Photographer: Jasper Juinen/Bloomberg
EU Unveils Plan to Beef Up Euro Area on Back of Stronger EconomyBy
EU’s executive arm presents proposals for bailout fund
Plans will look at EU fiscal rules, finance minister
The European Commission unveiled its plans to strengthen the euro area, a set of reforms already raising eyebrows in EU capitals as governments seek to identify common ground on how to boost the resilience of the currency bloc.
Wednesday’s proposals come amid a broader discussion across the 19-country currency union on ways to ensure it can better withstand future financial shocks. The aim is to set out the commission’s vision for the euro, including beefing up the bloc’s bailout fund, creating a euro-area line within the EU budget and a dedicated finance minister. Next week, European Union leaders will meet to work toward a road map with the aim of reaching an agreement in June.
Helped by a economic momentum and a string of election defeats by eurosceptic populists, the EU and its currency bloc have been enjoying their strongest growth since the financial crisis. That’s created a unique window of opportunity European officials want to use to pursue reforms and deepen the ties between euro-area economies.
“After years of crises, it’s now time to take Europe’s future into our own hands -- today’s robust economic growth encourages us to move ahead to ensure that our Economic and Monetary Union is more united, efficient and democratic, and that it works for all of our citizens,” European Commission President Jean-Claude Juncker said. “There is no better time to fix the roof than when the sun is shining.”
The push to reform the region gained new impetus with the election in May of President Emmanuel Macron in France, a staunch proponent of closer integration. But while consensus has emerged on the need to take further steps to strengthen the euro, significant differences persist among the bloc’s members and the commission.
Germany, the EU’s biggest economy, will have to play along with reform efforts, EU Budget Commissioner Guenther Oettinger, a member of Chancellor Angela Merkel’s party, said in a ZDF television interview Wednesday.
“The chancellor wants us to complete the monetary union,” he said. “It’s clear that every member country, including Germany, will have to be ready to make compromises.”
Key among the commission’s plans is a proposal to expand the role of the European Stability Mechanism -- the euro area’s Luxembourg-based bailout fund -- giving it more powers while also bringing it within the EU’s legal framework. Set up at the peak of the sovereign debt crisis, the ESM is run by euro-area countries which also provided the fund with over 80 billion euros ($95 billion) in paid-in capital.
Among the new functions the commission proposes for the ESM is that it acts as a backstop for the single resolution fund -- the bloc’s reserve for winding down failed banks -- and takes a bigger role in the management of emergency bailouts. The plan also envisages the possibility for faster decision-making, requiring a majority of 85 percent while keeping unanimity for major decisions with financial impact.
While the bloc’s governments agree the ESM needs to be strengthened and transformed into a type of European Monetary Fund, with greater powers over the design and implementation of euro-area bailouts, they’re unlikely to favor ceding control to the commission.
“I do like the idea of strengthening the European Stability Mechanism and turning it into the European Monetary Fund, while keeping its ownership held by the member states and not make it an institutionalized instrument,” Latvian Finance Minister Dana Reizniece-Ozola said in a Bloomberg Television interview.
The commission plans also include the creation of a new budgetary instruments within the EU budget framework. This could serve multiple purposes, including a mechanism to support investment in case of economic shocks, as well as providing funds for structural reforms and for countries that are working toward joining the currency area.
That option could face opposition both from countries such as France, which would like to see a dedicated euro-area budget to boost investment, and from those including Germany that have voiced skepticism on the need for any such a mechanism at all.
“A number of countries have said they are not yet convinced with regard to the mechanism to deal with shocks,” acting German Finance Minister Peter Altmaier told reporters in Brussels on Tuesday.
Another part of the commission’s proposal foresees the creation of a European minister of economy and finance who would also be an EU commissioner and president of the Eurogroup -- the body made up of euro-area finance ministers.
“The minister could act to promote the general interest of the union and the euro-area economies, both internally and at global level, and would facilitate coordination and implementation of economic policies,” the commission said.
This proposal will also likely be received with skepticism by the bloc’s finance chiefs, who prefer to have one of their own preside over their meetings and resist ceding more power to Brussels.
— With assistance by Birgit Jennen, and Nikos Chrysoloras