Sunday, 15 October 2017

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

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