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26/09/2016

EU’s ‘Five Presidents’ lay out eurozone vision, with timetable

Euro & Finance

EU’s ‘Five Presidents’ lay out eurozone vision, with timetable

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As Greece threatens new shocks for the eurozone, Commission President Jean-Claude Juncker and top EU officials have laid out a vision for the currency involving tighter control from Brussels.

In a report published on Monday (22 June), in cooperation with the heads of other EU bodies, Juncker also proposed help for states in distress.

The report recommended governments back modifications in procedures over the next two years, and set out longer term ideas that could be adopted in new treaty obligations within the next decade.

Despite the crises of the past years, as governments unable to devalue national currencies have struggled to manage their finances amid global recession, the report began with the phrase: “The euro is a successful and stable currency.”

However, “quick fixes” to the problems now need overhaul, especially in view of high unemployment, to ensure the euro – more than a currency but a “political and economic project” – had a “lasting, fair and democratically legitimate basis”.

“The world is watching us and they want to know where we are going. Today we lay out monetary integration and bring it to its ultimate destination,” Juncker said in a statement. Valdis Dombrovskis, Vice-President for the Euro and Social Dialogue, described the plan as a “ambitious, yet pragmatic vision” for the future of the eurozone.

A need for economies and budgets to converge would “inevitably involve sharing more sovereignty over time”, the report added, saying such steps would only be envisaged after 2017, when French and German elections are being held.

“For the euro area to gradually evolve towards a genuine Economic and Monetary Union, it will need to shift from a system of rules and guidelines for national economic policy-making to a system of further sovereignty sharing within common institutions, most of which already exist and can progressively fulfil this task,” the report says.

In practice, this would require EU countries to “accept increasingly joint decision-making on elements of their respective national budgets and economic policies”, it adds, saying this would “pave the way for some degree of public risk sharing”, a reference to euro bonds.

One ultimate outcome could be a “euro area treasury”, although the report stressed it did not foresee “stabilising” cash transfers going permanently to certain states, nor seek to use them to equalise incomes among rich and poor countries.

The report foresees three stages in deepening integration:

  • Stage 1 (1 July 2015 – 30 June 2017): A “deepening by doing” stage where small steps are taken towards fiscal convergence, using “existing instruments” and treaties.
  • Stage 2 (30 June 2017 – 2025): A “more binding” completion stage, with “a set of commonly agreed benchmarks for convergence that could be given a legal nature, as well as a euro area treasury”.
  • Stage 3 (By 2025 at the latest): A final stage, where the vision would be complete.

Earlier drafts of the report, seen by EurActiv, were equally humble, remaining vague on social issues which are of crucial importance to France and southern EU member states struggling with high unemployment.

>> Read: Leaked eurozone blueprint makes timid call for integration

National leaders, who commissioned the report last year, will have a first chance to discuss it at a summit on Thursday and Friday that may be dominated by efforts to prevent Greece defaulting on its debts and losing access to the euro.

Differing views on the report are to be expected, though it contains elements likely to appeal to various parties.

It may please Germany by calling for tougher discipline on countries, like France and Italy at present, that fail to meet budget criteria.

But it also says that states running persistent trade surpluses, such as Germany, should adjust them. And it calls in vague terms for some shared fiscal resources to help countries in difficulty, an issue on which German Chancellor Angela Merkel has been wary.

Immediate measures

In the short term, the report recommends quickly setting up national competitiveness authorities, possibly on existing Dutch and Belgian models, that would press governments to pursue policies that would help productivity. It calls for greater emphasis on promoting employment and sustainable pension systems as part of a more “forceful” use of annual EU reviews of national budgets.

The report also calls for measures to strengthen cooperation in avoiding the kind of banking crises that sucked in government cash in recent years. One measure it recommends taking within the next two years is to create a European Deposit Insurance Scheme, to share risks among EU states.

Dealing with Britain

One element of any tightening of eurozone coordination will be dealing with Britain, the main EU economy set on keeping its own currency. Prime Minister David Cameron has made guarantees of Britain’s access to the EU single market without euro membership a condition for the UK remaining in the bloc.

British officials have said they support tighter integration of the eurozone and would like new terms for London included in changes to treaties on the subject. But Juncker’s timeline makes clear that treaty change is not on his agenda until after 2017.

However, the preamble to the report emphasised that eurozone integration should not harm the single market in any way.

