European leaders will seek to agree on a “deep and genuine European monetary union” during a two-day summit that begins today (13 December), but diplomats say it should not be seen as a “big bang” event.
The draft summit conclusions, obtained by EURACTIV France, say that the preparatory work conducted by European Council President Herman Van Rompuy together with the presidents of the Commission, European Central Bank and the Eurogroup was “useful”.
But the draft adds that these issues “will take more time and will require in-depth consultations with the member states”.
EU leaders"will discuss these questions after the election of a new European Parliament and the appointment of a new Commission," the text continues.
The European elections are scheduled for May 2014 and "some of these issues may imply a change to the Treaties," the document says, reflecting the reluctance of EU countries to re-open big institutional debates.
Don’t ‘mess up’ the European elections
As one diplomat put it, real progress is expected on banking union, as outlined in the recent paper tabled by Council President Herman Van Rompuy.
“The most important elements in the Van Rompuy paper are those which are feasible before the European election,” the diplomat said, referring to the proposed single banking supervision mechanism.
Finance ministers meeting in Brussels agreed early Thursday on the basic mechanism for a single supervisory authority over eurozone banks – the key first step to a banking union.
Other proposals requiring a change of the EU treaties – such as debt mutualisation or setting up a European Treasury – would be postponed after the European elections and the nomination of a new European Commission, in 2015.
The diplomat said the issue was “institutional” in the sense that it would not be normal that the outgoing Commission and Parliaments task their successors, but also “political” in the sense that anti-European forces could take advantage of some controversial issues for their campaign and “mess up” the European elections.
Diplomats singled out two ideas developed in the Van Rompuy paper as “crucial, but deeply divisive”.
The first is the proposed “arrangements of a contractual nature” between countries using the euro and EU institutions to carry out structural reforms – such as labour and pensions reforms.
Austria, for instance, is strongly concerned that it would be required to change its pension system, and Belgium is particularly touchy regarding any attempt to change the system of indexation of salaries.
“That could be a tool to impose on state structural reforms which they don’t want to do,” a diplomat said.
‘Fiscal capacity’ – euphemism for eurobonds?
The second dividing is the proposed "fiscal capacity" – or budget – for the countries using the euro as their currency.
Regarding the fiscal capacity, eurozone countries are divided because some of them – France in the first place – see it as a first step towards eurobonds that would pool sovereign debt and reduce the borrowing costs of troubled economies.
For other countries, the ‘fiscal capacity’ is rather seen as an opportunity “to create trouble" for the EU's 2014-2020 budget, on which leaders failed to agree at a summit last month.
Agreement for the short term
The summit will agree on short-term measures, some of which have already been adopted or are in the legislative pipeline, such as the implementation of the “six-pack” on macroeconomic surveillance, the adoption of the economic governance “two pack”, the establishing of Single Supervisory Mechanism (SSM) for the banking Union as agreed at ministerial level over the night.
In addition, two “very important” directives will be adopted, which will harmonise the second and third pillar of the future banking union, namely a Recovery and Resolution Directive and Deposit Guarantee Scheme Directive. But as a diplomat explained, by this, EU leaders would only harmonise the national systems of resolution and deposit schemes.
The diplomat said that a third element is an agreement on operational framework for future possible banking recapitalisation. As it is expected that SSM will become effective as from June 2013, an operational framework for banking recapitalisation will be needed.