A budget for the Eurozone?

On 16 February 2017 the European Parliament adopted three resolutions about the future of Europe.

Bresso and Brok

The report by Mercedes Bresso and Elmar Brok for the Committee on Constitutional Affairs (AFCO), procedure 2014/2249(INI), about exploiting the possibilities within the existing treaties, led to the European Parliament resolution of 16 February 2017 on improving the functioning of the European Union building on the potential of the Lisbon Treaty P8_TA-PROV(2017)0049, which I presented in Finnish here.   

Verhofstadt

The AFCO report buy Guy Verhofstadt, procedure 2014/2248(INI), about treaty reform for a democratic and capable European Union, led to the European Parliament resolution of 16 February 2017 on possible evolutions of and adjustments to the current institutional set-up of the European Union P8_TA-PROV(2017)0048, which I presented in Swedish here, with a follow-up blog entry here.  

Böge and Berès

Reimer Böge and Pervenche Berès prepared the report for the Committee on Budgets (BUDG) and the Committee on Economic Affairs (ECON). Under the procedure file number 2015/2344(INI) you can follow the hectic pace.

The joint report A8-0038/2017 was voted in committee and tabled for the plenary on Monday, debated in plenary Tuesday and adopted by the European Parliament Thursday (16 February).

 

The report contains an informative explanatory statement about background and recent positions (pages 8-18) and a second working document about academic contributions to the debate on budgetary capacity for the Eurozone, highlighting five aspects: (1) reasons for creating a common capacity, (2) functions of the fiscal capacity, (3) possible resources for financing the capacity, (4) challenges, conditions and obstacles, (5) governance (pages 19-29).

The Committee on Constitutional Affairs delivered an opinion on legal aspects (pages  34-36) and the Committee on Budgetary Control an opinion on the necessity to establish a budgetary and fiscal capacity within the eurozone as necessary to complete the Economic and Monetary Union (EMU)(pages 38-39).  

The minority opinion by three ECR members rejected the aim totally (page 33), but the proposal was not uncontested more widely: the committee vote being 54 for, 28 against, with 6 abstentions (pages 41-42).

Plenary debate

The three reports about the future of the EU were discussed in a joint plenary debate, where the rapporteur Reimer Böge argued for adoption:

Es geht darum, wegzukommen von einem Flickwerk, das wir in der Vergangenheit immer wieder erlebt haben, wenn eine Krise über uns hereinschwappte. Nach der Krise ist vor der Krise. Deswegen die Idee, ergänzend eine Fiskalkapazität zu entwickeln, für die Eurozone, aber genauso offen für die Nicht-Euroländer, mit klaren Vorgaben, was die Konditionen angeht, die Konditionalität. Mit klaren Vereinbarungen zur Finanzierung, auch im Hinblick auf die Frage, wie man Ländern, die durch Schocksituationen in Not gekommen sind, helfen kann, damit sie möglichst schnell aus diesem Strudel wieder herauskommen.

Ich glaube, das ist ein fairer und vernünftiger Ansatz, der das Instrumentarium, das wir heute haben, vernünftig ergänzen kann. Dazu gehört natürlich auch, dass der ESM in Richtung eines europäischen Währungsfonds weiterentwickelt wird. Die Berichterstatter der verschiedenen Berichte sind sich auch darüber einig, wie die Governance-Struktur in Zukunft dort auszusehen hat.

The co-rapporteur Perveche Berés added a few main points:

On ne peut pas à la fois critiquer la politique monétaire de la Banque centrale en disant qu’elle outrepasse ses pouvoirs et laisser les gouvernements sans moyens d’intervenir. On ne peut pas déplorer le bas niveau d’investissement, y compris dans des pays qui ne sont pas dits «de la périphérie», qui sont au cœur de la zone euro et penser que le plan Juncker peut suffire.

