Summit to back special eurozone budget

The eurozone should have its own budget, which would be separate from the long-term budget of the wider European Union, according to draft conclusions of an EU summit to take place next week (18-19 October).

"For the euro area, the objective is to move towards an integrated budgetary framework," said the draft conclusions, seen by Reuters.

"In that context, mechanisms to prevent unsustainable budgetary developments, as well as mechanisms for fiscal solidarity, e.g. via an appropriate fiscal capacity, should be explored," the draft said.

"Such mechanisms would be specific to the euro area and therefore not be covered by the Multi-annual Financial Framework," the draft said.

The Multi-annual Financial Framework is the European Union's long-term budget which amounts to around 1% of the gross domestic product of the 27-nation bloc. It is used to support the EU's agriculture policy as well as investment in the EU's poorer countries and regions, among others.

Support from France, Britain and Germany

The idea of a special budget for the eurozone was first spelled out by European Council President Herman Van Rompuy in his recent 'Issues paper on completing the Economic and Monetary Union', circulated in September.

France and Germany support the idea, but many non-eurozone countries, which now benefit from the funds of the EU-wide budget, are concerned that its creation would diminish the amount of money available to them.

If confirmed at next week's summit meeting, the move would represent another step towards a "two-speed Europe", a process that was hurried last December when Britain vetoed the fiscal compact treaty pushed forward by Germany.

British Prime Minister David Cameron said he would not oppose the move to have two separate budgets, one for the eurozone and another for Britain and other nations outside the single currency.

“There will come a time I believe where you're going to need to have two European budgets – one for the single currency, because they're going to have to support each other much more, and perhaps a wider budget for everybody else."

Implementing reforms

The summit conclusions also showed that EU leaders would support the idea of eurozone countries entering into contractual agreements with EU institutions to implement reforms.

"The smooth functioning of EMU [the eurozone] for stronger and sustainable economic growth, employment and social cohesion requires stronger coordination, convergence and enforcement of economic policy," the draft conclusions read.

"In this respect, the idea for the euro area member states to enter into individual arrangements of a contractual nature at the European level on the reforms they commit to undertake and on their implementation should be explored," they said.

France, for instance, is open to the idea of a new European Union treaty to deepen integration if it is deemed necessary for new "solidarity" mechanisms in the bloc such as debt mutualisation.

Background

Several countries would like a special budget for the eurozone to protect the single currency from “asymmetric shocks”, with France, Germany and others backing the idea, according to EU diplomats.

The idea of a special budget for the eurozone was first spelled out by European Council President Herman Van Rompuy in his recent “Issues paper on completing the Economic and Monetary Union”.

EU countries are currently discussing what type of income and expenditure the budget would cover, with the aim of putting in place an instrument for financial and macroeconomic intervention against “asymmetric shocks”.

Tricky discussions lie ahead on how the two budgets would function in the EU's current institutional architecture.

Timeline

  • 18-19 Oct.: EU summit to debate "interim report" on deepening integration in the Economic and Monetary Union.
  • 13-14 Dec. 2012: Final report and roadmap for further economic and monetary union to be adopted by EU leaders at Brussels summit

Further Reading