The European Commision has started laying the groundwork for the next stage of eurozone integration, claiming there is “political appetite” in European capitals to start discussing reforms, followng the French and German elections in 2017.
After a period of relative calm, the eurozone could face more trouble in the coming months. The implementation of the third bailout programme in Greece, the economic impact of the refugee crisis, the completion of the banking union, and the financial turbulence seen in China, as well as in emerging markets, could all slow down its timid recovery.
In spite of these challenges, the 19 EU countries sharing the euro feel it is time to prepare some far-reaching changes for the Economic and Monetary Union (EMU).
According to an EU official, there is “political appetite” among the capitals to start discussing how to deepen the EMU, as was reflected during the last meeting of EU finance ministers on 12 September.
Some of these could include a treaty change. And the European Commission has seized this opportunity to start preparing long-term reforms.
Valdis Dombrovskis, the Commission Vice-President for the Euro and Social Dialogue, said that the EU executive is setting up an expert group to draft a white paper on the second stage of EMU reform. These were first outlined in June in a report presented by the Presidents of the five institutions governing the single currency – the European Commission, Parliament and Council as well as the Eurogroup and the European Central Bank.
The White Paper, a policy document led by Commission President Jean-Claude Juncker, will flesh out reforms for deepening the eurozone after 2017, including a new stabilisation mechanism in the EMU.
An EU official told EURACTIV that the executive was currently in the process of assessing the format and mandate of this expert group. Although details are still vague, the unnamed source expected that the group would include members not only from the European Commission, but also from other institutions and the member states.
The group should have completed its work by 2017, when the Commission expects to put forward a set of far-reaching changes for economic union. One of the priorities is to set up a fiscal cushion to absorb large macroeconomic shocks, in order to make the EMU more resilient.
In this context, one of the ideas championed by Juncker was to build a European unemployment insurance scheme. However, the report’s final version pointed out that “the exact design of such euro area stabilisers requires more in-depth work”, which will be carried out by the experts.
Once the eurozone becomes a genuine monetary union, the report foresees that a treasury could be created to centralise the decision-making process, while increasing risk mutualisation.
The outcome of the struggle between the risk-sharing camp and the supporters of more centralised control over national economies will determine how the EMU evolves. In this regard, Dombrovskis stressed the “importance” of achieving the right balance for the “success” of the whole package.
In parallel with this process, the executive is finalising its proposal to improve the functioning of the existing economic rulebook. This package, included in stage one of the Five Presidents’ Report, will be announced in the second half of October. It will be comprised of a set of actions to strengthen the external representation of the euro, in particular, in the International Monetary Fund (IMF); to revamp the EU semester; and to review the fiscal and macroeconomic rules (the so-called ‘two-pack’ and ‘six-pack’) in order to add a more social dimension.
It will also include a plan to set up a eurozone system of competitiveness authorities; an advisory European Fiscal Board, to coordinate the existing fiscal councils; and will set out the Commission’s general view on its plan for an EU Deposit Guarantee Scheme.
The EU deposit guarantee scheme has become a “controversial” element, Dombrovskis admitted. Germany considers it “unacceptable” to start discussing this issue now, as member states have not completed the transposition of the Bank Recovery and Resolution Recovery (BRRD).
Despite Berlin’s opposition, Dombrovskis argued that an EU deposit guarantee scheme is an “important element missing in the banking union”.
In order to strengthen eurozone governance, the Presidents of the European Commission, the Council, the Eurogroup, the European Parliament and the European Central Bank were invited to combine their efforts to prepare the "next steps for a better economic governance in the euro area".
The report, presented last June, concluded that "for the euro area to gradually evolve towards a genuine Economic and Monetary Union (EMU), it will need to shift from a system of rules and guidelines for national economic policy-making to a system of further sovereignty sharing within common institutions, most of which already exist and can progressively fulfil this task".
The report foresees three stages in deepening integration:
Stage 1 (1 July 2015 - 30 June 2017): A "deepening by doing" stage, where small steps are taken towards fiscal convergence, using "existing instruments" and treaties.
Stage 2 (30 June 2017 - 2025): A "more binding" completion stage, with "a set of commonly agreed benchmarks for convergence that could be given a legal nature, as well as a euro area treasury".
Stage 3 (By 2025 at the latest): A final stage, where the vision would be complete.
As part of this process, the Five Presidents' Report urged member states to conclude the banking union by setting up an EU Deposit Guarantee Scheme.
- Mid-October: European Commission presents its package of next steps for deepening the EMU.
- End of 2015: Commission puts forward its legislative proposal to create an EU Deposit Guarantee Scheme.