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III. COMPLETING THE ECONOMIC AND MONETARY UNION
12. Since the presentation last December of the report "Towards a genuine EMU" work has been advancing on the four key building blocks to strengthen the architecture of the EMU. Concrete new steps towards strengthening economic governance will need to be accompanied by further steps towards stronger democratic legitimacy and accountability at the level at which decisions are taken and implemented. This process will build on the EU's institutional framework, in full respect of the integrity of the single market, while ensuring a level playing field between EU Member States, including via a fair balance between home and host Member States. It will be open and transparent towards Member States not using the single currency.
13. In the short run, the key priority is to complete the Banking Union in line with the European Council conclusions of December 2012 and March 2013. This is key to ensuring financial stability, reducing financial fragmentation and restoring normal lending to the economy. The European Council recalled that it is imperative to break the vicious circle between banks and sovereigns and underlined the following points:
(a) the new rules on capital requirements for banks (CRR/CRD) and the new Single Supervisory Mechanism (SSM) will have a key role in ensuring the stability of the banking sector;
(b) in the transition towards the SSM, a balance sheet assessment will be conducted, comprising an asset quality review and subsequently a stress test. In this context, Member States taking part in the SSM will make all appropriate arrangements, including the establishment of national backstops, ahead of the completion of this exercise;
(c) the Eurogroup has agreed on the main features of the operational framework for direct bank recapitalisation by the European Stability Mechanism (ESM). Work should continue so that, when an effective single supervisory mechanism is established, the European Stability Mechanism will, following a regular decision, have the possibility to recapitalise banks directly;
(d) the European Council welcomed the agreement reached in Council on the draft directive establishing a framework for the recovery and resolution of banks and invited the Council and Parliament to start negotiations with the aim of adopting the directive before the end of the year. It also called for the adoption before the end of the year of the proposal for a Deposit Guarantee Scheme;
(e) a fully effective SSM requires a Single Resolution Mechanism (SRM) for banks covered by the SSM. The European Council looks forward to the Commission's proposal establishing an SRM with a view to reaching agreement in the Council by the end of the year so that it can be adopted before the end of the current parliamentary term. The Commission intends to adopt revised state aid rules for the financial sector in the summer of 2013 with a view to ensuring a level playing-field in resolution decisions involving public support.
14. Work must be pursued on all the building blocks of a reinforced EMU, as they are closely interrelated:
(a) it is necessary to put into place a more effective framework for the coordination of economic policies in line with Article 11 of the Treaty on Stability, Coordination and Governance and with the principle of subsidiarity. Following its communication of 20 March, the Commission intends to present a proposal on the ex ante coordination of major economic reforms in the autumn;
(b) while there are convergences around the key principles underpinning the concepts of mutually agreed contracts and associated solidarity mechanisms, further work is required on these issues in the coming months, drawing in particular on the forthcoming Commission communication on economic policy coordination;
(c) the social dimension of the EMU should be strengthened. As a first step, it is important to better monitor and take into account the social and labour market situation within EMU, notably by using appropriate social and employment indicators within the European semester. It is also important to ensure better coordination of employment and social policies, while fully respecting national competences. The role of the social partners and social dialogue, including at national level, is also key. The Commission will present a communication on the social dimension of the EMU shortly.
15. Following close consultations with the Member States, the European Council will return to all these issues. In October 2013, it will look in particular at indicators and policy areas to be taken into account in the framework of a strengthened economic policy coordination and at the social dimension of EMU. The discussion will be continued in December 2013, with the objective of taking decisions on these issues, in particular on the main features of contractual arrangements and of associated solidarity mechanisms. Any such measures would be voluntary for those outside the single currency and be fully compatible with the Single Market in all aspects.
President Van Rompuy's remarks following the Council
President Barroso's remarks following the Council