Eurozone countries have to find a way to deal with the high public debt built up during 2008-2012, and which puts European economies on divergent tracks, EU Economic and Monetary Affairs Commissioner Pierre Moscovici said on Wednesday (6 May).
Moscovici did not explain how the issue of debt should be addressed, but the remarks appear to refer back to a debate about jointly issued eurozone debt, a notion that Germany firmly rejected.
France, of which Moscovici was finance minister, was in favour of a discussion on euro bonds in the past.
“The years I have spent dealing with the Economic and Monetary Union (eurozone) at the national or European level have strengthened my belief that we must now open up two fronts,” Moscovici said in a prepared speech at the Brussels University.
The first front was to ensure the re-convergence of European economies – both within the euro area, and between the euro area and other EU Member States, Moscovici said.
“(The second was) addressing the problem of the legacy debt – i.e., debt accumulated in 2008-2012, which is an additional factor of divergence between European economies,” he said.
“The crisis catapulted the debt of several large economies into 90% of GDP territory, where it was approximately 60% prior to the crisis. I will not dwell on this issue today, but clearly this has huge implications for growth and our social models in Europe in the coming decades,” he said.
Moscovici’s said his remarks were his private views on the way forward for the eurozone as the European Commission, eurozone governments and the European Central Bank are working on a report on how to further integrate the single currency area that is due in June.
“I am aware that opening up these two fronts may have far reaching economic and legal implications, and that further complexity is added when institutional considerations come into the picture,” Moscovici said.
Separate budget for the eurozone
He repeated the idea, already circulating among eurozone institutions and governments, that the eurozone should have its own budget, called in EU jargon a “fiscal capacity”.
“A common fiscal capacity is a standard feature of other monetary unions,” Moscovici said.
“It may serve purposes such as supporting macroeconomic stabilisation and insurance against shocks, or providing public goods. Setting up such a fiscal capacity would have far reaching economic and legal implications, and would imply a qualitative step forward in terms of democratic control of central European executive powers,” he said.
The idea is controversial because many eurozone governments are not willing to contribute any more money to the pan-European level on top of their annual input into the general EU budget, and it would be very difficult to carve out a special portion of that existing budget to serve only eurozone countries.
The idea of a special budget for the eurozone first emerged during the sovereign debt crisis as a way to protect the single currency against “asymmetric shocks”.
First plans for a eurozone budget were spelled out by former European Council President Herman Van Rompuy in an “Issues paper on completing the Economic and Monetary Union”, presented in 2012.
Although sketchy, the idea was backed in principle by eurozone heavyweights German and France.
However, many believe that creating a separate budget for the eurozone will require a federalist leap in fiscal and political integration, which many eurozone countries are not ready to take.
A full-fledged fiscal union with a central budget would indeed require the creation of a treasury office, whose role and functions would need to be defined.
And it is not clear what type of income and expenditure the budget would cover.
Moreover, 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.
But the idea is not off the table and was recently revived by the new President of the European Commission, Jean-Claude Juncker.
In February this year, he presented an Analytical Note on the Economic and Monetary Union (EMU), prepared in close cooperation with the President of the European Council Donald Tusk, the President of the Eurogroup Jeroen Dijsselbloem, and the President of the European Central Bank, Mario Draghi.