CION Reflection Paper on Deepening EMU 29 th September 2017 White - - PowerPoint PPT Presentation

CION Reflection Paper on Deepening EMU

29th September 2017

White Paper on the Future of Europe – 1st March 2017 - Timeline

 Marks the beginning of a process for the EU27 to decide on the future of their

Union

 Commission presented a series of five Reflection Papers on key themes for

Europe’s future

 President Juncker’s State of the Union Speech in September 2017 took these

ideas forward

 First conclusions to be drawn at the December 2017 European Council  This will help to decide on a course of action to be rolled out in time for the

European Parliament elections in June 2019

5 Reflection Papers

 Reflection Paper on the Social Dimension of Europe – 26th April 2017  Reflection Paper on Harnessing Globalisation – 10 May 2017

 Reflection Paper on the Deepening of Economic and

Monetary Union (EMU) – 31st May 2017

 Reflection Paper on the Future of European Defence – 7th June 2017  Reflection Paper on the future of EU Finances – 28th June 2017

Reflection Paper on the Deepening of Economic and Monetary Union (EMU)

 Intended both to stimulate the debate on the Economic and Monetary

Union and to help reach a shared vision of its future design

 Paper sets out concrete steps that could be taken by the European elections

in 2019

 Paying due attention to the debates in Member States and to the views of

• ther EU institutions

 Completing the EMU is not an end in itself but is needed to provide jobs,

growth, social fairness, economic convergence and financial stability

 EU should remain open to all EU Member States, and the decision-making

process must become more transparent and democratically accountable

Deepening and strengthening the EMU

Challenges to be addressed

 Persistent economic and social divergences  Remaining sources of financial vulnerability  High debt and increased collective stabilisation abilities  Increased efficiency and transparency of EMU governance

Key areas to be addressed

 Financial Union  Economic and Fiscal Union  Democratic accountability and strengthening EU institutions

The Governance of the euro area is complex

Why further steps towards a better Governance?

 A stronger EMU requires a stronger governance  Current system reflects an accumulation of decisions of the past which limits

the effectiveness of common institutions and tools, and it translates into complex and non-transparent arrangements

 A common understanding of the possible way forward is needed to cement a

better EMU architecture

Financial Union

Financial Union (I)

Prioritisation of further risk reduction measures

 CION’s Banking Reform Package of November 2016  Reinforcing prudential management  Strengthening market discipline  Measures relating to insolvency, restructuring and second chance  Implementing a European strategy for NPLs  Coordinated action at EU level targeting key policy areas  Strengthening supervisory practices  Developing a secondary market for NPLs  Reforming national legal frameworks  Addressing structural issues in the banking sector

Financial Union (II)

Risk sharing measures and completing the Banking Union Outstanding elements

 Common fiscal backstop for the SRF

 ESM credit line to the SRF – requires changes to ESM Treaty and ESM

governance

 MSs loans or guarantees to the SRF – ensuring fiscal neutrality in the

medium term would be difficult

 EU Budget as a provider of common backstop

 EDIS (European Deposit Insurance Scheme)

 To ensure stronger and more uniform protection of savings in deposit

accounts in the Banking Union

Financial Union (III)

Delivering the Capital Markets Union (CMU)

 Increases

 risk-sharing via the private sector  Overall resilience of the financial sector by increasing access to venture

capital or equity financing and less reliance on debt

 Issues such as taxation rules and insolvency procedures must be

tackled at EU and national level

Financial Union (IV)

Beyond BU and CMU

 Addressing bank-sovereign nexus

 Promoting diversification through the development of SBBS (Sovereign

Bond-Backed Securities)

 Securitised financial products issued by a commercial entity or institution  No debt mutualisation between MSs  Increases diversification of banks’ balance sheets  Fostering private sector risk sharing  No changes to regulatory treatment of the underlying sovereign bonds

would be required

 Changing the regulatory treatment of sovereign debt

 Changing the risk-free status

Financial Union (V)

Beyond BU and CMU

 European Safe Assets for the EA

 Common issuance of debt: Involves debt mutualisation and moral hazard

so strong conditionality would be essential

 To address moral hazard: could be open exclusively only to MSs

complying with the SGP but encountering significant exogeneous shocks.

