Reforming the EU – Deepening Europe’s Economic and Monetary Union

Reforming the EU – Deepening Europe’s Economic and Monetary Union

On the last December 6th 2017, the European Commission released a proposal stating a concrete roadmap for reforms to be taken in the next 18 months on Economic and Monetary Union. The EU Commission finally delivered on the commitment made by President Jean-Claude Juncker in his 2017 State of the Union address.

Furthermore, the economic proposal is based on the vision set out in the Five Presidents’ Report of June 2015 and the Reflection Papers on the Deepening of the Economic and Monetary Union and the Future of EU Finances of spring 2017. It aims to enhance the unityefficiency and democratic accountability of Europe’s Economic and Monetary Union by 2025 and to set up a series of tools capable to prevent or mitigate a new crisis in the European Union. Referring to the package, President Juncker stated: “After years of crises, it’s now time to take Europe’s future into our own hands. Today’s robust economic growth encourages us to move ahead to ensure that our Economic and Monetary Union is more united, efficient and democratic, and that it works for all of our citizens. There is no better time to fix the roof than when the sun is shining.”

As European Union Experts we had the chance to discuss the Commission’s proposal in an event hosted by the Foundation for progressive studies, straight after the initiative launch. Fabien Dell, Member of the cabinet of Pierre Moscovici, Commissioner in charge of Economic and Financial Affairs, Taxation and Customs presented the package as: “A set of two different items: institutional and budgetary. They are part of the first set of items the 1) European Monetary Fund; 2) the Treaty on stability, Coordination and Governance and 3) a European Minister of Economy and Finance; while 4) new budgetary instrumentsconstitute the second set.

1 – European Monetary Fund (EMF)

A proposal to establish a European Monetary Fund (EMF), anchored within the EU’s legal framework and built on the well-established structure of the European Stability Mechanism (ESM), of which the EMF would take over the functions of the €500 billion.
Under Brussels’ blueprint, the EMF would be in charge of a planned last-resort financial backstop for the euro area’s system for handling banking crisis. It would also play a bigger role in monitoring countries’ compliance with the conditions of their bailout programmes and over time, the EMF could also develop new financial instruments, for instance to support a possible stabilisation function.

This proposal is considered to be the very core of the reforms package and there is broad agreement among governments that an EMF is desirable in order to have an European instrument capable to address such problems without calling for the intervention of external institutions as the International Monetary Fund (IMF). The resistance and different positioning among political groups and national governments concerns mostly the legal form the European Commission is proposing. National officials warn that Brussels’ plan will rob the ESM of its independence and make it subordinate to EU institutions, particularly the Commission, despite the fact that the massive amount of money come from the States. For this reason, other kinds of governance, as the European Investment Bank one, which is controlled by the Member States, are regarded as a possible alternative. On the other hand, EU officials denied that the EMF plans amounted to a power grab and said they would improve efficiency of decision making and democratic accountability to the European Parliament.

2 – The Treaty on Stability, Coordination and Governance

The proposal aims to integrate the Treaty into the Union legal framework, taking into account the appropriate flexibility built into the Stability and Growth Pact. According to Fabien Dell this is not going to create more difficulties in modifying it, but is going in the direction of a more democratic accountability, giving more decisional power to the European Parliament.

3 – European Minister of Economy and Finance

Proposals for a new position of European Minister of Economy and Finance, who could serve as Vice-President of the Commission and chair the Eurogroup. The job would put one person in charge of policing respect for eurozone budget rules, and forging deals between governments on everything from economic reforms to crisis bailouts. Other tasks would be to try to set an overall fiscal stance for the euro area, to determine how far government spending policies could tilt towards stimulating the economy and prepare summits of euro area leaders. The Minister is expected also to oversee the work of the European Monetary Fund. Due to its belonging to the Commission, the Minister would be accountable towards the European Parliament on all issues related to its functions and would also be available for dialogues with national Parliaments.

In relation to this point the Commission is pushing or the adoption, by mid-2019, of the proposal to create a unified seat at the International Monetary Fund (IMF). For the Commission, this step would increase the effectiveness of the common currency governance. In case the Union creates the post of minister of economy and finance, merging the roles of Eurogroup president and vice-president of the Commission, he or she would be the one to attend IMF meetings and other international gatherings like the G-20. Wary of the member’s state are reluctant to lose their voice at the Fund and for this reason the Commission proposed a three-step approach, to be concluded by 2025 with a single representation, under the Eurogroup President.

4 – New budgetary instruments

Proposals for new budgetary instruments for a stable euro area, with four specific functions: a) support to member states for structural reforms through a reform delivery tool and technical support at the request of member states, in that regard, the proposals provide carrots and sticks to governments, offering cheap loans and grants for tough times on the one hand, and beefing up the conditionality attached to other parts of the EU budget on the other; b) a dedicated convergence facility for member states on their way to joining the euro; c) a backstop for the Banking Union, through the EMF/ESM, to be agreed by mid-2018 and made operational by 2019; and d) a stabilisation function in order to protect investments in the event of large asymmetric shocks.

The overall reform proposal has been welcomed as positive for some aspects, but from a progressive point of view it has been noted the lack of a social dimension. There is no commitment to integrate the European Pillar of Social Rights, declared on 17 November in Gothenburg, in the Eurozone governance. It is merely referred to as “compass”. On this regard EPSU’s General Secretary Jan Willem Goudriaan stated: “The European Commission missed an opportunity to demonstrate its commitment to workers and people beyond fine words and to include the principles of the Pillar in its economic architecture for the future of the Eurozone.”

Now it is time for the European Council to come on stage. The Commission’s proposal is, in fact, on the agenda of next meeting taking place on December the 14-15th in Brussels but, due to the absence of a German government in power, a final decision could be postponed to next year.

By: Flavio Previtali