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.

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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.

Democracy

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.

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... 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

A better future for the EMU?

The fifth among the ten priorities in the political guidelines for the Juncker Commission is a deeper and fairer economic and monetary union (EMU). The blog post Future of Europe: introducing deepening EMU mentioned the Five Presidents’ Report, officially Completing Europe’s Economic and Monetary Union, from June 2015. On pages 4-5 the presidents set out the basic elements:

Progress must happen on four fronts: first, towards a genuine Economic Union that ensures each economy has the structural features to prosper within the Monetary Union. Second, towards a Financial Union that guarantees the integrity of our currency across the Monetary Union and increases risk-sharing with the private sector. This means completing the Banking Union and accelerating the Capital Markets Union. Third, towards a Fiscal Union that delivers both fiscal sustainability and fiscal stabilisation. And finally, towards a Political Union that provides the foundation for all of the above through genuine democratic accountability, legitimacy and institutional strengthening.

In other words, the euro area was far from robust and resilient.  

Perish the thought that desirable reforms should be should be done at once and in their entirety. The Five Presidents’ Report foresaw a protracted process (page 5):

Stage 1 (1 July 2015 - 30 June 2017): In this first stage (‘deepening by doing’), the EU institutions and euro area Member States would build on existing instruments and make the best possible use of the existing Treaties. In a nutshell, this entails boosting competitiveness and structural convergence, completing the Financial Union, achieving and maintaining responsible fiscal policies at national and euro area level, and enhancing democratic accountability.

Stage 2: In this second stage (‘completing EMU’), concrete measures of a more far-reaching nature would be agreed to complete EMU’s economic and institutional architecture. Specifically, during this second stage, the convergence process would be made more binding through a set of commonly agreed benchmarks for convergence that could be given a legal nature. Significant progress towards these standards – and continued adherence to them once they are reached – would be among the conditions for each euro area Member State to participate in a shock absorption mechanism for the euro area during this second stage.

Final Stage (at the latest by 2025): At the end of Stage 2, and once all the steps are fully in place, a deep and genuine EMU would provide a stable and prosperous place for all citizens of the EU Member States that share the single currency, attractive for other EU Member States to join if they are ready to do so.

Despite the laborious progress, outlined in more detail in a roadmap for the first two stages, much should have been done already on the road to the deep and genuine EMU (Eurozone) with democratic legitimacy (Annex 1; pages 20-21).

Ralf Grahn

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

Feedback for Junckers' State of the European Union #SOTEU

Yesterday we looked at response to Junckers' address from three European think tanks. Today we study some more feedback generated by the #SOTEU speech at the European Parliament.

JEF

The editors in chief of the webzines of the Young European Federalists (JEF) - Christopher Powers, Hervé Moritz and Marcel Wollscheid - gave president Junckers' State of the European Union address 9 September 2015 positive feedback for honesty and proposals to manage the refugee crisis, while they noted the failures of the member states of the EU (the comments in English, French or German).

New Europe

According to Alexandros Koronakis, of New Europe, Juncker brought sorely missed new elements into his address:

“We need more Europe in our Union, We need more Union in our Union,” Juncker said, early in his speech. The President brought to the European Parliament hemicycle in Strasbourg one thing that was missing even more: More vision, in our union.

Hope and moral legitimacy were the messages Basil A. Coronakis highlighted:

Inspiring, down to earth, human and European, the State of the Union address of President Jean Claude Juncker has opened to worried citizens a slot of hope. Hope that politics, after so many years of absence, will return to Europe and moral order will be eventually restored. The European Union needs that, it needs moral legitimacy.

APCO

Tiernan Kenny, for the APCO consultancy, noted five takeaways from Junckers' #SOTEU address: 1. relocation of refugees and paths to legal migration; 2. the inadequate and conflicting responses of the member states to the refugee crisis; 3. defence of the Schengen border and action to deal with the root causes of people fleeing conflicts, as well as the need for the euro area to speak with one voice in international financial institutions; 4. praise for solidarity shown on the ground by EU citizens; and 5. the need for any new Greek government to stick to its commitments in the eurozone, plus the will of the European Commission to deregulate and to look for a solution to the concerns of the UK government.

Con acento hispano

Jesús González Mateos posted a ringing endorsement of Junckers' address on his Con acento hispano blog, highlighting action to alleviate the hardship encountered by refugees, as well as investment for full employment and means to curb social dumping. We need more Union and more Europe. We must show the world our capacity for unity, honesty and solidarity.

