged period of economic stagnation since “the legacy of accumulated imbalances remains painfully visible".

The Juncker paper is the first step towards the preparation of a joint report by Juncker, together with European Council boss Donald Tusk, European Central Bank president Mario Draghi and Eurogroup chief Jeroen Dijsselbloem on the future of the Economic and Monetary Union expected for June.

It poses 12 questions for leaders, ranging from whether new policy instruments are needed for situations in which governments continue to “go harmfully astray” despite the new governance framework, to whether the eurozone should co-ordinate tax and spending powers through common finance ministry.

Since the eurozone debt crisis took hold in 2010, the EU has radically overhauled its economic governance framework, setting up a permanent bailout fund, enshrining the bloc’s limits on debt and deficits in national constitutions, giving the commission sweeping powers to intervene in national budgetary policy, and a banking union.

The paper also comments that leaders must find a way of “making decisions about support for struggling Euro area countries more democratically legitimate,” while adding, in a nod to the social costs of austerity programmes, that there should be a way of “evaluating support and reform programmes not only for financial sustainability but also for their impact on citizens of the country concerned”.

The eurozone “created a 'community of destiny' between the 19 member states that share the euro as their currency; this requires both solidarity in times of crisis and respect by all for commonly agreed rules.”

Under the new governance rules, budget deficit levels in the euro area fell to 2.6 percent in 2014, down from their peak of 6.2 percent of GDP in 2010, inside the 3 percent limit set out in the Stability and Growth Pact.

However, government debt has soared from an average of 66.2 percent of GDP on average in 2007, to 94.2 percent.

Meanwhile, the bloc has endured a painful double dip recession, while unemployment remains over 10 percent.

Juncker’s commission has prioritised plans for a Capital Markets Union to reduce the reliance of businesses on bank lending and for eurozone countries to become more attractive business destinations.

In the World Bank rankings on the ease of doing business, Finland is the only eurozone member in the top 10, while several countries are not even in the top 50.