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EMU
- To ensure a strong economy, the European Union needs a strong currency union. This currency is the Euro, which is open to all Member States and which nearly all Member States intend to adopt in accordance with the EU treaties. Sharing the same currency entails specific needs in terms of economic coordination and integration.
As a consequence, France and Germany have decided to propose key steps in the following roadmap to strengthen and deepen the Euro area further, and make it a genuine economic union.
European Stability Mechanism (ESM)
As a first step, we need to change the intergovernmental Treaty of the ESM in order to include a common backstop instrument, enhance the effectiveness of precautionary instruments for Member States and enhance its role in assessing and monitoring future programs. And in a second step, we can then ensure the incorporation of the ESM into EU law, preserving the key features of its governance.
Further work should be undertaken on an appropriate framework for liquidity support on resolution.
Conditionality remains an underlying principle of the ESM treaty and all ESM instruments but adapted to each instrument.
We recall that any decision to provide ESM stability support to a euro area Member State includes a debt sustainability analysis (DSA).
To improve the existing framework promoting debt sustainability and to improve their effectiveness, we should start working on the possible introduction of Euro CaCs with single-limb aggregation. When appropriate, the ESM may facilitate the dialogue between its Members and private investors, following IMF practice.
The ESM should have an enhanced role in designing and monitoring programmes in close cooperation with the Commission and in liaison with the ECB and based on a compromise to be found between the Commission and the ESM. It should have the capacity to assess the overall economic situation in the Member States, contributing to crisis prevention. This should be done without duplicating the Commission’s role and in full respect of the treaties.
Whenever a Member State requests ESM financial assistance, it may also request financial assistance from the IMF.
The ESM could be renamed.
ESM credit line
We should make existing precautionary instruments more effective to ensure stabilization. Such support would need to involve conditionality.
As a further development of the precautionary ESM credit line (PCCL), stability support could be used in case of risk of liquidity shortages where ESM Members are risk facing a gradual loss of market access, without the need for a full program.
We will set up a process to finalize a term-sheet by December.
Banking Union
As regards the Banking Union, the ECOFIN Council Roadmap of June 2016 recognized that further steps will have to be taken in terms of reducing and sharing risks in the financial sector, in the appropriate sequence, regarding NPLs, insolvency regimes, banking package and anti-money laundering.
Backstop
The ESM should be the backstop to the Single Resolution Fund. It should be provided in the form of a credit line. Based on sufficient risk reduction, its entry into force should be earlier than 2024.
The size of the backstop should be close to but not bigger than the size of the SRF. The backstop should replace the direct recapitalization instrument.
Fiscal neutrality over the medium term will be ensured especially through repayment of the common backstop via extraordinary ex-post contributions by the banking sector in three years with a potential extension of two years.
Provided that there is sufficient progress in all relevant fields of risk reduction, to be assessed by the relevant authorities (Commission, SSM and SRB), the entry into force of the backstop should be brought forward before 2024. In 2020, the relevant authorities will provide a report on the trend of NPLs and the building up of subordinated bail-in buffers. On that basis and if risk reduction is satisfactory, the final decision on an accelerated entry into force of the backstop should be taken by the Eurogroup/ECOFIN / European Council.
We will assess the size of the SRF in the context of the end 2018 review and the need to review the intergovernmental agreement to anticipate the backstop.
A term sheet with the precise features of the SRF backstop should be developed for political endorsement by December 2018, based on the work done in the relevant expert group so far.
EDIS
We reaffirm the importance of strengthening the Banking Union with a view to its completion. This means, on all elements of the ECOFIN Council Roadmap of June 2016, both risk reduction and risk sharing in the appropriate sequence. The work on a Roadmap for beginning political negotiations on EDIS could start after the European Council in June.
Capital Markets Union
We commit to making decisive progress towards a Capital Markets Union, on all the items agreed by our Finance Ministers.
Eurozone budget
We propose establishing a Eurozone budget within the framework of the European Union to promote competitiveness, convergence and stabilization in the euro area, starting in 2021.
Decisions on the funding should take into account the negotiations on the next Multiannual financial framework. Resources would come from both national contributions, allocation of tax revenues and European resources.
The Eurozone budget would be defined on a pluriannual basis.
The purpose of the Eurozone budget is competitiveness and convergence, which would be delivered through investment in innovation and human capital. It could finance new investments and come in substitution of national spending.
We will examine the issue of a European Unemployment Stabilization Fund, for the case of severe economic crises, without transfers. France and Germany will set up a working group with a view to making concrete proposals by the European Council of December 2018.
Strategic decisions on the Eurozone budget will be taken by the Euro zone countries. Decisions on expenditures should be executed by the European Commission. [...]
Reforming the EU institutions
- To work for the European Commission to have less Commissioners than there are Member States – as foreseen in the Lisbon Treaty.
- To put in place transnational lists for European elections as of 2024.
Full declaration
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