EU finance ministers failed to reach an agreement in the early hours of Friday (14 June) on an anti-shock instrument to shield the euro, as they continued to clash over almost every feature of the new fiscal tool, including the source of funding.
There was no progress in other key areas flagged by EU leaders, such as the European Deposit Insurance Scheme (EDIS).
As a result, the euro area partners did not take the necessary steps to strengthen the economic and monetary union “while the sun is shining” and before the next crisis hits, as many voices including the European Commission and the IMF have called for.
After two years of a political crusade led by France, six months of discussions among the finance ministers, and a torrent of warnings from experts and academics about the need to complete the economic union with a fiscal pillar, the Eurogroup failed in its endeavour to agree on a eurozone budget.
The watered-down guidelines given by the leaders last December already greatly limited the potential of the new instrument to the extreme of impeding describing the new tool as a true eurozone budget.
Back then, a group led by the Netherlands accepted to open the discussions only if the new fiscal cushion excluded any stabilisation role, an essential budgetary feature. They also limited its firepower to the resources coming from the multiannual financial framework (MFF) the EU’s long-term budget. In this context, some estimates said the volume could be around €17 billion.
After 15 hours of negotiation, the Netherlands and others continued to oppose those who wanted to expand the sources of revenues. The Hague and its supporters also wanted to focus on the reform support dimension more than on the investment part, seen as the nearest stabilisation feature for to those who advocated the anti-shock functionality, like France, Spain, Portugal or the Commission.
Euro area decision makers admitted that the results were far from what was needed.
When you have a high level of ambition, “my glass is less full,” Eurogroup president, Mario Centeno, told reporters on Friday morning after the ministers’ meeting.
“It may be true in a way” that these are only “small steps”, said commissioner for Economic Affairs, Pierre Moscovici. But he acknowledged that the decision “opened the door” to continue progressing toward achieving a true eurozone budget.
“It is the best agreement we could reach with the present state of play,” he added, eyeing The Netherlands.
Moscovici stressed the “symbolism” of the step taken, but added: “Let’s not congratulate ourselves too much”.
Le Maire’s enthusiasm
His advice was disregarded by his compatriot and big defender of the eurozone budget, French finance minister Bruno Le Maire.
“We have a eurozone budget,” Le Maire told reporters, and the results of the Eurogroup met the “commitments” French President Emmanuel Macron made on his campaign trail.
“This is a mini-revolution… a real game-changer,” said Le Maire, who is in a campaigning mode to be chosen by Macron as France’s EU Commissioner.
His words contrasted with Macron’s original idea of having a eurozone budget “worth several points of GDP” of the eurozone, which is nowhere to be seen.
Le Maire said he was “fully aware” that “a lot needs to be done” in regard to the financing of the budget.
He added that the intention would be to start “small” while giving the new instrument “the potential to grow over time”.
But his overly optimistic reading contrasted not only with the results but also with what happened inside the room.
Back to the leaders
EU sources explained that, around midnight, France and those in favour of the eurozone budget, already saw that little progress could be achieved in the Eurogroup meeting, which went on until 4.30 in the morning.
As a result, the ministers decided to return the ‘hot potato’ sent by their bosses in December.
Centeno said that the EU leaders should provide “guidance” on how to proceed on issues such as the source of funding, the size of the fund, or the objectives to finance.
Those who fought for the eurozone budget, such as Moscovici or Spain’s Economy Minister Nadia Calviño, found comfort in the fact that no option was ruled out, and that the future instrument still could play a stabilising function to cushion economic shocks.
Despite the limited progress achieved, Calviño said she was convinced that one day there will be a budget for the eurozone, given that it is an “essential” fiscal instrument that completes the economic and monetary union.
But she doubted that the leaders would try to revise the terms set up in December, given the heavy agenda of the summit on 20-21 June, primarily focused on picking the EU’s top posts.
The discussions will continue at the ministerial and technical level, with the intention of reaching an agreement before the MFF is closed (2021-2027), probably during the first quarter of next year.
German finance minister, Olaf Scholz, said his country is “prepared to do everything” in this regard during Germany’s rotating presidency of the EU in the second half of 2020 to conclude a deal.
Scholz, who spoke to reporters alongside Le Maire, subscribed to the optimistic conclusions voiced by his French counterpart but was less enthusiastic about them.
He said that “nobody expected that we would be here” one year after the agreement reached by France and Germany in Meseberg to strengthen the eurozone.
The Eurogroup could not move forward either in regard to the other major outstanding issues: the European Deposit Guarantee Scheme.
After six months of technical discussions, Germany continues to be the great obstacle. Berlin has spent more than five years opposing the mutualisation of deposits until the risks are further reduced, despite ‘toxic’ loans in the EU represent only 3.3% of the total.
Moscovici and the managing director of the European Stability Mechanism, Klaus Regling, also expressed his disappointment with the lack of results on this front.
“It is crucially important that we make progress in the second half of the year” in this matter, said Moscovici.
Finance ministers only succeeded in the reform of the ESM, which is also part of the package to bolster the euro area.
The ESM revision would allow the bailout fund to provide a backstop to the EU’s fund to resolve ailing banks so that it never loses its maximum firepower of around €60 billion in case of a banking crisis like in 2008. New features were also added to support member states in distress before requesting a fully-fledged rescue programme.
The conclusion of the two-year process to complete the economic and monetary union is, however, far from substantially bolstering the euro defences against a future crisis.
On 9 May 2010, after almost 10 hours of discussion, eurozone ministers agreed on the ESM embryo. At that time, Europe was in the middle of the crisis. The single currency will probably have to wait for the next recession to move closer to adulthood. And some believe the next big storm will come sooner, rather than later.
[Edited by Zoran Radosavljevic]