“Completing Europe’s Economic and Monetary Union” is known as the Five Presidents Report, drafted by Juncker with European Central Bank chief Mario Draghi, European Council President Donald Tusk, European Parliament speaker Martin Schulz and Jeroen Dijsselbloem, the chair of eurozone finance ministers.

Positions

Guy Verhofstadt, the leader of the European Liberals and Democrats (ALDE) group in the European Parliament, said he supported the reforms listed in the Five Presidents' report. But he said these should be adopted much faster.

"I am pleased to see that Liberal and Democrat ideas to develop a Convergence Code (minimum and maximum levels for key policy areas of the economy) and a European Treasury have been adopted in the paper," Verhofstadt said.

"Jean-Claude should act now and fast track these proposals while there is the political will to do so. There is no need to wait until the end of the elections in Germany and in France in 2017. He should start by accelerating proposals for a Capital Union, which should be a reality in 2017 according to the paper. The original idea to come forward with legislative proposals in 2018 was indeed not ambitious enough."

"What I missing is a proposal for a redemption fund to deal with the debt overhang. I also would have liked to see more ambitious proposals to open up the European internal market. We do not only need better governance, we also need more economic activity to create growth in Europe."

The Greens in the European Parliament were more critical, saying the Five Presidents' report fell "drastically short" of what is needed to fix the single currency.

Philippe Lamberts, the Green's co-President, said: "The EU needs bold proposals for closer cooperation on economic and monetary policy, proposals like fiscal and social union, debt mutualisation and banking union. However the report makes at best passing reference to these key issues."

"Instead of addressing the fiscal, social and democratic shortcomings of monetary union, the report seems to be fixated on measures that have already proven failures. Draghi called for a quantum leap forward but Juncker has simply repackaged tactics that have already led the Eurozone to the brink of collapse. The report instead proposes a very narrow concept of competitiveness – one based solely on lowering direct and indirect labour costs."

“This paper will not resolve imbalances between the euro area member states. All it does is propose to continue along the same path of managing the euro area via technical rules and procedures rather than through common policies and institutions," added Sven Giegold, a German MEP who is the Green's financial and economic policy spokesman. "This will force the European Central Bank to continue to take over the dirty work, managing the Eurozone via loose monetary policy. Mario Draghi’s call for more common policies have clearly fallen on deaf ears."

"There are other glaring omissions in the report: No Euro budget in the EU budget or any other common fiscal instruments to better absorb economic shocks. No proposal for a powerful Commissioner on the Euro. No effective parliamentary control or transparency of the Eurogroup or proposal for a debt redemption fund or eurobonds as solution to the high foreign debt of several euro area Member States. The heads of the EU institutions know what is called for, but they are unwilling to take the long overdue step towards integration, fearing refusal by EU leaders."

Bernadette Ségol, General Secretary of the European Trade Union Confederation (ETUC), spoke in highly critical terms about the Five President's report:

“There is no way trade unions would accept a body separate from the social partners giving advice on wage negotiations. This would be a recipe for major conflict. Wage setting is the role of autonomous social partners”.

“What the European Commission’s press release about the Competitiveness Authority fails to mention is that the authority in Belgium is run by employers and trade unions – it is not a separate body handing down advice to social partners to follow.”

“Despite the recent much-heralded relaunch of social dialogue by the European Commission, trade unions have not been consulted on this proposal, which I find unacceptable.”

She added “It is very revealing about today’s EU that 8 years after a crisis caused by the financial sector the solution is perceived to be giving guidance on workers’ wages. Corporate bosses pay, zero-hour contracts, tax avoidance by multinationals, social dumping are not mentioned. There are nice words about the social dimension of EMU but not a single specific proposal for action, in contrast to the very specific proposal about so-called competitiveness. No wonder citizens are disillusioned, the EU seems to have lost interest in them.”

Background

At the eurozone summit of 24 October 2014, the presidents of the European Commission, the Council, the Eurogroup, the European Parliament and the European Central Bank were invited to combine their efforts to prepare the "next steps for a better economic governance in the euro area".

A first draft, carefully presented as an "analytical note", was discussed by EU leaders at a summit in February.

>> Read: Juncker sparks debate about a core eurozone union

But the document contained more questions than answers and failed to trigger much debate.

>> Read: Juncker paper fails to spark debate about eurozone’s future

This discussion with the EU's heads of government will continue in June.

Timeline

  • 25-26 June: European Council meeting in Brussels to discuss euro zone blueprint
  • Spring 2017: Commission to publish "white paper" on euro zone integration, to prepare for the transition from stage 1 to stage 2.

Further Reading

European Commission

European Council