Documents considered by the Committee on 17 October 2012 - European Scrutiny Committee Contents

2    Economic and Monetary Union


Towards a genuine Economic and Monetary Union: Interim Report
Legal base
Deposited in Parliament17 October 2012
DepartmentHM Treasury
Basis of considerationEM Minister's letter of 16 October
Previous Committee ReportNone
Discussion in European Council18-19 October 2012
Committee's assessmentPolitically important
Committee's decisionFor debate on the Floor of the House, together with the proposals for a Banking Union[3]


2.1  At the European Council of 28-29 June "the President of the European Council was invited to develop, in close collaboration with the President of the Commission, the President of the Eurogroup and the President of the ECB, a specific and time-bound road map for the achievement of a genuine Economic and Monetary Union". The intention was for an interim report to be presented at the European Council of 18-19 October and a final one to be presented at the December European Council.

The document

2.2  This is the interim report, which builds on ideas expressed during bilateral meetings in September with all Member States and the European Parliament. It outlines areas for further work ahead of the final report due in December. The report focuses on the eurozone as its members face specific challenges from sharing a currency. It is clear that the process must be fully compatible with the single market in all aspects. The report has four substantive sections.

Integrated Financial Framework

2.3  The report notes that the proposed Single Supervisory Mechanism (SSM),[4] which is a matter of priority, has three elements:

·  a clear separation between European Central Bank monetary policy and supervisory functions;

·  a balance between rights and obligations for all Member States participating in the new supervisory arrangements; and

·  appropriate accountability of the new single supervisor, including to the European Parliament.

It also states that the SSM should operate consistently with the single market and, as such, the European Banking Authority (EBA) would maintain its roles in implementing a single rulebook and as a mediator of the other various supervisory bodies. However, the EBA voting modalities would need to be adapted.

Integrated Budgetary Framework

2.4  The report describes the first priority as being the need to complete and implement the new steps for stronger economic governance (the 'Six Pack' of legislation strengthening the Stability and Growth Pact, the Treaty for Stability Coordination and Governance (SCG) and the 'Two Pack' of proposed legislation aimed at strengthening economic governance in the eurozone). Secondly, alongside stronger fiscal discipline, it outlines the need for a fiscal capacity for the Economic and Monetary Union (EMU), which could take various forms. It puts forward two possible functions for this fiscal capacity — a facility to tackle country-specific shocks by providing some degree of central absorption and a facility to incentivise structural reforms. The report also states that a fully-fledged integrated budgetary framework would require the establishment of a treasury function with clearly defined fiscal responsibilities. It says finally that, to prevent contagion, the pooling of some short term sovereign funding instruments (for example, treasury bills) on a limited and conditional basis could be examined further.

Integrated Economic Policy Framework

2.5  The report highlights the importance of completing the single market as a way to address some of the weaknesses in institutional quality, labour market and business climate indicators. It also identifies rapid implementation of the measures included in the June 2012 Growth and Employment Compact as a top priority. The report introduces the idea of individual contractual arrangements between eurozone Member States and the EU institutions on the reforms promoting growth and jobs these countries commit to undertake — these reforms could be those identified in the country-specific recommendations of the Council and be supported by limited, temporary, flexible and targeted financial incentives. It also raises the idea of some kind of eurozone ex ante coordination of major economic policy reforms with spill over effects for the eurozone. Finally, the report proposes that to avoid large and rapid build up of economic imbalances, macro-prudential policy tools could be provided to the single supervisor foreseen in the draft legislation on the SSM.[5]

Strengthened Democratic Legitimacy And Accountability

2.6  The report highlights the principle that democratic control and accountability should occur at the level at which the decisions are taken. It discusses how the European Parliament should be more involved in EU procedures, suggesting it should hold debates on the recommendations adopted in the context of the European Semester. It also notes the importance of "maintaining and securing the pivotal role of national parliaments, as appropriate" and that:

"A number of concrete steps to increase the level of cooperation between national parliaments and the European Parliament can also be taken, building on Article 13 of the Treaty on Stability, Coordination and Governance and on Protocol 1 of the Treaty on the Functioning of the European Union, in the respect of the Community method. In this spirit, ways to ensure a debate in the European Parliament and in national parliaments on the recommendations adopted in the context of the European Semester should be explored."

