Deepening of the Economic and Monetary Union Proposals from the Commission

A financial union By 2019 Beyond 2019 Comprehensive strategy for reducing risks in the financial sector: (e.g. A secondary market for non-performing loans) Completing the Banking Union: Single Resolution Fund (need for a common financial backstop), a European Deposit Insurance Scheme Further progress on the Capitals Market Union: single European supervisor Development of ‘sovereign bond-backed securities’ to address the problem of interconnections between banks and their “home country” (light version of eurobonds) Beyond 2019 A European safe asset (like the US Treasuries) (eurobonds)

More integrated economic and fiscal union Before 2019: reinforcement of the European Semester Foster cooperation and dialogue with national parliaments/social partners Stronger role for the euro area recommendations Closer link between the yearly European Semester and the more multi-annual approach of national governments Economic convergence: Strenghtening coordination of economic policy: Digital Single Market, Energy Union, European Pillar of Social Rights New convergence standards: fair taxation, education, quality of public spending Establishing links between priorities European Semester and ESIF’s A macroeconomic stabilisation function A European unemployment insurance in support of national schemes A European Investment Protection Scheme A rainy day fund An euro area budget (‘a longer-term goal’) Technical assistance

Strenghtening EMU architecture More competences for the eurogroup Full-time permanent chair/EU Finance Minister Eurogroup established as an official Council configuration Unified external representation in the IMF Euro area Treasury in charge of economic and fiscal surveillance of the euro area, issuing a European safe asset , management of the ESM Creation of a European Monetary Fund Stronger integration could open the door for a simplification of the SGP

Comments Crisis started as a subprime crisis in the US, but the EU ended up being the worst affected region This made clear that the design of the EMU was flawed Not an optimal currency union Lack of economic convergence No transfers from the stronger to the weaker economies No responsibility on surplus countries to make adjustments No lender of last resort Close links between national banks and national public authorities No treasury, no common budget Euro area countries are issuing debt in a currency that they do not control Internal devaluation needed to restore competitiveness put a downward pressure on internal demand Substantial reforms in the financial sectors have been implemented: deposit guarantee, macroprudential supervision, supervision on banks, ESM, non-conventional policies by the ECB Further addressing flaws in the construction of the Eurozone is needed; To adress macro-economic imbalances, To address social divergences, To deal with economic shocks To avoid ‘internal devaluation’. This requires strong ‘automatic stabilisers’, a ‘kind’ of fiscal union and much more convergence in economic policy

Proposals move into the right direction, but: Problem of political will (tension between the national interest and the European interest) No permanent fiscal transfers (although this is inevitable in a currency union) The macro-economic stabilisation function should address the lack of economic convergence Absolutely needed as labour mobility is low in the EU while the fragmented capital markets can easily fall victim to capital movements Need to go beyond ‘nominal’ convergence (the Maastricht criteria) and move to ‘real’ economic convergence in support of balanced and inclusive growth macro-social imbalances should be put at the same footing as macro-economic imbalances Better coordination employment and social policies Strong social security systems are important in stabilising the economy Fair taxation is essential Regional policies/ industrial policy to modernize the economy A European Treasury is probably indispensable To monitor national budgets To issue debt centrally To adjust the economic cycle Some form of “fiscal capacity” is addressed, this is also at the heart of the current Franco- German discussions on euro area reform, but no concrete proposal for European tax revenues

ECB should become lender of last resort Moving towards a financial and economic union entails a substantial transfer of sovereignty, which requires more transparency and democratic accountability (political union) Better ownership by national parliaments/social partners of National Reform Programmes More control of the EP on the governance of the eurozone A European government? Political opportunity to deepen the EMU should be grasped, now steps need to be taken to increase fiscal, financial and economic integration Caveat: a stronger governance of the eurozone will make the entry of new members more difficult