EU Plans for Euro to Punch Its Weight With New Seat on IMF Board

  • Commission Vice President Dombrovskis pledges details in weeks
  • Proposals aim to strengthen common currency, boost economy

The European Commission aims to shore up the euro area with a joint international voice for the currency zone, a fiscal advisory board and a network of national wage councils, commission vice president Valdis Dombrovskis said.

Strengthening the 19-nation common currency has become a European priority after years of financial crisis forced five euro members to seek bailouts and threatened to force Greece out of the euro altogether. At the same time, countries have been reluctant to reopen debate over the European Union’s founding treaties or widen rifts between countries that use the euro and those, like the U.K., that don’t.

To bridge these concerns, European Commission President Jean-Claude Juncker in June proposed a series of smaller changes that could be implemented over the next two years, in the so-called five presidents’ report that was endorsed by the EU’s Donald Tusk alongside Mario Draghi of the European Central Bank, Jeroen Dijsselbloem from the Eurogroup and Martin Schulz of the European Parliament. The challenge of rewriting the bloc’s fundamental laws to allow a common euro-area treasury has been postponed. Juncker aims to have that running by 2025. 

Dombrovskis said the commission has settled on where to start with its first legislative proposals, to be unveiled in the second half of October. Giving the euro a single voice at the International Monetary Fund is one of the first goals, so the bloc won’t undercut itself with a plethora of uncoordinated national messages.

“We could see the president of the Eurogroup taking a prominent position here,” Dombrovskis said in a Monday interview in Brussels. The final choice would need to come from legislation agreed on by the commission, EU nations and the European Parliament.

Conflicting Signals

“We think it’s important that there is a coordinated approach,” Dombrovskis said. It’s important “that euro zone countries can make their full potential to be heard and to avoid some contradicting messages coming from different member states on different points.”

France has led calls for more solidarity, with President Francois Hollande endorsing a euro-area budget and other moves to share economic burdens. Germany has resisted, saying current budget commitments need tougher enforcement before leaders can build public support for rewriting the rule book.

Juncker’s push to strengthen the economic and monetary union has needed to reach out to both sides of the debate. This means the first round of policy moves may take the form of encouraging consensus rather than sharing funds.

“The EU is punching below its political and economic weight as each euro area member state speaks individually,” according to the presidents’ report. “This is particularly true in the case of the IMF despite the efforts made to coordinate European positions.”

Wage Advice

Other first steps include a new advisory body, the proposed European Fiscal Board, and a continued push for nations to implement bank regulations enacted in the wake of the crisis. The commission is working on how to move toward common deposit insurance for countries that join the euro area’s banking union, starting by reviving plans for members to offer reinsurance as backstops to national deposit guarantee funds.

Dombrovskis said the commission wants to improve the EU’s budget rules to take more account of employment and social welfare issues. October’s legislative proposals also will push for a network of competitiveness councils, advisory panels that will be set up in each country to offer independent advice to national lawmakers.

The competitiveness councils could succeed if they can show nations how they are interdependent within the monetary union, said Guntram Wolff, director of the Brussels-based Bruegel research group. He said they don’t necessarily need their own funding, just a “clear mandate” to give advice on wages, and whether they are too high or too low in relation to economic conditions.

“A lot depends on their governance, mandate and later the appointments of its members,” Wolff said by e-mail Tuesday. “It is important that it does not become a race to the bottom for wage settlements.”

Before it's here, it's on the Bloomberg Terminal.