4 Economic and Monetary Union
| Committee's assessment
| Politically important |
| Committee's decision | Not cleared from scrutiny; recommended for debate on the floor of the House; drawn to the attention of the Treasury Committee
|
| Document details | Commission Report, on behalf of the "Five Presidents", about Completing Europe's Economic and Monetary Union
|
| Legal base | —
|
| Department
Document number
| HM Treasury
(36946), — |
Summary and Committee's conclusions
4.1 In recent years various measures have been discussed, and
some introduced, to strengthen economic governance in the eurozone
and in the wider EU. Much of this activity has been concerned
with countering the present eurozone difficulties.
4.2 Building on earlier work the Commission President
(Jean-Claude Juncker) now presents this report, described as having
been produced in close cooperation with the Presidents of the
European Council, the Eurogroup, the European Central Bank and
the European Parliament. After providing background information
on the Economic and Monetary Union, the first section of the report
sets out an overview of sequencing, describing how measures to
improve the Economic and Monetary Union could be implemented in
three stages. The next sections of the report focus on four key
pillars of further EMU reform: towards Economic Union; towards
Financial Union; towards Fiscal Union; and democratic accountability,
legitimacy, and institutional strengthening.
4.3 The Presidents make clear that their report "focuses
on the euro area, as countries that share a currency face specific
common challenges, interests and responsibilities". They
also make clear that the process towards deeper Economic and Monetary
Union should be "transparent and preserve the integrity of
the Single Market in all its aspects".
4.4 The Government welcomes the Presidents' statement
about the integrity of the single market and says that it does
not want to stand in the way of the eurozone resolving its difficulties,
economic and financial stability in the eurozone being in the
UK's interests. But the Government adds that it will not let the
integration of the eurozone jeopardise the integrity of the single
market or in any way disadvantage interests of non-euro Member
States, such as the UK.
4.5 Although this report is targeted primarily
at the eurozone, implementation of its proposals will inevitably
have implications for non-eurozone Member States, including in
relation to democratic accountability and legitimacy. So we recommend
that the document be debated on the floor of the House, when Members
might wish to examine the potential implications for the UK. We
also draw the document to the attention of the Treasury Committee,
particularly for the suggestions for a Fiscal Union and a Financial
Union.
Full details of
the document: Commission Report —
Completing Europe's Economic and Monetary Union: (36946), —.
Background
4.6 In recent years various measures have been discussed,
and some introduced, to strengthen economic governance in the
eurozone and in the wider EU. Much of this activity has been concerned
with countering the present eurozone difficulties. In December
2012 a Report, Towards a genuine Economic and Monetary Union,
commonly referred to as the "Van Rompuy Report" or the
"Four Presidents' Report", was published for the European
Council. It was prepared by the President of the European Council,
"in close collaboration with" the Presidents of the
Commission, the Eurogroup and the European Central Bank. The Report
suggested measures, for implementation in three stages —
2012-2013, 2013-2014 and post-2014, under four pillars thought
necessary for a genuine Economic and Monetary Union (EMU): an
integrated financial framework, an integrated budgetary framework,
an integrated economic policy framework and democratic legitimacy
and accountability. The Report said that "the process towards
a deeper EMU should be … fully compatible with the Single
Market in all aspects".[ 45]
4.7 Since the Report implementation of these suggested
measures has been concerned primarily with an integrated budgetary
framework, especially the Banking Union, designed for the eurozone
and any non-eurozone Member States which wish to participate.
The Banking Union measures, principally the Single Supervisory
Mechanism and the Single Resolution Mechanism, are based upon
the EU's "single rulebook" or common financial regulatory
framework — the legislation which governs the financial
sector across the entire EU.
4.8 However, the October 2014 Euro Summit called
"for work to continue … to develop concrete mechanisms
for stronger economic policy coordination, convergence and solidarity.
