Sunday, 15 October 2017

Reflection paper on EMU future

Cristo si è fermato a Eboli: Why do I remember Carlo Levi and the saying “Christ stopped short of here, at Eboli”, when facing the conflict between a European level currency and national economic policies, as well as when following the many efforts to correct the design and to advance on the road to a robust, resilient and democratically legitimate euro area? In the blog post A better future for the EMU? we saw how the Five Presidents’ Report outlined the unfinished work and the road ahead.

EMU reflection paper
Two years after Completing Europe’s Economic and Monetary Union - the Five Presidents’ Report - as part of the ongoing #FutureOfEurope process, the European Commission published an update:  

Reflection paper on the deepening of the economic and monetary union; Brussels, 31.5.2017 COM(2017) 291 final (34 pages)

The “printed” versions of the White Paper and the thematic reflection papers on the future of Europe (with annexes, but in pastel colours not designed for online reading) can also be downloaded through the Commission web page White paper on the future of Europe and the way forward.

In a nutshell the aim of the EMU reflection paper is (page 2):

This reflection paper – the third in the series – sets out possible ways forward for deepening and completing the Economic and Monetary Union up until 2025. It does so by setting out concrete steps that could be taken by the time of the European Parliament elections in 2019, as well as a series of options for the following years. Building on the Five Presidents’ Report, it is intended both to stimulate the debate on the EMU and to help reach a shared vision of its future design.
Our Economic and Monetary Union still falls short on three fronts. First, it is not yet able to reverse sufficiently the social and economic divergences between and within euro area members that emerged from the crisis. Second, these centrifugal forces come with a heavy political price. If they remain unaddressed, they are likely to weaken citizens’ support for the euro and create different perceptions of the challenges, rather than a consensus on a vision for the future. Finally, while the EMU is stronger, it is not yet fully shock-proof.

EMU reflection

The euro is the currency for 341 million people in 19 Eurozone countries, as well as the second most used (reserve) currency around the world (page 5). It is hardly an exaggeration to say (page 6):

The functioning and future of the Economic and Monetary Union (EMU) is a matter of interest for all European citizens from whichever Member State they come from, including those who will join the euro area in the future. After the departure of the United Kingdom from the EU, the economies of euro area countries will represent 85% of the total GDP of the EU. This highlights the euro’s central role in the future EU at 27. Given its importance for the world, it is just as important to international partners and investors.

Euro for all?

Relatively speaking, this means that the countries outside the euro area are going to become even more marginal after Brexit. No wonder that the president of the European Commission Jean-Claude Juncker used his State of the Union 2017 address for a more united, stronger and more democratic union, SPEECH/17/3165,  to try to entice the stragglers to adopt the euro:

If we want the euro to unite rather than divide our continent, then it should be more than the currency of a select group of countries. The euro is meant to be the single currency of the European Union as a whole. All but two of our Member States are required and entitled to join the euro once they fulfil the conditions.
Member States that want to join the euro must be able to do so. This is why I am proposing to create a Euro-accession Instrument, offering technical and even financial assistance.
It is interesting to note how negative people in some non-euro countries are according to the Standard Eurobarometer 87, when 73% of the people in the Eurozone support the euro currency (pages 33-34). In EU27 outside the euro area, the proportions of people against the common currency were:

Czechia 77%
Sweden 72%
Denmark 66% (the only country with an opt-out when the UK has left)
Poland 61%
Bulgaria 47
Croatia 45
Hungary 40
Romania 33

The euro requires much more credibility in the eyes of negative populations, but paradoxically the same people are generally most hostile to the capable and democratic union a robust and resilient euro needs. As long as they and their governments dither, there are at least 341 million reasons to convince the citizens of the union that our economic future is brighter inside.


The monetary union still searching for an economic union is far from a real democracy, where the people vote in (an out) the government, but at least the reflection paper glances in this direction (page 19):

Most notably, the involvement of the European Parliament and the democratic accountability for the decisions taken for or on behalf of the euro area should be enhanced.
... the common interest of the euro area is still not sufficiently represented in public debate and decision-making. Without a common understanding of the challenges or vision of the future, the euro area will struggle to overcome the legacies of the crisis and will not make progress on the tools it needs to address common challenges.   

But almost immediately the EMU reflection paper starts talking (page 20) about the challenge “to turn ideas into practical solutions and to identify a way forward that is pragmatic and flexible, yet effective for all”, it is again talking about member states, not EU citizens.

EMU reform principles

The reflection paper about deepening the economic and monetary union indicates guiding principles for the reform path (page 20):

Four principles should guide the way forward:  
  • Jobs, growth, social fairness, economic convergence and financial stability should be the main objectives of our Economic and Monetary Union. The EMU is not an end in itself.  
  • Responsibility and solidarity, risk reduction and risk-sharing go hand-in-hand. Greater incentives for risk reduction and conditional support should go together with designing risk-sharing measures, especially in the financial sector, and the conduct of structural reforms.  
  • The EMU and its completion must remain open to all EU Member States. The integrity of the single market must be preserved. This is also key for a well-functioning single currency. According to the Treaty, except for Denmark and the United Kingdom, all EU Member States are expected eventually to join the euro.  
  • The decision-making process needs to become more transparent and democratic accountability needs to be ensured. Citizens expect to know how and by whom decisions are made and how they impact on their lives.

Regarding the last bullet point, in a real democracy the voters would actually do more, namely set the course of government.

Steps forward

On page 34 the reflection paper sketches two phases (further elaborated in annex 1), with the first one now reaching to the end of 2019:

The first phase runs to the end of 2019. This time should be used for completing the Banking Union and Capital Markets Union with those elements that are already on the table today. This includes the financial backstop to the Single Resolution Fund, measures to reduce risks in the financial sector further, and the European Deposit Insurance Scheme. A number of new instruments, such as better economic and social convergence standards, could also be tested. The democratic accountability and effectiveness of the EMU architecture would be gradually improved.

The second phase, over 2020-25, would be for completing the EMU architecture. It would include more far-reaching measures to complement the Financial Union, possibly with a European safe asset and a change in the regulatory treatment of sovereign bonds. Additionally, a fiscal stabilisation function could be envisaged. As a result, the institutional architecture could be changed more substantially.

Please, act on the words of the European Commission, especially if you want a capable and democratic union for yourself and the euro: This reflection paper is an invitation for everyone to express their views on the future of our Economic and Monetary Union, as part of the broader debate on the future of Europe. - Remember the Twitter hashtag #deepeningEMU besides the general  #FutureOfEurope linked to above.  

Ralf Grahn