The eurozone needs to press ahead with structural reforms and closer integration, including a eurozone finance ministry, to deliver sustainable growth, the heads of the French and German central banks wrote in a German newspaper on Monday (8 February).
In a Sueddeutsche Zeitung op-ed entitled Europe at a crossroads, the bankers said that the European Central Bank (ECB) was not in a position to create sustainable long-term growth for the 19-country single currency bloc.
The ECB has undershot its 2% inflation target for three straight years and is unlikely to return to it to for years to come given low oil prices, lacklustre economic growth, weak lending and only modest wage rises in the euro zone.
“Although monetary policy has done a lot for the eurozone economy, it can’t create sustainable economic growth,” Bundesbank President Jens Weidmann and Bank of France Chief François Villeroy de Galhau wrote.
Instead, the eurozone needs a decisive programme for structural reforms, an ambitious financing and investment union as well as better economic policy framework, Weidmann and Villeroy de Galhau said.
The idea of such a ministry was floated in 2011 to tighten coordination of national policy after the economic crisis had forced the European Union to fund bailouts worth hundreds of billions of euros for Greece, Ireland and Portugal.
“The current asymmetry between national sovereignty and communal solidarity is posing a danger for the stability of our currency union,” they wrote.
“Stronger integration appears to be the obvious way to restore trust in the eurozone, for this would favour the development of joint strategies for state finances and reforms so as to promote growth,” they added.
Specifically, Weidmann and de Galhau called for the creation of a common finance ministry in connection with an independent fiscal council, as well as the formation of a stronger political body that can take decisions.
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.
The discussion continued in June with the publication of a report by the five presidents, which proposed threes stages, until 2025, to deepen integration among eurozone countries.
- 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.
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.
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.
- Spring 2017: EU executive presents white paper on further reforms for the EMU.