The House of Lords EU Financial Affairs Sub-Committee, chaired by Baroness Falkner of Margravine, is conducting an inquiry into the steps laid out in the Five Presidents’ report ‘Completing Europe’s Economic and Monetary Union’ and particularly the possible implications for the UK. The Committee invites interested individuals and organisations to submit evidence to this inquiry.
Written evidence is sought by 25 November 2015. Public hearings will be held from December to February 2016. The Committee aims to report to the House, with recommendations, in May 2016. The report will receive a response from the Government, and may be debated in the House.
Europe’s Economic and Monetary Union (EMU) is often described as a house built over decades that is only partially finished. EMU is designed to bring the EU towards closer economic and political integration, but the recent financial and sovereign debt crisis has put greater emphasis on integrating euro area Member States further and on seeking agreement on the political direction of the Eurozone.
While EMU involves notably the single currency, the euro area, and an independent monetary policy run by the European Central Bank, EMU also sets fiscal rules for all EU Member States, including the UK. The EU has in recent years enhanced economic policy coordination and surveillance mechanisms to ensure macroeconomic growth and stability. While much of the Five Presidents’ report and the Commission Communication of 21 October focuses on the euro area, both documents identify that the process of creating a deeper EMU is open to all EU Member States. The report and the Commission Communication argue that the process should be transparent and preserve the integrity of the Single Market in all its aspects. As the debate between members of the euro area progresses it is important that the interests of non-euro area Member States, including the UK, are also respected.
The Five Presidents’ report “Completing Europe’s Economic and Monetary Union” was published on 22 June 2015 and was presented at the June 2015 European Council. The report builds on a previous report ‘Towards a Genuine Economic and Monetary Union’ published by the Four Presidents in December 2012 that laid out plans to build an integrated economic, budgetary and financial framework, commensurate with progress on democratic legitimacy and accountability. The Five Presidents’ report was prepared at the request of the Euro Summit of October 2014 and the European Council of December 2014. The Euro Summit in particular underscored the fact that closer coordination of economic policies was necessary to improve the functioning of EMU, while work should continue to look at mechanisms not only to support stronger economic policy coordination but to facilitate convergence and solidarity. The Five Presidents’ report states that euro area Member States are undergoing ‘Stage 1’ reforms scheduled to run between July 2015 and 30 June 2017. They call the process ‘Deepening by doing’ and the five Presidents emphasise boosting competitiveness, structural convergence, completing the Banking Union and enhancing democratic accountability. The Commission Communication, published 21 October 2015, sets out the package of measures to implement these plans.
The European Commission has brought forward a revised approach to the European Semester, as well as plans to introduce National Competitiveness Boards and an advisory European Fiscal Board as tools to strengthen the economic governance framework. The European Commission has also published a proposal to move to a unified representation for the euro area in the International Monetary Fund with the President of the Eurogroup as the representative for the euro area. In addition, various steps are proposed to complete Banking Union.
The Committee will examine the new recommendations and proposals in the European Commission’s Communication that seek to introduce mechanisms to improve and foster greater coordination and convergence in EMU and wish to identify the potential positive and negative impacts to the UK. At the same time, the Committee will explore how EMU can be completed over the long term to meet global challenges and lead to economic prosperity for all EU Member States through the economic, budgetary and financial frameworks. The initiatives the Commission has identified will be directly and indirectly relevant to the UK and this inquiry therefore seeks to:
The Committee will be interested to examine the impact of these issues on the non-euro area Member States, particularly the UK including the City of London.
The Committee seeks evidence on the following questions in particular.
1. Is economic and fiscal policy coordination and surveillance working effectively in the European Union, both for euro area Member States and non-euro Member States? Is greater ‘structural convergence’ necessary to build a resilient and smooth-functioning EMU?
2. What is your assessment of the European Semester? What can be done to strengthen the implementation of Country Specific Recommendations and boost national ownership of reforms? Should the Macroeconomic Imbalance Procedure be given greater importance?
3. What are the merits of the recommendation by the European Commission to introduce a euro area system of National Competitiveness Boards? How should non-euro area Member States participate in plans to enhance policy coordination and surveillance of competitiveness developments across the wider EU?
4. How should the European Commission reduce complexity and increase transparency of fiscal rules and the application of them? To what extent does the Stability and Growth Pact achieve a balance with respect to creating flexibility and maintaining credibility?
5. How should the Banking Union be completed? Is there merit in the European Deposit Insurance Scheme proposed by the five Presidents?
6. In what ways can the EU’s financial framework be strengthened to reduce the negative sovereign-bank feedback loop?
7. What is the ECB’s role in the future of the EMU governance framework?
8. What solutions should be proposed to create an adequate bridge financing mechanism, should resources in the Single Resolution Fund not suffice in the short term? In what ways can the euro area create a resilient common backstop for the Single Resolution Fund?
9. What could EU institutions have done differently in the context of the instability in Greece in 2015 to respond to the escalating funding crisis?
A path toward Fiscal Union
10. What are the advantages and challenges associated with the creation of an advisory European Fiscal Board?
11. What is your understanding of a fiscal union? What type of fiscal union is appropriate or achievable for the euro area based on the political capacity available?
12. Is a fiscal stabilisation function necessary and achievable?
13. What are the implications of the euro area unifying its external representation on issues such as programmes, reviews, economic and fiscal policy, macroeconomic surveillance, exchange rate policies and financial stability in the International Monetary Fund? How would this proposal affect the UK and other non-euro area Member States?
14. What areas of EMU governance are ripe for institutional strengthening? What are the consequences of introducing intergovernmental agreements (such as those establishing the ESM and the Single Resolution Fund) into the EU community framework? What are the implications for non-euro area Member States?
15. How should democratic accountability be enhanced if decision making is pooled across the euro area? Is democratic legitimacy weakened by the complexity of the crisis management framework?
16. How will the UK and other non-euro area Member States be affected by initiatives put forward by the European Commission and Five Presidents’ report? What effects will this have on the City of London?
You need not address all of these questions.