It invited the President of the Commission, in close cooperation
with the President of the Euro Summit, the President of the Eurogroup
and the President of the European Central Bank, to prepare next
steps on better economic governance in the euro area".[ 46]
In response an analytic note, Preparing for next steps on better
economic governance in the euro area,[ 47]
was presented for consideration at the February informal European
Council.[ 48]
The document
4.9 Building on the February analytical note and
earlier work the Commission President now presents this report,
described as having been produced in close cooperation with the
Presidents of the European Council, the Eurogroup, the European
Central Bank and the European Parliament. (Consequently the report
is commonly referred to as the Five Presidents' Report.)
4.10 After providing background information on the
EMU, the first section of the report sets out an overview of sequencing,
describing how measures to improve the EMU could be implemented
in three stages:
· Stage
1 (between 1 July and mid 2017) — relatively modest reforms
to the priorities and procedures of the EU and eurozone;
· Stage
2 (from mid-2017 to 2025) — more substantial suggestions
for stronger economic and political integration; and
· Stage
3 (2025 onwards) — a properly functioning EMU that other
EU countries will want to join.
4.11 The next sections of the report focus on four
key pillars of further EMU reform:
· towards
Economic Union;
· towards
Financial Union;
· towards
Fiscal Union; and
· democratic
accountability, legitimacy, and institutional strengthening.
4.12 The report makes clear that it "focuses
on the euro area, as countries that share a currency face specific
common challenges, interests and responsibilities". It also
makes clear that the process towards deeper EMU should be "transparent
and preserve the integrity of the Single Market in all its aspects".
ECONOMIC UNION
4.13 The Presidents argue that convergence between
Member States to the highest levels of prosperity is "at
the heart of our Economic Union". They suggest that it follows
that all eurozone Member States should pursue sound policies so
that they can rebound quickly from short term shocks and are able
to exploit their comparative advantage within the single market,
thereby sustaining high levels of growth and employment. They
add that much could be achieved through a deepening of the single
market, which is important for all 28 Member States.
4.14 On Stage 1 the Presidents propose:
· creation
of a eurozone system of Competitiveness Authorities;
· strengthened
implementation of the Macroeconomic Imbalance Procedure;
· greater
focus on employment and social performance; and
· stronger
coordination of economic policies within a revamped European Semester.
4.15 For Stage 2 the Presidents propose formalising
the convergence process, by agreeing a common set of high level
standards that would be defined in EU legislation. They argue
that these standards should focus primarily on:
· labour
markets;
· competitiveness;
· business
environment;
· public
administrations; and
· certain
aspects of tax policy (for example, corporate tax base).
FINANCIAL UNION
4.16 The Presidents argue that a stronger Economic
Union must be accompanied by the completion of a Financial Union,
suggesting that this is because in a Monetary Union the financial
system must be single or else the impulses from monetary policy
will not be transmitted uniformly across Member States. They propose
that in Stage 1 the Banking Union should be completed. This would
include:
· full
transposition of the Bank Resolution and Recovery Directive; setting
up a bridge financing mechanism for the Single Resolution Mechanism's
Single Resolution Fund (SRF);
· implementing
concrete steps towards a common backstop to the SRF;
· agreeing
a common Deposit Insurance Scheme;
· improving
the effectiveness of the process for direct bank recapitalisation
in the European Stability Mechanism (ESM); and
· addressing
the significant margin for discretion at the national level.
4.17 In also recommending launching of a Capital
Markets Union for Stage 1, the Presidents:
· note
the need to address the most important bottlenecks preventing
the integration of capital markets in areas such as insolvency
law, company law, property rights, and legal enforceability of
cross-border claims;
· argue
that this will require strengthening the tools to manage financial
players' systemic risks prudently, and strengthening the supervisory
framework to ensure the solidity of all financial actors; and
· argue
that this should ultimately lead to a single EU capital markets
supervisor.
FISCAL UNION
4.18 The Presidents argue that a key lesson from
the crisis is that fiscal policies are a matter of vital common
interest in a Monetary Union. They say that responsible national
fiscal policies must perform a double function of ensuring that
fiscal automatic stabilisers can operate to cushion country-specific
economic shocks and ensure that the sum of national budget balances
leads to an appropriate fiscal stance at the eurozone level.
