30 May 2013

Bundesregierung: France and Germany – Together for a stronger Europe of stability and growth

France and Germany... announced they will take ambitious initiatives to define the next steps of the deepening of the Economic and Monetary Union (EMU), the policies, the instruments and the democratic institutional framework necessary for its realisation. In particular, they committed themselves to present a joint contribution to the preparation of the European Council in June.

The efforts undertaken by Member States to continue growth-friendly fiscal consolidation stabilise the eurozone, preserve its integrity and thus restore confidence in the future of EMU. They are conducted in full respect of the existing rules of the Stability and Growth Pact and the Treaty on Stability, Cooperation and Governance in the Economic and Monetary Union which offer the necessary flexibilities.

Strengthening Economic and Monetary Union

Financial market integration

Progress towards a more integrated financial framework is urgently needed in order to contribute to restore normal lending, improve competitiveness and bring about the necessary economic adjustments. The Single Supervisory Mechanism is a major breakthrough in this respect and an essential building block to develop further elements of a banking union. The Single Supervisory Mechanism therefore needs to be implemented effectively with specific attention to be paid to the process of entry under ECB supervision.

The banking union needs to be implemented within the agreed timetable for the different workstreams:

• The Bank Recovery and Resolution Directive as well as the Deposit Guarantee Directive have to be concluded by the Council by the end of June 2013, to be followed by the approval by the European Parliament. We call on Member States to pursue rapid implementation into their national law.
• Main features for the operational criteria for direct banking recapitalisation scheme should be decided until the end of June 2013 in parallel with the negotiations on the Bank Recovery and Resolution Directive and the Deposit Guarantee Directive. As soon as these Directives are finalised with the European Parliament, the operational criteria for direct banking recapitalisation scheme should be finalised as well.
• The establishment of a Single Resolution Mechanism for countries participating in the Single Supervisory Mechanism has to build upon this with a view to adoption by the end of this parliamentary term. It should be established on the basis of the current treaties and on the basis of the following principles:
  • A single resolution board involving national resolution authorities and allowing quick, effective and coherent decision-making at the central level.
  • The single resolution mechanism should be based on contributions by the financial sector itself, thus pre-financing over time an appropriate and effective private backstop arrangement building on national private backstop arrangements.
  • With private backstop elements growing in importance over time, the ESM should play the role of an additional public backstop, both through lending facilities to Member States or direct recapitalisation based on the operational criteria still to be decided.
  • Looking ahead, we could explore the possibility to bring together the Single Resolution Mechanism and the ESM.

Economic policy coordination and social dimension

The lesson to be drawn from the crisis is that we need to ensure effectively that national and European economic policies contribute to the proper functioning of Economic and Monetary Union.

France and Germany are convinced that by coordinating their economic policies, based on a common orientation for the economic policy of the euro area, Member States will be able to increase competitiveness, growth and employment, provide prosperity to their citizens and assert our economic and social model in an increasingly competitive world.

• Economic policy at euro area level: To devise a strengthened economic policy coordination that achieves this, we need – in a first step – to establish a common assessment on what are the key factors, indicators and problems we need to look at in order to identify the reforms and measures required of each Member State and at the European level. This will form the basis for the development of an economic policy at euro area level as well as the framework in which relevant national policies and reforms will be justified.
• Indicators: We cannot wait for problems to accumulate into macro-economic imbalances before an assessment sets in. Our goal should be to make our economies more resilient, innovative and competitive while ensuring that damaging imbalances do not develop. Therefore, France and Germany propose to develop further, building on existing instruments, a set of indicators contributing to provide a commonly-accepted economic diagnosis of the euro area and all euro area Member States at an earlier stage and on a broader basis. Those indicators should allow, inter alia, identifying the weaknesses and vulnerabilities in the economy as a whole, as well as, for example, in product markets, in labour markets and as regards external aspects of competitiveness. These indicators would evolve depending on national situations as well as over time and should be specifically targeted to our aims.
• Policy areas: This diagnosis will contribute to the identification of the policy areas on which actions need to be taken as a matter of priority by Member States and at the European level, the guiding principles being that the policy areas submitted to strengthened economic policy coordination should be that they are essential for the functioning of EMU and the achievement of high levels of growth and employment...
• Tax systems: The convergence of tax systems is vital in an EMU in order to ensure the coherence of the euro area’s economic policy. We are ready to complete the negotiation for the Financial Transaction Tax and re-launch the agenda for fiscal convergence with all voluntary Member States starting with resuming the work on the common corporate tax base.