Ralf Grahn

EU transparency and democracy: From bad to worse

Here I am speaking about how transparency and democracy in the European Union (eurozone) have been going from bad to worse. On YouTube.



Ralf Grahn
public speaker on EU affairs


P.S. Multilingual Bloggingportal.eu aggregates the posts from 940 Euroblogs, which represent an important part of the emerging European online public space, across national and linguistic borders. Among them you find my current blog trio, Grahnlaw (recently ranked fourth among political blogs in Finland), Grahnblawg (in Swedish) and Eurooppaoikeus (meaning European Law, in Finnish). Besides democracy, institutional issues and EU politics, I increasingly write and speak about the challenges of growth (EU2020) and the (digital) single market in the making.

Eurozone governance: Fundamental flaws but better presentation

This blog post continues the discussion in the entries Transparency during the eurozone crises and Euro crises: European Council eviscerated?, based on my speech at the 22 February 2012 Attac seminar about the implications of the new fiscal discipline in the EU. This text contains some modifications, updates and documentary references, complementing the oral presentation.

I am appalled by the crucial role two coteries, the Eurogroup and the new Euro Summit - both meeting informally – play in European economic policy making. I am disappointed in the way the coordinating General Affairs Council (GAC) and the European Council (EUCO) have failed to grow up, despite the possibilities offered by the Lisbon Treaty.

However, every cloud has a silver lining, or there are pockets of excellence everywhere.


Council press office

Since our discussion with the Council press office last November, some things have improved from the citizen's point of view.

Let us follow the paper trail of the Eurogroup and the official institutions to make our case.

The Council press office has recently added a web page called Eurozone Governance, accessible from the Council's front page, as well as the home page of the European Council. This is an improvement, and the contents have been upgraded. We could even say that the presentation has improved a lot (web page Documents).

After the fact, we learn i.a. that the EU finance ministers have agreed to shore up IMF resources by €150 billion (19 December 2011), the text of the Treaty on stability, coordination and governance in the economic and monetary union (TSCG) – also known as the ”fiscal compact” or the ”stability union” - and the text of the Treaty establishing the European Stability Mechanism (ESM) between the euro countries.

Nowadays, there are also articles about the main issues, with helpful links, so the materials are available in one place, in a much more user friendly manner.

The frequency of press releases has also gone up, and the various conclusions, as well as explanatory and official statements have also been posted.


Democratic debate

If presentation has improved, what am I carping about?

Despite better presentation, the fundamental flaws of structure and procedures remain.

The essence of democratic debate is seeing citizens and media as potential sources of input, not just a nuisance or subjects to be informed about the outcomes.

This is where the Eurogroup and the European Council fail miserably, and the Council configurations largely.

Thus, the Euro Summit which combines traits of the Eurogroup and the European Council is hardly a dream prospect with regard to openness.

Ahead of the Eurogroup Monday evening, we had a short statement (14 February 2012) from the president Jean-Claude Juncker announcing the chief reasons for the postponement of the ordinary meeting. The Eurogroup statement (21 February 2012) on the second bailout package for Greece offers the public highlights about the sacrifices of the euro area taxpayers, the private bondholders and the Greek people, but it does not contain any links to the underlaying documents and assessments. We are supposed to take the decisions on trust.

But this is the crux: They don't really have a mandate from me.



Ralf Grahn
speaker on EU affairs, especially digital policy and law

P.S. 1: For better or for worse, between the global issues and the national level, the European Union institutions and the eurozone coteries shape our future. At the same time we see an emerging European online public sphere. More than 900 euroblogs are aggregated by multilingual Bloggingportal.eu. Is your blog already listed among them? Are you following the debates which matter for your future?

P.S. 2: Referring the anti-piracy treaty #ACTA to the Court of Justice of the European Union (CJEU) marks a lull in the proceedings, but not an end to the political battle. A few moments ago, the online petition launched by @Avaaz for the European Parliament (and the national parliaments) to reject ACTA had already been signed by 2,427,532 netizens, but more are welcome until the official burial.

Today, Saturday 25 February 2012, European citizens join forces through more than 150 demonstrations for open and democratic legislation and Internet freedoms. In Finland Stop ACTA Helsinki convenes in front of the Central Railway Station at 14:00 hours.