 Transforming ESM into EMF (European Monetary Fund)

 Aim: to manage potential crises in the EA within the EU legal

framework

 Functions

 Encompass at least the current liquidity assistance mechanisms to MSs  Future common backstop to the SRF

Economic and Fiscal Union

Economic and Fiscal Union (I)

Convergence

 towards resilient economic structures

 For the EA: economic structures that are responsive in case of shocks

 does not mean harmonisation of policies across the board  means agreeing on a common approach  Could be achieved through:

 EU-level framework  Economic policy coordination  Use of funding  Macroeconomic stabilisation function (MESF) for the EA  A strong link between reforms, use of EU funds and access to a MESF

Economic and Fiscal Union (II)

Options for a Macroeconomic Stabilisation Function:

 European Investment Protection Scheme – protecting investment in the event of a

downturn

 European Unemployment Reinsurance Scheme – reinsurance fund for national

unemployment schemes

 Probably requires prior convergence of labour market policies and characteristics

 Rainy day fund – limits its payments strictly to its accumulated contributions but

could be equipped with the capacity to borrow. A EA budget could ensure convergence and stabilisation

 Requires a stable revenue stream

EMU architecture and democratic legitimacy

EMU architecture and democratic legitimacy (I)

Models to further incremental political integration

 EU Treaties and EU institutions  Intergovernmental approach  A mixture of both as already the case today

Political integration in parallel with further steps to complete EMU

 Legal changes to EU Treaties or international treaties (e.g. Fiscal Compact,

ESMT) Integration of ESM Treaty in the EU legal framework is not foreseen in any EU legal provisions, but could be a necessary step.

EMU architecture and democratic legitimacy (II)

Promoting the general interests of the EA

 Establishing a new balance between CION and Eurogroup  Further integration could require rethinking the balance between, CION,

Eurogroup and its Chair.

 Decision-making competences to the Eurogroup  Appointment of a full-time permanent Chair  In the long term, Eurogroup could be turned into a Council

configuration

 Functions of the permanent Eurogroup Chair and Member of CION in

charge of EMU could be merged

 Increasingly unified external representation including the IMF

EMU architecture and democratic legitimacy (III)

Reinforcing democratic accountability

 Formalising the current regular dialogue between CION and EP

.

 Extending such arrangement to other decision-making institutions and

bodies, or acting on behalf of the EA, including the Eurogroup

 Members of the Eurogroup would also remain accountable to their

national parliaments.

 Integrating such agreements in the EU Treaties

EMU architecture and democratic legitimacy (IV)

Institutions and rules for a fully-fledged EMU

 Entrusting a EA Treasury with economic and fiscal surveillance of the EA and EAMS

supported by

 the European Fiscal Board  the coordination of issuing a possible European safe asset  management of a macroeconomic stabilisation function

 Attributing decision-making the Eurogroup  EP will have greater control of common economic, financial and fiscal instruments and

policies

 An autonomous EMF (building on ESM) with the following roles:

 Current liquidity assistance mechanisms to MS  Future last resort common backstop of the BU

 Review of the existing complex EU fiscal rules

Reflection paper on EMU - State of the Union 2017 priorities (I)

 The euro is meant to be the single currency of the EU as a whole.

All member states but two, are required and entitled to join the euro area.

 Completing the banking union and encouraging all member states to

join the banking union.

 For Europe to be able to act quicker and more decisively, moving to

qualified majority voting for decisions on the

 common consolidated corporate tax base  VAT  fair taxes for the digital industry  financial transaction tax

 ESM should now progressively graduate into a European Monetary

Fund and be firmly anchored in the EU.

Reflection paper on EMU - State of the Union 2017 priorities (II)

 A European Minister of Economy and Finance:

 promoting and supporting structural reforms in our Member States  coordinating all EU financial instruments that can be deployed when a Member

State is in a recession or hit by a fundamental crisis

 The Commissioner for economic and financial affairs – ideally also a Vice-

President – should assume the role of Economy and Finance Minister. He or she should also preside the Eurogroup

 Must be accountable to the European Parliament.

 No need for a budget for the Euro area but a strong Euro area budget line

within the EU budget.

 The Parliament of the EA is the European Parliament.  Merging the Presidents of the European Commission and the European

Council.

Future Developments?

Emmanuel Macron and Angela Merkel

Thank you for your attention