CION Reflection Paper on Deepening EMU 29 th September 2017
White Paper on the Future of Europe – 1 st March 2017 - Timeline Marks the beginning of a process for the EU27 to decide on the future of their Union Commission presented a series of five Reflection Papers on key themes for Europe’s future President Juncker’s State of the Union Speech in September 2017 took these ideas forward First conclusions to be drawn at the December 2017 European Council This will help to decide on a course of action to be rolled out in time for the European Parliament elections in June 2019
5 Reflection Papers Reflection Paper on the Social Dimension of Europe – 26 th April 2017 Reflection Paper on Harnessing Globalisation – 10 May 2017 Reflection Paper on the Deepening of Economic and Monetary Union (EMU) – 31 st May 2017 Reflection Paper on the Future of European Defence – 7 th June 2017 Reflection Paper on the future of EU Finances – 28 th June 2017
Reflection Paper on the Deepening of Economic and Monetary Union (EMU) Intended both to stimulate the debate on the Economic and Monetary Union and to help reach a shared vision of its future design Paper sets out concrete steps that could be taken by the European elections in 2019 Paying due attention to the debates in Member States and to the views of other EU institutions Completing the EMU is not an end in itself but is needed to provide jobs, growth, social fairness, economic convergence and financial stability EU should remain open to all EU Member States, and the decision-making process must become more transparent and democratically accountable
Deepening and strengthening the EMU Challenges to be addressed Persistent economic and social divergences Remaining sources of financial vulnerability High debt and increased collective stabilisation abilities Increased efficiency and transparency of EMU governance Key areas to be addressed Financial Union Economic and Fiscal Union Democratic accountability and strengthening EU institutions
The Governance of the euro area is complex
Why further steps towards a better Governance? A stronger EMU requires a stronger governance Current system reflects an accumulation of decisions of the past which limits the effectiveness of common institutions and tools, and it translates into complex and non-transparent arrangements A common understanding of the possible way forward is needed to cement a better EMU architecture
Financial Union
Financial Union (I) Prioritisation of further risk reduction measures CION’s Banking Reform Package of November 2016 Reinforcing prudential management Strengthening market discipline Measures relating to insolvency, restructuring and second chance Implementing a European strategy for NPLs Coordinated action at EU level targeting key policy areas Strengthening supervisory practices Developing a secondary market for NPLs Reforming national legal frameworks Addressing structural issues in the banking sector
Financial Union (II) Risk sharing measures and completing the Banking Union Outstanding elements Common fiscal backstop for the SRF ESM credit line to the SRF – requires changes to ESM Treaty and ESM governance MSs loans or guarantees to the SRF – ensuring fiscal neutrality in the medium term would be difficult EU Budget as a provider of common backstop EDIS (European Deposit Insurance Scheme) To ensure stronger and more uniform protection of savings in deposit accounts in the Banking Union
Financial Union (III) Delivering the Capital Markets Union (CMU) Increases risk-sharing via the private sector Overall resilience of the financial sector by increasing access to venture capital or equity financing and less reliance on debt Issues such as taxation rules and insolvency procedures must be tackled at EU and national level
Financial Union (IV) Beyond BU and CMU Addressing bank-sovereign nexus Promoting diversification through the development of SBBS (Sovereign Bond-Backed Securities) Securitised financial products issued by a commercial entity or institution No debt mutualisation between MSs Increases diversification of banks’ balance sheets Fostering private sector risk sharing No changes to regulatory treatment of the underlying sovereign bonds would be required Changing the regulatory treatment of sovereign debt Changing the risk-free status
Financial Union (V) Beyond BU and CMU European Safe Assets for the EA Common issuance of debt: Involves debt mutualisation and moral hazard so strong conditionality would be essential To address moral hazard: could be open exclusively only to MSs complying with the SGP but encountering significant exogeneous shocks. Transforming ESM into EMF (European Monetary Fund) Aim: to manage potential crises in the EA within the EU legal framework Functions Encompass at least the current liquidity assistance mechanisms to MSs Future common backstop to the SRF
Economic and Fiscal Union
Economic and Fiscal Union (I) Convergence towards resilient economic structures For the EA: economic structures that are responsive in case of shocks does not mean harmonisation of policies across the board means agreeing on a common approach Could be achieved through: EU-level framework Economic policy coordination Use of funding Macroeconomic stabilisation function (MESF) for the EA A strong link between reforms, use of EU funds and access to a MESF
Economic and Fiscal Union (II) Options for a Macroeconomic Stabilisation Function : European Investment Protection Scheme – protecting investment in the event of a downturn European Unemployment Reinsurance Scheme – reinsurance fund for national unemployment schemes Probably requires prior convergence of labour market policies and characteristics Rainy day fund – limits its payments strictly to its accumulated contributions but could be equipped with the capacity to borrow . A EA budget could ensure convergence and stabilisation Requires a stable revenue stream
EMU architecture and democratic legitimacy
EMU architecture and democratic legitimacy (I) Models to further incremental political integration EU Treaties and EU institutions Intergovernmental approach A mixture of both as already the case today Political integration in parallel with further steps to complete EMU Legal changes to EU Treaties or international treaties (e.g. Fiscal Compact, ESMT) Integration of ESM Treaty in the EU legal framework is not foreseen in any EU legal provisions, but could be a necessary step .
EMU architecture and democratic legitimacy (II) Promoting the general interests of the EA Establishing a new balance between CION and Eurogroup Further integration could require rethinking the balance between, CION, Eurogroup and its Chair. Decision-making competences to the Eurogroup Appointment of a full-time permanent Chair In the long term, Eurogroup could be turned into a Council configuration Functions of the permanent Eurogroup Chair and Member of CION in charge of EMU could be merged Increasingly unified external representation including the IMF
EMU architecture and democratic legitimacy (III) Reinforcing democratic accountability Formalising the current regular dialogue between CION and EP . Extending such arrangement to other decision-making institutions and bodies, or acting on behalf of the EA, including the Eurogroup Members of the Eurogroup would also remain accountable to their national parliaments. Integrating such agreements in the EU Treaties
EMU architecture and democratic legitimacy (IV) Institutions and rules for a fully-fledged EMU Entrusting a EA Treasury with economic and fiscal surveillance of the EA and EAMS supported by the European Fiscal Board the coordination of issuing a possible European safe asset management of a macroeconomic stabilisation function Attributing decision-making the Eurogroup EP will have greater control of common economic, financial and fiscal instruments and policies An autonomous EMF (building on ESM) with the following roles: Current liquidity assistance mechanisms to MS Future last resort common backstop of the BU Review of the existing complex EU fiscal rules
Reflection paper on EMU - State of the Union 2017 priorities (I) The euro is meant to be the single currency of the EU as a whole . All member states but two, are required and entitled to join the euro area. Completing the banking union and encouraging all member states to join the banking union. For Europe to be able to act quicker and more decisively, moving to qualified majority voting for decisions on the common consolidated corporate tax base VAT fair taxes for the digital industry financial transaction tax ESM should now progressively graduate into a European Monetary Fund and be firmly anchored in the EU.
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