28 November 2012

A Blueprint for a deep and genuine Economic and Monetary Union: Launching a European debate

Commenting on the Blueprint, José Manuel Barroso, President of the European Commission, said: "We need a deep and genuine Economic and Monetary Union in order to overcome the crisis of confidence that is hurting our economies and our citizens' livelihoods. We must give tangible proof of the willingness of Europeans to stick together and move forward decisively to strengthen the architecture in the financial, fiscal, economic and political domains that underpins the stability of the euro and our Union as a whole."

In a deep and genuine EMU, all major economic and fiscal policy choices by Member States would be subject to deeper coordination, endorsement and surveillance at the European level. The Blueprint sets out the path to a deep and genuine EMU, which involves incremental measures taken over the short, medium and longer term. Part of the agenda can be delivered on the basis of the current Treaties, though part of it requires Treaty change.

1. In the short term (within 6 to 18 months), immediate priority should be given to implementing the governance reforms already agreed (six pack) or about to be agreed (two pack). Member States should also strive for an agreement on a Single Supervisory Mechanism for banks by the end of the year. An effective banking union would not only require the setting up of a Single Supervisory Mechanism, but after its adoption also a Single Resolution Mechanism to deal with banks in difficulties. Once an agreement on the MFF has been reached, the economic governance framework should be strengthened further by creating a "convergence and competitiveness instrument" within the EU budget, separate from the Multiannual Financial Framework, to support the timely implementation of structural reforms that are important for the Member States and for the smooth functioning of the EMU. This support would be based on commitments set out in "contractual arrangements" concluded between Member States and the Commission.

2. In the medium term (18 months to 5 years), further strengthening of the collective conduct of budgetary and economic policy - including tax and employment policy – would go hand-in-hand with an enhanced fiscal capacity. A dedicated fiscal capacity for the euro area should rely on own resources and provide sufficient support for important structural reforms in large economies under stress. This could be developed on the basis of the convergence and competitiveness instrument, but would benefit from new and specific Treaty bases. A redemption fund subject to strict conditionality and eurobills could be also be considered to help with debt reduction and stabilise financial markets. The monitoring and managing function for the fiscal capacity and other instruments should be provided by an EMU Treasury within the Commission.

3. In the longer term (beyond 5 years), based on the adequate pooling of sovereignty, responsibility and solidarity at the European level, it should be possible to establish an autonomous euro area budget providing for a fiscal capacity for the EMU to support Member States affected by economic shocks. A deeply integrated economic and fiscal governance framework could allow for the common issuance of public debt, which would enhance the functioning of the markets and the conduct of monetary policy. This would be the final stage in EMU.

Some of the required steps can be adopted within the limits of the current Treaties. Others will require modifications of the current Treaties and new competences for the Union. This must be built on the following basic principles.

1. First, the deepening of EMU should build on the institutional and legal framework of the Treaties.

2. Second, the euro area must be able to integrate quicker and deeper than the EU at large, whilst preserving the integrity of the policies conducted at 27, notably the Single Market. This means that, wherever appropriate, the euro area measures should be open to the participation of other Member States.

3. Indeed, while the Treaties foresee that a number of rules apply only to euro area Member States, the present configuration of the euro area is only of a temporary nature, since all Member States but two (Denmark and the UK) are destined to become full members under the Treaties.

4. Increased democratic accountability must accompany any Treaty change conferring further supranational powers on the EU level. One way to strengthen the EU's legitimacy would be to extend the competences of the Court of Justice.

Next steps

The Blueprint is the Commission’s contribution to the report of the “four presidents” on the next steps for economic and monetary union. A final version of the report is being prepared by the President of the European Council in coordination with President Barroso, the President of the European Central Bank and the President of the Eurogroup, and will be discussed by the European Council on 13-14 December.

Background

The debate on how to further strengthen economic governance has been gathering speed since May 2010, when the Commission proposed a strategy for strengthening economic governance in Europe (MEMO/10/204). This led to the eventual adoption of the "six pack" proposals, which entered into force in December 2011 (MEMO/11/898). The Commission has also contributed to several reports on the EMU in collaboration with the President of the European Council: the report of the task force on economic governance (October 2010), 'Towards a stronger economic union' (December 2011) and the interim report of the “four presidents”, 'Towards a genuine economic and monetary union' (October 2012).

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