The Government's view

2.7  In his letter agreeing to deposit of this document the Financial Secretary to the Treasury (Greg Clark) says that:

"… the European Council will not actually reach decisions on the document. Rather, it is expected to discuss the report and note that a further report will be produced for the December Council. As such, in this instance, the normal scrutiny reserve resolution would not operate. Going forward we will ensure as far as possible that the final report, published before the December European Council, is made available to the Committee so it can provide its views and report to the House. However, as you know, the timing of the presentation of these reports rests with the President of the Council and the time between presentation and the Council will always be very short."

2.8  In his Explanatory Memorandum the Minister says that:

·  the Government welcomes the report's focus on the eurozone Member States and agrees that they face specific challenges by virtue of sharing a currency; and

·  it also welcomes recognition that this process must be fully compatible with the single market in all its aspects.

2.9  The Minister then comments further on the four sections of the report, saying that:

Integrated Financial Framework

·   a separate Explanatory Memorandum has been provided on the Commission's proposals for a SSM;[6]

Integrated Budgetary Framework

·  there are no formal proposals contained in the report;

·  the Government agrees that a priority is to complete and implement the new steps for stronger economic governance that have recently been agreed, or are currently under discussion, including the Commission's 'Two Pack' proposals for the eurozone;

·  the ideas for a eurozone fiscal capacity are interesting — further detail would be needed for a proper analysis of such proposals;

·  in the meantime, the Government agrees these proposals could be explored as part of this work — this will need consideration of how this would be financed, the purpose and legal issue and any relationship to other eurozone facilities;

·  the Government is clear that funding would be for the eurozone;

·   ideas for eurozone treasury bills have been put forward by external commentators —these ideas could be considered as part of this process;

An Integrated Economic Policy Framework

·  there are no formal proposals in this area and these ideas are rightly focussed on the eurozone;

·  there is little detail of how "individual agreements of a contractual nature" would work in practice;

·  these arrangement might increase incentives for eurozone Member States to carry out reforms;

·  the Government would need to see further detail before taking a position but is content for these proposals to be explored as part of this work;

·  ex ante coordination would likely involve Member States sharing details amongst themselves of major reforms before they are implemented;

·  again, there is little detail of how this would work in practice and the Government would need to see further detail before determining its position;

Strengthened Democratic Legitimacy and Accountability

·  there are no concrete proposals in this section of the report, however it suggests relying on the European Parliament for accountability for decisions at EU level, but also retaining the role of national parliaments, as appropriate, but does not explain what this means in practice; and

·  the Government is clear that there should be further consideration of how "we can use" national parliaments to enhance legitimacy and oversight.


2.10  Although purportedly there would be no direct impact on the UK by the measures foreshadowed by this document, there is potential for harm to UK interests, particularly in relation to the single market. So we presume the Prime Minister will be cautious in expressing any support during the forthcoming European Council for the elements outlined in the report.

2.11  As for the role of national parliaments in ensuring democratic legitimacy and accountability we are concerned:

·  at the implications of the apparent presumption in the report about the primacy of the European Parliament; and

·  the presumption that democratic legitimacy and accountability of a new strengthened EMU framework and cooperation under Article 13 of the SCG treaty should only be explored within the context of the European Semester.

We remind all concerned in this debate that national parliaments are representative of sovereign states. Incidentally, we note the rather odd phraseology — "we can use" — the Minister deploys. We presume he does not actually mean that governments use parliaments.

2.12  These matters are of high importance for the UK. So, ideally we would wish to recommend for debate the final report on them, that is to be presented to the December European Council, before that meeting. But given the likely timing of its publication we recognise that this will prove impracticable. So instead, we recommend that this present document, which does show in broad terms the thrust of the thinking of the four authors, be debated, for three hours on the Floor of the House, together with the Banking Union documents discussed in Chapter One of this Report.

2.13  In making this debate recommendation we note, notwithstanding the Minister's comments, that the document will not be cleared from scrutiny until the debate takes place and take the view that actions by the Government which amounted to agreement of the report would be a serious breach of the scrutiny reserve.

3   See chapter 1 of this Report. Back

4   Ibid Back

5   Ibid Back

6   IbidBack

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Prepared 18 October 2012