Brussels tables plans for closer EU economic union

Speaking on 12 May, European Commission President José Manuel Barroso said the recent turmoil on European markets had highlighted the need for closer European cooperation. "It's now clear that we are more interdependent than ever before. Financial difficulties in one euro area member state have spill-over effects in the others."

"Let's be clear: You can't have a monetary union without having an economic union. Member states should have the courage to say whether they want an economic union or not. And if they don't, it's better to forget monetary union all together," Barroso said.

Paris and Berlin welcomed the Commission's proposals, with German Chancellor Angela Merkel saying they went in the right direction and that it was not a bad thing that the Commission wanted to have an early look at national budget plans. But she said changes to the EU treaty were still needed to enforce the bloc's budget discipline rules more strictly. 

French government spokesman Luc Chatel said Paris backed the better fiscal and budgetary co-ordination, but added: "It's parliament that votes on the nation's budgets, it's not the European Commission that votes on the budget of the French nation."

German Vice Chancellor Guido Westerwelle said budget policy was at the core of national parliaments' rights.

In a joint letter on 6 May, French President Nicolas Sarkozy and German Chancellor Angela Merkel recommended stricter monitoring of eurozone member states' debt and extending surveillance "to structural issues and competitiveness," and not only excessive deficits as is the case today (EurActiv 07/05/10). They also suggest "strengthening the effectiveness of EU recommendations on economic policy".

Germany is also strongly campaigning to cut regional aid for states which regularly breach the rules of the Stability and Growth Pact. But France is reluctant to take such a tough line on the issue, as it has not always been an irreproachable member of the bloc itself.

Moreover, Merkel has expressed support for more radical reforms, like creating a European Monetary Fund or applying sanctions on eurozone member countries that repeatedly break the bloc's economic guidelines, suggesting for example that their voting rights in the EU Council of Ministers could be suspended (EurActiv 18/03/10).

However, that would require changing the EU treaties, and France prefers more straightforward reforms, like amending the Stability and Growth Pact.

In the European Parliament, French MEP Alain Lamassoure (European People's Party), chairman of the assembly's budget committee, warned that "the coordination of economic policy in Europe cannot be entrusted only to ministers debating and deciding behind closed doors in Brussels".

"How could elected representatives in a member state agree to have their hands tied by decisions taken previously in Brussels and in secret?" Lamassoure asks.

To make the procedure more transparent and democratic, Lamassoure recommends involving national parliaments "as of day one" by inviting elected representatives to debate national budgetary orientations on the same day across the EU and in Brussels. Such a procedure would force parliamentarians to work on the same economic assumptions regarding growth, inflation, interest rates and the price of oil, the MEP said.

It would also force everyone to face up to their responsibilities by setting national priorities against EU budget discipline rules, "in broad daylight and in the fact of national public opinion via the national media," he said. 

Reacting to the Commission's proposal, the Party of European Socialists (PES) warned about a "shift towards austerity" that would compromise economic recovery. The European Commission "runs the risk of infecting the EU recovery with the virus of punishment," said PES President Poul Nyrup Rasmussen, adding that there is "an over-emphasis on fiscal consolidation in the national member-state programmes".

"Punishment and sanctions just bring division and mutual recrimination," Rasmussen warned.

The PES also criticises the Commission proposal for failing to mention the need for new sources of taxation to fuel the EU budget, reiterating its plea for a global financial transactions tax to fight speculation (EurActiv 14/04/10). The PES also backs finding other new funding sources for the EU budget, such as the issuing of common Eurobonds or taxing carbon dioxide emissions.

The Liberal and Democrats group in the European Parliament (ALDE) said the Commission's proposal "will be key to avoiding or containing a further crisis" but questioned member states' determination to offer a collective response to the crisis.

"The big question is whether member states will have learnt their lessons," said ALDE group leader Guy Verhofstadt, warning against national tendencies to act in isolation.

ALDE suggested three steps to achieve greater financial stability and coherence in the euro zone and the EU as a whole. "First is the need for a permanent mechanism to entrench financial stability, along the lines of a European Monetary Fund that provides the solidarity but also the discipline where the old Stability and Growth pact was lacking."

"Second is the clear need to provide the Union with a genuine economic pillar that complements the monetary one, as 27 national fiscal policies are not conducive to a stable currency or a sustainable economy."

"Third, the European Single Market needs to be relaunched and completed along the lines recommended by Mario Monti, taking account of the present context of closer economic interdependence, the challenges of globalisation and the rapidly evolving digital agenda."