Several countries would like a special budget for the eurozone to protect the single currency from “asymmetric shocks”, with France, Germany and others backing the idea, according to EU diplomats.
The idea of a special budget for the eurozone was shared by many influential countries, including Germany and France, according to one senior EU diplomat, who was speaking to journalists on condition of anonymity.
“It’ an idea developing in all directions, still far away from the stage of a clear-cut proposal,” he said.
The diplomat said countries were discussing what type of income and expenditure the budget would cover, with the aim of putting in place an instrument for financial and macroeconomic intervention against “asymmetric shocks”.
Another aim would be to have a capacity for counter-cyclic intervention, to compensate for periods of recession.
Diplomats agree however that more discussion is needed to define the relationship between the new eurozone budget and the EU or national budgets. It is generally accepted that discussing at the same time a budget for the eurozone and the EU budget for the period 2014-2020 would be too complicated. It is also accepted that the idea for a special budget for the eurozone would make the discussions for the EU long-term budget even more difficult.
The idea of a special budget for the eurozone was first spelled out by European Council President Herman Van Rompuy in his recent “Issues paper on completing the Economic and Monetary Union”.
The 7-page document, which is aimed at preparing discussions at the level of heads of state and government over the next EU summits, sums up the informal contacts Van Rompuy has had with the leaders of the member states, and formulates a number of “issues for discussion”.
According to Van Rompuy, a fiscal union should include effective mechanisms to prevent and correct unsustainable fiscal developments in the member states.
“It should also include tools to deal with asymmetric shocks and to help prevent contagion possibly through a central budget for the euro area. This could in turn involve limited common debt issuance as long as the risk sharing is accompanied with commensurate steps towards common decision-making on budgets that safeguard against moral hazard,” Van Rompuy writes.
One issue raised in the paper is how to coordinate debt issuance further than what has already been agreed under the so-called ‘Fiscal compact’. Article 6 of the pact, which still needs to be ratified, only provides that the contracting parties “shall report ex-ante on their public issuance plans” to the Council and the Commission.
He also raises the question that a full-fledged fiscal union may require the creation of a treasury office and a central budget, whose role and functions would need to be defined.