To reach the end of establishing a common assessment in the first step, France and Germany propose in-depth discussions at the level of Heads of State or Government in the autumn 2013 on indicators and policy areas.

Contractual arrangements for competitiveness and growth and solidarity mechanisms: Only on the basis of this common assessment of what we – as Member States and together as an Economic and Monetary Union – need to do to keep our economies continuously geared towards competitiveness, growth and employment, we will be able to devise processes which combine legitimacy with ownership.

In particular, we should – in a second step – define better the concept of contractual arrangements for competitiveness and growth with a differentiated approach engaging all euro area Member States while taking into account their specific situation. Member States’ competences and the principle of subsidiarity will be respected. Member States and the European level will enter into contractual arrangements. Both sides will be committed to implement the undertakings decided under these contractual arrangements. Non-euro area Member States are invited to participate on a voluntary basis.

Solidarity mechanisms should be developed in this context. A new system of limited and conditional financial incentives specific to the euro area will be set up to jointly support efforts undertaken by Member States concluding contractual arrangements as part of an overall set of provisions including non-financial incentives. The creation of a specific fund for the euro area will be useful in this context.

Building on the establishment of a common assessment, France and Germany propose an in-depth discussion at the level of Heads of State or Government at the end of the year on the nature and modalities of contractual arrangements as well as on the resources and modalities for such a fund.

Euro area governance: A stronger euro area requires stronger euro area governance and a stronger legitimacy. The deepening of the EMU should be implemented while ensuring at every stage and at every level the democratic nature of decisions and the effectiveness of procedures. France and Germany propose to strengthen the governance of the euro area after the next European elections with the beginning of the next terms office of the presidents of the European institutions. This could include:

• more regular euro area summits; a full-time President for the Eurogroup of Finance Ministers relying on wider resources and the possibility for the Euro summit to task other euro area Ministers, for example employment and social affairs, research or economics ministers, to take work forward on specific euro area matters.[1]
• dedicated structures specific to the euro area to be set up within the European Parliament after the next European elections to ensure adequate democratic control and legitimacy of European decision-making, with the means to achieve this to be left for the Parliament to decide. At the same time, democratic control, legitimacy and ownership must be ensured at the national level for decisions falling into national competence. Adequate procedures need to be developed to ensure this.
• Social partners both on national and on European level should have an enhanced role. On the EU level, this could include better use of the Tripartite Social Summit as well as more regular dialogue with the social partners should be, while respecting their autonomy.

We, France and Germany, invite our partners and the European institutions to reflect on these proposals with a view to the upcoming June European Council. We consider that these are steps to be taken within the next two years in the deepening of our Economic and Monetary Union towards a stronger Europe of Stability and Growth – to the benefit of our citizens.

Full press release

[1] Eurogroup's chairman Jeroen Dijsselbloem suggested on Friday he was against a Franco-German idea for a permanent president for the eurozone finance ministers' bloc, saying a decision on the subject could be made late next year when his term ends. "This is not a new subject, this has been discussed before", he said in Athens. "I know that there are different opinions about this between the Member States and I've read that they want to bring this into discussion again, possibly to be part of the decisions in the second half of 2014. That's fine", he said, adding that the proposal did not insult him. "The Eurogroup is now functioning under my presidency and I will be happy to do that at least until the end of 2014", said Dijsselbloem

Further reporting © Reuters, 31.5.13

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