La question de l’investissement n’est pas suffisamment traitée au cœur de notre Union économique et monétaire. Alors, après beaucoup d’autres travaux, ce Parlement, pour la première fois, va se prononcer clairement pour un budget de la zone euro, autour de trois fonctions majeures. D’abord, le retour de la convergence. A-t-on assez en tête cette réalité que, au sein de la zone euro, les divergences depuis le déclenchement de la crise ont été plus importantes qu’en dehors de la zone euro? Ne serait-ce que parce que les mécanismes du pacte de stabilité ont miné les stabilisateurs automatiques au sein des pays de la zone euro. Sait-on qu’on a mis en place un mécanisme intergouvernemental – à améliorer – pour faire face aux chocs asymétriques, avec le mécanisme européen de stabilité qui est aujourd’hui totalement sous-employé et qui représente potentiellement un budget de 5 % du PIB des pays membres de la zone euro? Sait-on que nous ne disposons d’aucun outil au sein de la zone euro pour faire face à un choc asymétrique, une hausse brutale du prix du pétrole, une chute brutale du niveau d’investissement?

Nous sommes le seul espace monétaire intégré qui ne dispose pas d’outils. J’entends ici ou là beaucoup nous dire: «Mais il y a le pacte, et le pacte devrait être l’alpha et l’oméga de la gouvernance économique».

Mes chers collègues, soyons honnêtes entre nous. Cela fait 20 ans que le pacte de stabilité est là et cela fait 20 ans que nous voyons bien ses limites.

Ce que nous proposons avec ce budget de la zone euro, c’est simplement d’équiper les pays membres de la zone pour faire de leur monnaie ce qui leur a été promis au premier jour en permettant une convergence entre ces économies, en permettant de remettre en place des mécanismes d’ajustement aux chocs asymétriques.

 

Resolution P8_TA-PROV(2017)0050

European Parliament resolution of 16 February 2017 on budgetary capacity for the euro area P8_TA-PROV(2017)0050 was adopted after massive defeats for the alternative motions for resolutions by the ENF (Marine Le Pen et al) and EFDD  (Nigel Farage et al) groups and a few votes on details, by 304 votes against 255 (68 abstentions) (point 8).

The resolution recalls that various crises and global challenges require the euro area to make, as soon as possible, a qualitative leap in integration. At the level of principles the resolution reminds us that:

The transfer of sovereignty over monetary policy requires alternative adjustment mechanisms such as the implementation of growth-enhancing structural reforms, the single market, the Banking Union, the Capital Markets Union, to create a safer financial sector, and a fiscal capacity to cope with macroeconomic shocks and increase the competitiveness and stability of Member States’ economies, in order to make the euro area an optimal currency area.

Convergence, good governance and conditionality enforced through institutions being held democratically accountable at euro-area and/or national level are key, notably in preventing permanent transfers, moral hazard and unsustainable public risk sharing.

It lays down the aims of the Eurozone budget:

The fiscal capacity should fulfil three different functions:

– first, economic and social convergence within the euro area should be incentivised to foster structural reforms, modernise economies and improve the competitiveness of each Member State and the resilience of the euro area, thereby also contributing to Member States’ capacity to absorb asymmetric and symmetric shocks;

– second, differences in the business cycles of euro-area Member States stemming from structural differences or a general economic vulnerability create a need to address asymmetric shocks (situations whereby an economic event affects one economy more than another, for instance when demand collapses in one specific Member State and not in the others following an external shock beyond the influence of a Member State);

– third, symmetric shocks (situations whereby an economic event affects all the economies in the same way, for example variation in oil prices for euro-area countries) should be addressed to increase the resilience of the euro area as a whole.

After discussing these functions (pillars), as well as governance, democratic accountability and control, the European Parliament called on the European Council and the EU Commission to act swiftly and decisively in order to establish a budget for the Eurozone:

• the European Council to set guidelines, as described above, by no later than the EU meeting in Rome (March 2017), including a framework for the long-term sustainable stabilisation of the euro area;

• the Commission to come forward with a White Paper with an ambitious core chapter on the euro area and the respective legislative proposals in 2017 by using all means within the existing Treaties, including the convergence code, the euro-area budget and automatic stabilisers, and to set a precise timeframe for the implementation of these measures.  

The euro currency needs robust structures at the European level.

Ralf Grahn