4.19 For Stage 1 the Presidents propose an advisory
European Fiscal Board, which would coordinate and complement the
national fiscal councils set up in the context of the Council
Directive 2011/85/EU on requirements for the budgetary frameworks
of Member States, for the Stability and Growth Pact (SGP)'s excessive
deficit procedure. Such a Board would provide public and independent
assessment, at the EU level, of how budgets perform against the
EU fiscal framework. The Presidents also argue that every Member
State should stick to the fiscal rules, and that the forthcoming
review of the 'Six-Pack' and 'Two-Pack' SGP legislation[ 49]
should be an opportunity to improve clarity, transparency, compliance
and legitimacy, while preserving their stability-oriented nature.
4.20 The Presidents propose that in Stage 2:
· a
macroeconomic stabilisation function for the eurozone be set up,
as "the culmination of a process of convergence and further
pooling of decision making on national budgets";
· this
function could build on the European Fund for Strategic Investments;[ 50]
· to avoid
moral hazard, participation should be tightly linked to compliance
with the common economic governance standards they suggest and
to progress on convergence; and
· the
function should be consistent with the current EU fiscal framework,
and should not be an instrument for crisis management.
DEMOCRATIC ACCOUNTABILITY, LEGITIMACY, AND INSTITUTIONAL
STRENGTHENING.
4.21 The Presidents argue that:
· greater
responsibility and integration at the EU and eurozone level should
go hand in hand with greater democratic accountability, legitimacy,
and institutional strengthening;
· at the
height of the crisis, far-reaching decisions had often to be taken
in a rush, sometimes overnight;
· in several
cases, intergovernmental solutions were chosen to speed up decisions
or overcome opposition; and
· "now
is the time to review and consolidate our political construct".
4.22 The Presidents' Stage 1 proposals include:
· reorganising
the European Semester;
· strengthening
European Parliament and national parliamentary oversight of the
European Semester;
· increased
cooperation between the European Parliament and national parliaments;
· taking
steps towards a consolidated external representation of the eurozone;
and
· strengthening
the Eurogroup President and its support function.
4.23 For Stage 2 the Presidents:
· recommend
integrating the ESM into EU law;
· argue
that a genuine Fiscal Union will require more joint decision making
on fiscal policy; and
· suggest
setting up a eurozone treasury accountable at the EU level.
The Government's view
4.24 In his Explanatory Memorandum of 3 July 2015
the Financial Secretary to the Treasury (Mr David Gauke) introduces
his remarks by saying that the Government notes that the report's
focus is the eurozone and that it will study the recommendations
in the report in more detail. He continues that:
· the
Government welcomes that the Presidents state that the process
towards a deeper EMU should be "transparent and preserve
the integrity of the Single Market in all its aspects";
· the
UK benefits from the single market and the Government does not
want to stand in the way of the eurozone resolving its difficulties
— economic and financial stability in the eurozone is in
the UK's interests; but
· the
Government has been clear that it will not let the integration
of the eurozone jeopardise the integrity of the single market
or in any way disadvantage interests of non-euro Member States,
such as the UK.
4.25 On timetabling the Minister tells us that:
· the
report was discussed at the June European Council where leaders
"took note of the report on the Economic and Monetary Union
requested by the December 2014 European Council and asked the
Council to rapidly examine it"; and
· the
timetable for Council discussions is yet to be agreed.
Previous Committee Reports
None.
45 (34453): see Twenty-fourth Report HC 86-xxiii (2012-13),
chapter 1 (12 December 2012) and Twenty-eighth Report HC xxvii
(2012-13), chapter 1 (16 January 2013). Back
46 See http://www.consilium.europa.eu/en/meetings/european-council/2014/10/23-24/.
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47 See http://ec.europa.eu/priorities/docs/economic-governance-presentation_en.pdf.
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48 See http://www.consilium.europa.eu/en/meetings/european-council/2015/02/12/.
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49 See http://ec.europa.eu/economy_finance/economic_governance/sgp/index_en.htm.
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50 See http://www.eib.org/about/invest-eu/index.htm?media=shortlink.
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