The idea of a reinsurance mechanism for savings accounts is among the few concrete proposals in the Five Presidents’ report. By helping to avoid bank runs, it would offer the beginnings of a solution to the Greek crisis. EURACTIV France reports.
Published on Monday (24 June) after an arduous negotiating process, the Five Presidents’ report on the governance of the Economic and Monetary Union (EMU) contains no great surprises. The report is critically important in the context of the Greek crisis, but has become a secondary issue this week, in light of the extraordinary summit on Greece’s future.
“It’s a good thing that the report is on the table at all, but I’m afraid that the content will be of secondary importance at the Council this week. And in terms of substance, the proposals lack ambition,” said Pervenche Berès, a French Socialist MEP and the European Parliament rapporteur on EMU governance.
Bypassing Parliament’s proposals
Compiled by four conservatives and a German Socialist, it is no surprise that the report focuses more heavily on the general conditions for increasing eurozone integration than on questions of social convergence. The creation of a true European budget with independent funds was also largely bypassed, to the disappointment of those in favour of deeper federalisation.
Martin Schulz, the President of the European Parliament, found his contribution to the final document scaled back compared to his initial proposals, as seen by EURACTIV. In his text, composed with the input of the European Parliament’s other political groups, Martin Schulz insisted on the creation of a budgetary capacity within the eurozone, a new social pact, and increased democratic legitimacy in national and European parliaments.
The reform process suggested in the report would take place in two stages: to begin with, a number of reforms should be submitted that could be implemented by 2017 without treaty change. Then, later on, the more ambitious task of greater eurozone integration could be tackled.
This has left some centrists unimpressed. “Nothing much will happen by 2017, which is disappointing. The reforms are being delayed because of the elections in Germany and France,” ALDE MEP Sylvie Goulard said in a press release.
But the liberals have welcomed the substance of the text. Guy Verhofstadt, the leader of the European Parliament’s ALDE group, said “I am pleased to see the progress of the liberal and democrat proposals: the creation of a code of convergence and a European treasury are at the heart of the report”.
Re-insurance rather than deposit guarantee
Among the report’s few concrete proposals is the idea of a reinsurance mechanism to protect bank deposits, and thus avoid bank runs in times of crisis. This is an important step forward in the integration of the eurozone, and would form the third pillar of the Banking Union.
Nicolas Véron, an economist and co-founder of the Bruegel think tank, said “the proposal is very timely in the context of the Greek crisis: the immediate future is more important than the long term. Funds from the European Stability Mechanism (ESM) could be used as a tool to reinsure the banks. But political consensus will be needed on the subject”. He had put forward such a mechanism as a possible solution to the risk of capital flight in a banking crisis in a 2011 Bruegel article.
The political left had hoped to see an ad-hoc fund set aside as a real bank deposit guarantee, rather than the creation of an indirect reinsurance scheme.
This reinsurance system would help tackle the crisis in Greece, where more than a third of bank deposits have been withdrawn since December. By stemming the flow of capital away from the country, reinsurance would act as a bandage to hold the financial system together.
“The interesting thing is that this subject allows us to isolate the debate from the British situation,” Nicolas Véron added. The United Kingdom is less keen to discuss EMU reform, and would prefer to use this week’s European Council to push its own reform agenda.
David Cameron’s renegotiation of the UK’s EU membership will revolve around four points: increasing competitiveness within the Union, establishing a notion of justice between eurozone countries and the other member states, reforming the migration system within the EU, and abandoning the principle of ever closer union.
Competitiveness authorities to appease the UK
The report’s second concrete proposal is (at least in part) a concession to the British. The Five Presidents recommend the creation of “Competitiveness Authorities” in the EU’s member states.
These new authorities would evaluate each country’s economic progress, as well as being responsible for reporting on and comparing the economic situation between the different members of the eurozone, particularly in terms of salary and productivity.
While the presidents themselves believe the report to be a product of true political consensus, the debate over the future of EMU governance is far from over.
“The ‘Merkel method’ is not working: we can’t be satisfied with budgetary austerity, because that does not bring back economic growth! And the ‘Tsipras method’ is no better. We need a third way, and today there is not enough flexibility in the EMU,” said Pervenche Berès.