Stabilisation mechanism in induced coma after EU leaders’ meeting

France president Emmanuel Macron and European Central Bank president Mario Draghi chat ahead of the Euro summit in Brussels. [European Union]

EU leaders failed to inject further ambition to a Eurogroup deal on watered-down reforms of the Economic and Monetary Union, including a budgetary instrument for the eurozone, at the Euro summit on Friday (21 June). 

The deals reached by eurozone finance ministers are like Bruce Springsteen’s lyrics, “you can look but you better not touch,” Spanish Prime Minister Pedro Sánchez said about the Council Conclusions on deepening the Economic and Monetary Union.

Spain, together with France, has been one of the most important advocates for a fully fledged eurozone budget, including a stabilisation mechanism. However, both Sánchez and French President Emmanuel Macron showed resignation about the lack of consensus to move forward in this area, at least for now. 

The agreement reached by the Eurogroup and endorsed by the European Council, which did not solve the question of either the governance or the sources of financing for the instrument, “is a good step forward but it is not enough,” Macron admitted.   

The French president said that though the stabilisation function – which aims to provide support for countries that might be subject of asymmetrical shocks – did not find consensus back in December, “from my point of view, we should not renounce this objective.” 

“The stabilisation is indispensable. All theories show that when we share a common currency, we need to have instruments that allow us to respond to asymmetric shocks, and therefore, having a stabilization mechanism,” Macron insisted. 

However, he was aware of the slim chances to achieve further progress in the short term and therefore urged the new European Commission to push for the reform of the eurozone to be completed, the budgetary instrument to be turned into a fully fledged self-governed and sufficiently funded mechanism, including a stabilisation function.  

No agreement on euro budgetary tool- ministers send ‘hot potato’ back to leaders  

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 on the agenda, including the source of funding.

A dead-point for The Netherlands

Faced with the lowered but still high expectations of both France and Spain – Sánchez voiced hope there would be progress on the EMU reform in the future – the Netherlands is radically opposed to any stabilisation function for the eurozone budgetary instrument. 

“The stabilisation is gone. The eurozone budget is gone,” Dutch Prime Minister Mark Rutte told a press conference following the June European Council. 

Rutte explained that in 2018, eurozone members, especially himself and Macron, debated the heavily the stabilisation function. The Dutch PM recalled that the agreement was reached on the basis of an instrument to support competitiveness and convergence, under the EU’s long term budget. 

German Chancellor Angela Merkel, who is not a particular fan of the stabilisation mechanism either, told reporters she was “especially happy about the conclusion about the eurozone budget.”

Despite the December deal, member states tried to reopen the debate on the need for an investment option to absorb sudden economic shocks, particularly France and Spain, but the Netherlands stuck to its guns.

A new deadline

On Thursday (20 June), leaders endorsed the EU’s strategic agenda which set the priorities for the next five years. Deepening the Economic and Monetary Union is among the bloc’s main objectives. 

“We must ensure that the euro works for our citizens and remains resilient, deepening the Economic and Monetary Union in all its dimensions, completing the Banking and Capital Markets Union and strengthening the international role of the euro,” the text stated. 

However, the work towards the completion of the Banking Union and the reinforcement of the eurozone remains an outstanding issue. In the Council conclusions, there was no mention of the European Deposit Insurance Scheme, the third pillar of the Banking Union. 

The EU27 took stock of the progress achieved on the EMU reform and called on the finance ministers to keep working in the coming months.

Member states will have to finalise the reform of the treaty aimed at broadening the competences of the European Stability Mechanism (ESM), to be finalised by the end of 2019, European Council president Donald Tusk explained. 

The EU27 called in their conclusions on the Finance ministers to continue the discussions on the pending issues to establish a budgetary instrument for the eurozone, namely the size, the sources of financing and the conditions to access the package. 

“These elements should be agreed as a matter of priority so as to be able to set the size of the BICC (Budgetary Instrument for Competitiveness and Convergence) in the context of the next MFF,” the leaders established. 

The member states are expected to have the first political discussion on the EU’s long-term budget in October and reach an agreement by the end of the year. If the eurozone wants to have its own budgetary instrument, there needs to be an agreement by then. 

Five takeaways from the EU’s economic recommendations to member states

While the public finances of all EU member states are now officially out of the “red zone”, the European Commission on Wednesday (5 June) still had tough economic policy recommendations for Spain, Italy, Belgium, Greece and Germany.

[Edited by Zoran Radosavljevic]

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