Menelaos
Markakis, DPhil student at University of Oxford, Academy of Athens scholar
On 22 June 2015
the Presidents of the EU and Euro area institutions presented their report on ‘Completing
Europe’s Economic and Monetary Union’. The report provides a roadmap for
‘deepening’ and ‘completing’ the Economic and Monetary Union (EMU). Building on
the measures enacted to combat the crisis, the Five Presidents’ Report makes a
wealth of valuable suggestions for strengthening the EMU governance framework
and deepening economic integration in the Euro area. The EU Presidents
recommend that progress be made towards a genuine Economic Union, a Financial
Union, a Fiscal Union, and a Political Union.
An
overview of the proposed reforms
The proposed
reforms would be implemented in two consecutive stages. In the first stage (1
July 2015 – 30 June 2017), the EU institutions and Member States ‘would build
on existing instruments and make the best possible use of the existing
Treaties’ (p. 5). In the second stage (mid-2017 to 2025), ‘concrete measures of
a more far-reaching nature would be agreed to complete EMU’s economic and
institutional architecture’ (p. 5). What follows is perforce merely a general
indication of the content covered within the report.
(i)
A genuine
Economic Union
As regards the
economic ‘pillar’ of the EMU, the Five Presidents’ Report recommends that each
Euro area Member State create a Competitiveness Authority which would be ‘in
charge of tracking performance and policies in the field of competitiveness’
(p. 7). The rationale behind this proposal is twofold. Such bodies ‘would help
to prevent economic divergence’ and ‘would increase ownership of the necessary
reforms at the national level’ (p. 7).
It is patently
clear that these Authorities are expected to boost economic convergence in the
Euro area, most notably in relation to policy areas which fall outside the EU’s
competence. These bodies would have a mandate to ‘assess whether wages are
evolving in line with productivity and compare with developments in other euro
area countries and in the main comparable trading partners’ (p. 8). Moreover,
‘these bodies could be mandated to assess progress made with economic reforms
to enhance competitiveness more generally’ (p. 8). The Five Presidents’ Report
further recommends that a Euro area system of Competitiveness Authorities be
created, in order to coordinate the actions of these Authorities on an annual
basis.
The report
seeks to link this proposed technique of policy co-ordination to already
existing forms of rules-based governance in the Euro area. The Commission is
expected to ‘take into account the outcome of this coordination … in particular
for … decisions to be taken under the Macroeconomic Imbalance Procedure (MIP),
including whether to recommend the activation of the Excessive Imbalance
Procedure’ (p. 8). In principle, Euro area Member States are and would remain
free to choose whether to follow the best practices in Europe. However, if they
choose not to, the Commission and Council might respond to such divergence by
subjecting the Member States concerned to the Excessive Imbalance Procedure. In
this connection, the presidents of the institutions explicitly recommend that
the corrective arm of the MIP be
used ‘forcefully’, in order to ‘encourage structural reforms’ (p. 8).
Furthermore, they do not shy away from adding that social partners ‘should use
the opinions of the Authorities as guidance during wage setting negotiations’
(p. 8).
At a later
stage, ‘the convergence process would be made more binding through a set of
commonly agreed benchmarks for convergence that could be given a legal nature’
(pp. 5 and 9). These binding standards would be laid down in EU legislation. In
some areas, this would lead to ‘further harmonisation’ (p. 9). In other areas,
‘it will mean finding country-specific solutions’ (p. 9). ‘Significant progress towards these standards
– and continued adherence to them once they are reached – would be among the
conditions for each euro area Member State to participate in a shock absorption
mechanism for the euro area’ (p. 5), which will be discussed below (iii).
It is not clear
which competence basis the EU institutions would use for the adoption of such
instruments. It might be the case that the Five Presidents’ proposals rest on
the implicit assumption that the EU Treaties will be amended before or during stage
two of this process. It might also be the case that the EU institutions plan to
make full use of Articles 114, 136, 153 and 352 TFEU and/or of the Treaty
provisions on enhanced cooperation.
In this
connection, the Constitutional Affairs Committee of the European Parliament has
proposed that binding
economic policy guidelines for the Euro area countries be adopted on the basis
of Article 136 TFEU (p. 10 para. 15). It has further called for ‘the dropping
of the restrictions under Article 136 TFEU’ and for ‘the upgrading of this
article into a general clause for the adoption of legal acts concerning the
coordination and setting of legally-binding minimum standards with regard to
economic, employment and social policy’ (p. 16 para. 73). This would give more
say to the European Parliament on Country-Specific Recommendations.
Moreover, it
should not escape our notice that ‘Country-Specific Recommendations would
continue to be used in this context’ (p. 9). Furthermore, the report suggests
that the MIP ‘be utilised as a tool … to foster reforms and monitor progress in
each euro area Member State towards these common standards’ (p. 9). As such, rules-based
and co-ordination based governance techniques would continue to ‘form “hybrid”
normative grids and accountability frameworks’ (Armstrong).
(ii)
Towards a
Financial Union
As regards the
proposed Financial Union, the Five Presidents’ Report recommends that the
Banking Union be completed and that the Capital Markets Union be launched.
First, the report recommends the full transposition into national law of the Bank Resolution and Recovery Directive. It is recalled that, in the opinion of the
Commission, 11 Member States have not fully implemented the Directive into
national law. Second, the report argues that, before the Single Resolution Fund
(SRF) is sufficiently capitalised, an ‘adequate bridge financing mechanism’
should be created for banks that need to be orderly unwound (p. 11). Third, a
common backstop to the SRF should be implemented. In the opinion of the EU
Presidents, this could be achieved through a credit line from the European
Stability Mechanism (ESM) to the SRF (see p. 11). ‘In due course, the
effectiveness of the ESM’s direct bank recapitalisation instrument should be
reviewed, especially given the restrictive eligibility criteria currently
attached to it’ (p. 11). Fourth, the report recommends that a European Deposit
Insurance Scheme be launched. Fifth, it proposes strengthening macroprudential
supervision at EU level and ‘review[ing] the treatment of bank exposures to
sovereign debt, for example by setting large exposure limits’ (p. 12).
