The European Commission is pushing for the adoption, by mid-2019, of the proposal to create a unified seat at the International Monetary Fund, as part of its package to strengthen the economic and monetary union presented on Wednesday (6 December).
For the Commission, this step would increase the “effectiveness” of the common currency governance.
Wary of the member states’ reluctance to lose their voice at the Fund, two years ago the Commission proposed a three-step approach. The final stage with a single representation, under the Eurogroup President, would not come until 2025.
If by then the Union creates the post of minister of economy and finance, merging the roles of Eurogroup president and vice-president of the Commission, he or she would be the one to attend IMF meetings and other international gatherings like the G-20.
European Commission President, Jean-Claude Juncker, who included the single representation of the euro abroad among his priorities when he took office, wants to reach an agreement before his mandate ends in November 2019.
This deadline was included in the package presented yesterday by three commissioners to complete the economic and monetary union.
As already announced by the executive in its work programme, the Commission proposed a reinforcement of its financial instruments to support structural reforms in member states and to support non-eurozone countries in meeting the criteria to join the common currency.
Towards a fiscal union?
However, the executive fell short of the expectation that it would give the bloc a real fiscal capacity, the missing pillar of the union.
The Commission said that it will present in May 2018 a proposal for the creation of a ‘stabilisation function’, as part of the next Multiannual Financial Framework (2020-2027).
Commissioner Günter Oettinger already watered down the expectations fuelled by French President Emmanuel Macron, who is requesting a eurozone budget worth several points of the region’s GDP.
Referring to Macron’s long list of proposals to bolster the union, he said that “we largely agreed with him”.
But when it comes to a eurozone budget of that size, the German Commissioner said that “I know that for some member states, doubling or tripling payments into the European budget would never happen”.
Germany, together with countries like the Netherlands and Finland, opposes any common cushion that could represent permanent transfers between member states.
However, German Chancellor Angela Merkel supported a “small” fiscal capacity for the bloc to maintain public expenditure in key areas in countries suffering economic turbulences.
Echoing her proposal, the Commission finally opted to recommend using the upcoming ‘stabilisation function’ to support public investment when countries are hit by sudden shocks.
Vice-President for the Euro Valdis Dombrovskis, argued that public investment is the first victim when a crisis hits. Therefore this mechanism would help to maintain funds flowing to ongoing projects.
Not for the jobless
For the time being, the executive discarded other options for this new fiscal capacity, including a rainy day fund or a European unemployment reinsurance scheme to top up the national unemployment benefits.
Dombrovskis insisted that the investment protection scheme was “the quickest way forward” in order to implement this stabilisation function.
Macron will not be the only one to be disappointed by the downgraded proposal for the fiscal pillar when the EU leaders discuss the set of measures at next Friday’s eurozone summit (15 December).
Spanish Prime Minister Mariano Rajoy said again on Wednesday that he would fight for a eurozone budget.
In the past, he has defended not only a substantial eurozone budget but also the issuing of common debt (eurobonds), a taboo in many capitals.
Without a proper budget for the euro area, senior figures, including ECB Vice-President Vítor Constâncio, questioned the reasoning for creating the post of a minister of economy and finance for the EU.
In a non-legislative paper (communication) also unveiled on Wednesday, the Commission argued that this super-minister could be in charge of fiscal and macroeconomic surveillance of the member states, and the implementation of existing financial tools and new ones, like the investment protection scheme.
The package included a provision to turn the existing European Stability Mechanism, the EU’s crisis management fund, into a European Monetary Fund. In order to bolster its powers, the Commission proposed that the new Fund becomes a lender of last resort for the Single Resolution Fund, the backstop for the orderly resolution of ailing banks in the union.