‘Exploratory summit’ to shape eurozone's future

  

The two-day EU summit that begins today (18 October) will be an exploratory one, according to diplomats in Brussels who say EU leaders will be seeking “the lower common denominators” for shaping the economic and monetary union. 

Leaders are expected to congratulate themselves for the EU's Nobel Peace Prize, awarded a week ago, as well as for the intention of 11 countries to launch an "enhanced cooperation" procedure for a financial transactions tax (FTT).

On the tricky question of who should collect the prize in Oslo on 10 December, it appears that it will be the presidents of the main three EU institutions - the Parliament's Martin Schulz, the Commission's José Manuel Barroso and Herman Van Rompuy of the European Council.

No major clashes are expected at the summit, with discussions focusing on ways to deepen the Economic and Monetary Union in the eurozone, based on an interim report by Van Rompuy.

No big decisions are expected either, said EU diplomats who did not exclude that the summit among the 27 EU leaders could be followed by a smaller meeting of the 17 eurozone countries.

Indications from Spain that it is approaching the point of formally requesting aid could perhaps overturn the agenda. Regarding Greece, diplomats insist that no decisions are expected before the troika - the Commission, the European Central Bank (ECB) and the International Monetary Fund (IMF) - publishes its report. The Troika concluded its work yesterday, but its report is not yet ready.

“Obviously Greece is not meeting its commitments. It will not happen during the summit, but it is expected to be given more time. But time is costly,” a diplomat said.

The Quadriga report

Discussions at the summit will centre around a report published last week by Van Rompuy, Towards a genuine economic and monetary union, which charts a path towards closer fiscal integration among the 17 countries using the euro.

The Interim report - prepared with Barroso, European Central Bank President Mario Draghi and Eurogroup leader Jean-Claude Juncker - has been drafted by this “quadriga” in discrete consultation with member states.

But its content is relatively insipid and phrased in diplomatic terms.

The most controversial proposals came from German Finance Minister Wolfgang Schäuble, who called on Tuesday for a big federalist leap and the creation of a new commissioner with powers to oversee the national budgets of eurozone countries.

Eurozone budget and political union

Other member countries appear to signal that they feel left behind and that they are not properly consulted. In particular, the idea of a separate budget for the eurozone is raising eyebrows, since it is unclear for what purposes it would be used and how such a package could affect the ongoing negotiation for the 2014-2020 EU budget.

According to the summit draft conclusions, published by EurActiv France, EU leaders pledge transparency towards member states that do not use the euro.

EU leaders will ask the quadriga to present a “time-bound roadmap” at the 13 December summit, so that EU leaders can  agree “on the essential building blocks on which a genuine Economic and Monetary Union (EMU) should be based".

German Chancellor Angela Merkel is hoping that the December meeting can produce a concrete date for the start of a convention for a new treaty paving the way for "political union" in the euro zone. But she stands accused of dragging her feet when it comes to more immediate steps, like plans for a banking union, which underpins the future EMU.

In an interview with French daily Le Monde, French President François Hollande said: "It has not escaped my notice that those who are most eager to talk about political union are sometimes those who are most reticent about taking urgent decisions that would make it inevitable."

Questions over banking union plans

The summit will instruct the European Commission to proceed with legislative proposals establishing a Single Supervisory Mechanism (SSM) for the banking union as a matter of priority, with the objective of completing it by the end of the year.

Under the Commission's proposal, the ECB will supervise all 6,000 banks in the euro area - a step too far for Berlin, which wants to keep control over its smaller regional banks.

Among the questions to be addressed at the summit are how far the European Stability Mechanism (ESM) should go in providing “direct” recapitalisation for troubled banks.

But some countries question the very “democratic legitimacy” of the system. Some claim that the European Parliament does not have fiscal competencies, while others are reluctant to involve national parliaments. “The appropriate accountability and transparency of the ESM needs to be ensured, particularly vis-à-vis the European Parliament, the Council and national parliaments,” the draft conclusions read.

The proposed system is even subject to legal questions. A report by the Council's top legal advisor, obtained by the Financial Times newspaper, argues the plan goes "beyond the powers" permitted under EU law for the ECB, which was granted broad authority under the Commission proposal.

On the other two pillars of the banking union - bank recovery and resolution, and deposit guarantees schemes - the draft conclusions call for the rapid conclusion of the single rule book, including agreement on proposals on bank capital requirements, by the end of the year.

Too many decisions by year's end?

On the so-called “two-pack”, a key piece of legislation necessary for the reinforcement of the new economic governance in the EU, the summit calls on the Parliament and the Commission to adopt it by the end of the year "at the latest”.

EU leaders commit to explore “further mechanisms" specific for the eurozone - a reference to plans for a special eurozone budget, which Merkel says could be financed by the FTT. This effort will be carried out separately and without relation to the ongoing negotiation for the 2014-2020 EU budget.

The idea of providing incentives to countries that carry out reforms successfully is also expected to be discussed. However, this doesn’t appear to be an easy task, because some countries claim they have already carried out painful reforms without asking for help. “Why should others be rewarded?” one diplomat said.

No moves on treaty change

The summit is not expected to decide the way forward for treaty change, as advocated by Barroso in his ‘State of the Union’ speech.

Barroso has said his office would flesh out proposals for the future shape of the EU, including the legal changes required to become a "federation of nation-states", before mid-2014.

Merkel hopes that the 13 December summit can agree a concrete date for the start of a convention on a new EU treaty to complete the EMU.

French President François Hollande said on the even of the summit that his country would support steps to closer political union in the EU only after the 2014 European Parliament elections.

Today the leaders are expected to discuss the quadriga report, and then, over dinner, adopt conclusions on its follow up. On Friday morning, Van Rompuy will debrief leaders on the recent EU-China summit and the Council conclusions will be finalised.

Positions: 

Commission President José Manuel Barroso has called on the EU heads of state and government to redouble their efforts to implement the Compact for Growth and Jobs, agreed at the June summit. This is the key message of the 14-pages report Barroso sent out yesterday (17 October) to the member states.

While underlining progress made, for example on the capital increase of the European Investment Bank or on pilot project bonds, the report highlights the disappointing results in other areas. Such are the fields of labour market (posted workers, regulated professions), tax policy (savings taxation, energy taxation, Common Consolidated

Corporate Tax Base (CCCTB), the digital single market (e-signature and e-identification), etc.

Timeline: 
  • 18-19 Oct.: EU summit to debate "interim report" on deepening integration in the Economic and Monetary Union.
  • 22-23 Nov.: Extraordinary summit to discuss long term budget for 2014-2020
  • 13-14 Dec. 2012: Final report and roadmap for further economic and monetary union to be adopted by EU leaders at Brussels summit
  • German Chancellor Angela Merkel hopes the summit can agree a concrete date for the start of a convention on a new EU treaty to complete the EMU.
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