14 June 2017

Financial Times: Spain urges sweeping reforms on eurozone to correct flaws

Spain is calling for “aggressive” and rapid reforms of the single currency area, including the creation of a powerful pan-European treasury and a mechanism to force through labour market and other reforms in recalcitrant member states.

“We have a window of opportunity of no more than six months after the German elections [in September],” Luis de Guindos, the Spanish economy minister, said in an interview. “There is a pervasive perception that there are flaws in the eurozone that we have to correct.”

His remarks suggest that at least some eurozone leaders are keen to usher in a newage of ambition for the single currency to capitalise on an increasingly solid economic recovery in Europe and a recent string of electoral defeats for anti-EU parties.

Mr de Guindos also pointed to the Brexit vote and the arrival of the Trump presidencyas factors pushing Europe and the single currency zone towards greater integration.

“There are doubts about fragmentation at the world level and that means we are now more dependent on our own decisions,” he said. “We cannot allow a second Brexit. We have to keep together.”

Spain’s call for sweeping eurozone reforms chimes with the position set out by new French president Emmanuel Macron, but may cause concern in Berlin. Germany has long been wary of steps that could lead to a common eurozone budget or so-called Eurobonds, which would see eurozone countries issue joint debt instruments.

Mr de Guindos acknowledged that there was political and popular resistance to deeper economic and financial integration but argued there was no alternative. “There are only two ways — we go forward or we go backward. But we cannot stay where we are now,” he said.

The minister suggested that failure to resolve the current weaknesses in eurozone management could lead to a break-up of the single currency. “To go backwards means asking whether people want to go back to the peseta,” he said.

Among the key reforms identified by Madrid are the creation of what Mr de Guindos called a “European treasury or European monetary fund” with the power to deploy significant funds in pursuit of a “consolidated fiscal stance”. He added: “This authority should be able to centrally decide over a percentage of the national budgets, or over a European investment fund that could decelerate or accelerate spending in order to get to that figure.

“We could transform the ESM [European Stability Mechanism] into a European treasury or a European monetary fund with much greater powers than it has now — with a budget of its own or with control over a certain percentage of national budgets.”

Debt mutualisation, he argued, would mark only “the final stage” of the eurozone reform push. “We have focused too much on Eurobonds. Eurobonds are a very minor point. The more important point is about economic policy integration, not just for fiscal policy but also in areas such as structural reforms.”

To achieve that goal, the bloc would have to accept enhanced powers at the European level to intervene in member states’ core economic policies. “You need a system that forces countries to analyse their gaps in competitiveness. So you need someone who can say to Spain: ‘You need to carry out reforms in the area of professional services and you need to do so by some specific moment’. Or who can say to another country: ‘You need to have a labour market reform and this has to be done by the end of the year’.” [...]

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