Will genuine monetary union be a fiscal or stability union?

  
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Before Christmas (19th-20th December), European heads of state and government met in Brussels for the European Council, to discuss plans for a “genuine” Economic and Monetary Union (EMU). But what started as a promising plan appears to have been stripped-down intensively in scope, writes Björn Hacker.

Björn Hacker is a political analyst focusing on European economic policy at the International Policy Analysis Unit of the Friedrich-Ebert-Stiftung in Berlin

The EMU crisis unexpectedly offers, in the face of the possible collapse of the common currency, an opportunity to deepen integration through a banking union, fiscal capacity, common debt management and a social union. This is as clear in the first plans drawn up in June 2012 as in a revised version of December 2012 and the Commission’s Blueprint.

However, within only a few months the proponents of a “stability union”, who are counting on a continuation of the unilateral course of budgetary controls and competitiveness, have been able to dismiss, marginalise or put on the backburner what is compelling about a fiscal union, as well as the opportunities it would offer.

Again and again, specific proposals for improving the EMU architecture founder on fundamentally divergent approaches to the question of joint liability between member states. That applies both to the controversy about the restructuring and resolution mechanism of the banking union and to plans for common debt management or a fiscal capacity for the eurozone.

All that remains is the technocratic elements for gradual adjustments of the existing governance structure. And because, with the European Semester, the Fiscal Compact and other instruments, reshaping what is already in place constitutes the lowest common denominator of member states.

First and foremost, this means: structural reforms, budgetary consolidation, tightened controls and sanctions. The elements of ex ante coordination of economic-policy reforms, direct contractual arrangements between each member state and the EU and financial rewards for faithfully implementing structural reforms by means of a solidarity instrument, which remain for a ‘genuine’ EMU are basically already part of the coordination cycle of the European Semester or at least imaginable.

Now the range of subjects of coordination is to be extended and the compulsory elements of common objectives are to be tightened up. Anything beyond that, which could really contribute to change capable of correcting the barely discussed bias in EU economic governance, is scarcely discernible.

And the urgently needed project of a banking union will never come to fruition unless progress is made in fiscal and political integration.

The last German government was enormously successful in Brussels, suppressing almost everything that did not conform with its model of a ‘stability union’, in which each state helps itself and thus a transnational community cannot emerge. Thus the fiscal capacity has been remodelled into the unambitious solidarity mechanism; the banking union is coming to grief or largely degenerating into mere routine coordination by national authorities; and Community bonds have become a dead letter. On the latter, the Commission produced a green book back in 2011. However, German Chancellor Angela Merkel made her position absolutely clear around the time of the European Council in June 2012 when she said: “No eurobonds as long as I live,” since when the topic has been taboo.

Since the change of government in France, supporters of a ‘stability union’ around Germany, Finland and the Netherlands have encountered stiffer opposition. This is due to the obvious failure of austerity policy.

The attempt by the French government, together with representatives of the European Commission, to shoehorn the social dimension – which was not mentioned until the December summit of 2012 – into the negotiations on ‘genuine’ EMU is commendable and, in principle, correct.

The EU has for too long been perceived solely as a common economic area and positive, market-shaping integration has fallen too far behind negative, market-creating integration. It is thus high time to bolster and further develop the European Social Model. However, this process will miscarry if there is not also a clear correction of the reparation mode that EMU has pursued thus far.

As things stand today and with the current alignment of the instruments of economic governance all social aspects will remain in the shadow of budgetary consolidation and measures to increase competitiveness.

An ex ante coordination of economic policy reforms and contractual arrangements would only exacerbate the dependency of progress in the social realm on financial conditions, thus forcing it to justify itself and cementing the hierarchical subordination of social policy.

The work-in-progress of the European Social Model can continue successfully only if the original plans for a fiscal capacity, common debt management and a completely integrated banking union are realised. Only the consistent correction of the defective Maastricht currency architecture can clear the way for Europe’s social dimension. Unfortunately, there appears to be no prospect of that at present.

This is an abstract of a paper by the author, recently published by Friedrich-Ebert-Stiftung under the Title “On the Way to a Fiscal or a Stability Union? The Plans for a ‘Genuine’ Economic and Monetary Union”

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