EU Commission President Jean-Claude Juncker on September 9, 2015 gave a widely watched speech on the State of the Union. [...]
Already in our introductory remarks we want to point out to you an important topic of both Juncker’s speech and the Commission’s Working Programme which so far has not made it into the public debate: the demand by the EU Commission President for setting up a Treasury for the eurozone.
Juncker plans to built this Treasury on the basis of Europe’s permanent bailout fund ESM which has a potential credit volume of 500 billion euros, a firepower that is as important as the one of the International Monetary Fund.
“The ESM should progressively assume a broader macroeconomic stabilisation function to better deal with shocks that cannot be managed at the national level alone”, Juncker declared in his speech. He announced that the EU Commission “will prepare the ground for this to happen in the second half of this mandate.”
Now, this is quite some announcement on the part of the EU Commission head, because up to now the funds of the ESM could only be used under an absolute emergency scenario with the existence of the eurozone itself at risk. In reality, EU crisis measures had already deviated from these strict obligations. It seems that Juncker now wants to institutionalize this more loose approach. A sort of Finance Minister for the eurozone is to be granted bigger leeway in making use of the ESM funds.
Admittedly, Juncker also called on the member states that in future the EU Commission’s recommendations for the economic orientation of the eurozone should no longer be empty words. “I want them to provide real orientation, notably on the fiscal stance of the euro area,” he declared. Yet, governments in the past showed no distinct willingness to follow European budget rules. It seems quite unlikely that they will do so in the future. There is simply a lack of willingness in the eurozone countries to consistently adjust national fiscal, economic, labour market and social policies to the measures agreed on the European level.
Debt mutualisation and lasting transfer payments between member states, which could result from Juncker’s plan, would be liable to encounter partial forceful resistance in the populations of those countries that would be the potential net contributors.
Thus, instead of creating an Euro-Treasury it would make more sense to introduce a sovereign default regime for the eurozone. Thereby, markets would exert the necessary reform pressure on governments, something which the EU Commission or the Eurogroup has never been able to do. The cep has drawn up a blueprint for a sovereign default regime. You can find it here.
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