Building on the
Commission’s Green Paper on ‘Building a
Capital Market Union’, the report further proposes launching a Capital Markets
Union for all 28 EU Member States. This would ‘ensure more diversified
sources of finance’ and would ‘strengthen private sector risk-sharing across
countries’ (p. 12). However, financial integration carries risks with it,
because a problem in one country can rapidly spread to another. As such, the
Five Presidents’ Report recommends that financial supervision be strengthened
in the EU and that a single European capital markets supervisor be created (p.
12).
(iii)
Towards a
Fiscal Union
As regards the
proposed fiscal union, the Five Presidents’ Report puts forward two proposals.
First, it recommends that an advisory European Fiscal Board be created. This
body would coordinate and complement the national fiscal councils that have
been set up in accordance with Regulation 473/2013.
The European Fiscal Board ‘would provide a public and independent assessment,
at European level, of how budgets – and their execution – perform against the
economic objectives and recommendations set out in the EU fiscal framework’ (p.
14), thereby adding extra pressure on national Executives and legislatures to
take EU fiscal rules seriously. ‘Such a European Fiscal Board should lead to
better compliance with the common fiscal rules, a more informed public debate,
and stronger coordination of national fiscal policies’ (p. 14).
Second, the
report proposes the creation of a fiscal stabilisation function for the Euro
area. Such a mechanism would enhance public risk-sharing in the Euro area (p.
4) and could build on the European Fund for Strategic Investments. However, it ‘should not lead to permanent transfers between
countries or to transfers in one direction only’ (p. 15). ‘It should also not
be conceived as a way to equalise incomes between Member States’ (p. 15).
Notably, this stabilisation function ‘should be developed within the
framework of the European Union’ (p. 15, emphasis added).
Democratic
Accountability, Legitimacy, and Institutional Reform
The discussion
thus far has focused on the economic reforms proposed by the presidents of the
EU institutions. The focus now shifts to proposed reforms for enhancing the
democratic credentials of the EMU. Save for the proposals for a more timely and
better-structured parliamentary debate during the European Semester (see p. 17),
it is hard to see how these proposals add anything to the already existing
‘six-pack’ and ‘two-pack’ arrangements for ‘institutional dialogue’. Be that as
it may, the added emphasis on the role of social partners and civil society, as
well as on consultation with EU-level social partners, should be readily
applauded (see p. 22).
There is a
strong focus on output legitimacy and on synergies between the European
and national parliaments. ‘After many years of crisis, governments and
institutions must demonstrate to citizens and markets that the euro area will
do more than just survive. They need to see that it will thrive’
(p. 5).
Moreover, the
report lays down a number of proposals for strengthening the EMU governance
framework. More specifically, the EU Presidents suggest that the various
treaties concluded outside the formal confines of the Lisbon Treaty be
incorporated into the EU Treaties and secondary legislation and that the
governance structure of the ESM be ‘fully integrated within the EU Treaties’
(p. 18). The report further suggests that a full-time presidency of the
Eurogroup be considered and proposes the creation of a Euro area treasury (see
p. 18). In the opinion of the authors of the report, ‘the world’s second
largest economy cannot be managed through rule-based cooperation alone’; ‘it
will need to shift from a system of rules and guidelines for national economic
policy-making to a system of further sovereignty sharing within common
institutions’ (p. 5). The division of labour between a Euro area and national
treasuries is not made clear.
Regrettably,
there is no elaboration of what accountability structures should be put in
place if a Euro area treasury or fiscal stabilisation function were to be
created. Likewise, there is no analysis of the desired accountability
mechanisms for the proposed Financial Union. To be sure, requiring the consent
of the European Parliament for the appointment of the Chair and the Vice-Chair
of the Supervisory Board was a major step forward (see Article 26(3) of Regulation 1024/2013). What
is more, there are no proposals for improving transparency in the workings of
the Eurogroup, whose role in economic governance has now been heightened. A
body actively seeking to foster economic convergence among Euro area countries
(see p. 9) should not operate behind closed doors.
Final remarks
There
will be no attempt to summarise the preceding argument. It is nonetheless worth
highlighting certain features that are of particular importance. First, since
‘all euro area Member States must participate in all Unions’ (p. 5), these
proposals would, if implemented, put the
idea of a multi-speed Euro area to
sleep. To be sure, it might still be the case that not all Euro area Member
States would meet the requirements to make use of the proposed shock absorption
mechanism. Second, the EU Presidents’ proposals would, if implemented, entail a
massive upward flow of power from the national to the EU/Euro area institutions
and bodies. Arguably, this should be matched by increased democratic controls
and robust accountability mechanisms. Third, it is particularly noteworthy that
the report notes that all members of the Euro area should gain from EMU
membership (p. 4). Spreading welfare gains across the Union and promoting
economic, social and territorial cohesion might require that more thought be
given to the EU’s regional and structural policies (see also the 1989 Delors
Report). Lastly, at least some of the proposed
reforms might require a Treaty amendment in order to be implemented, and
therefore the Prime Minister of the United Kingdom might get his chance to renegotiate
Britain’s relationship with the EU and to enshrine the desired precepts in
primary law.
Barnard & Peers: chapter 19
Photo credit: roarmap.org
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