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The subject of the euro area's future is back on the agenda of the leaders of the 28 EU member states. This time, however, more specific decisions are expected. The five presidents’ report will be thoroughly discussed on the second day of the December European Council – on Friday morning (December 18) – with ECB President Mario Draghi joining the discussions. In the draft conclusions, which euinside got its hands on, permission is granted by the leaders for an urgent start of work on the first phase of the five presidents’ report, especially on the creation of a more effective economic and fiscal governance, stimulating competitiveness, economic convergence, and sustainability. The leaders give a carte blanche to ministers to begin work on the establishment of a common external representation of the euro area in international financial institutions and on the banking union. 

Regarding the second stage, which provides for changes in the EU founding treaties, leaders state short and clear that more time is necessary to assess the “The legal, economic and political aspects of the more long-term measures contained in the report”. A specific deadline is given – not later than the end of the year 2017. By then the referendum for Great Britain’s membership in the EU should have finished, as well as the presidential elections in France. 

In October the Commission presented its first specific proposals in implementation of the first stage of the five presidents’ report. They are about the creation of a system of national boards on competitiveness, a common European consulting body on fiscal matters, common representation of the euro area, and a European Deposit Insurance Scheme. The first three measures are purely bureaucratic and are unlikely to be a problem to be approved by the Council, but the last question has already been discussed for the first time in the Council of finance and economy ministers (ECOFIN) and suffered a fiasco because of Germany’s resistance. The draft conclusions for tomorrow’s summit do not mention this subject explicitly. They talk in general of the banking union, but the EC’s proposal for a common deposit guarantee scheme, which is supposed to be completed in three stages, is the third pillar of the banking union. 

Dijsselbloem vs. Juncker in the European Parliament

On the eve of the summit and the discussion of the future of the euro area the first plenary hearing was held in the EP of Eurogroup chief Jeroen Dijsselbloem (The Netherlands, Socialists and Democrats), who is also one of the co-authors of the five presidents’ report. With him in the plenary in Strasbourg was also Commission President Jean-Claude Juncker. Mr Dijsselbloem reiterated a part of his famous speech, made in Slovakia a month and a half ago, only there are several important differences. On November 4th, during a summit in Tatra, the Dutch finance minister stated that before even thinking of creating new instruments there needs to be an agreement on the problems that the common currency zone is facing. Moreover, he said back then, there needs to be consideration of the political context, which “is challenging”. Only then should the road ahead be mapped. 

He said, however, that there could be no argument regarding the need for shared sovereignty within the Economic and Monetary Union (EMU). “The big questions for our common future are: where do we need to share sovereignty, how much do we need to share and where can we go our own way?  To answer these we need to focus on the problem first and not jump to the possible solutions”, stated Jeroen Dijsselbloem in Slovakia, noting that the opposite approach is adopted in the current debate. He gave as an example the proposal for creation of fiscal capacity, which has been interpreted in many various ways ever since it came up as an idea in the first presidents’ report, written under the supervision of the former President of the European Council, Herman Van Rompuy. Some see it as an euro area budget, others as a tool to stimulate public investment. 

In his statement in front of MEPs Jeroen Dijsselbloem elaborated on his Tatra speech, beginning with an analysis of the causes for the crisis. One of the lessons, in his words, is that euro area member states need to be extra careful regarding possible spill-overs, both positive and negative, of internal policies over other states in the EMU. In this sense, he reminded that the effect of low oil prices and the easing policy of the ECB will soon play out. Thus, it is important that governments concentrate on investments, structural reforms, and fiscal policies. Most importantly, the EC’s recommendations, both the common one for the euro area and the country-specific recommendations, should be implemented at the national level. In order to do this, progress must be monitored. 

Jeroen Dijsselbloem went even further during the debate in the EP than in his Slovak speech by saying that deepening the euro area actually means sharing risk. To do this, however, the necessary steps must be taken to minimise the risk, and this means repairing economic and fiscal imbalances through “a consistent and faithful application of instruments like the Stability and Growth Pact and the Macroeconomic Imbalance Procedure”. In the meantime, there also needs to be work on creating capacity for absorption of economic risks. His vision regarding private risk was considerably mellowed on Tuesday morning, compared to November 4th. In Slovakia he stated his preference for private mechanisms for risk absorption, instead of doing it with budget funds. “I believe strongly in private risk buffering over public risk buffering”. 

On December 15th he set the two buffers equal in importance by saying that to him private risk sharing is as important as public risk sharing. This needs to go hand in hand with strengthening the resilience of the banking system by, for example, removing the over 150 national options and discretions, reducing sovereign risks and applying the bail-in rules in full. Dijsselbloem explained that it is important to achieve progress on the EC’s proposal for creating a common deposit guarantee scheme as well. 

Following the rules, however, is of the utmost importance, as it became clear from his speech. In this sense it is very important, he said, that a technical analysis of member states’ budget plans is done, not a political one. He urged for the formation of a body outside the EC, which would make these assessments. The idea was initially launched by Germany. EC President Jean-Claude Juncker strongly disagreed with this in his long and visionary speech: “As you know, there are some who want to weaken the role of the Commission in the management of our common economic and fiscal rules. Some even call for transferring the tasks we have under the Treaty to an agency of technocrats. I am sure I can count on this Parliament to agree with me that decisions on budgetary priorities, the balance between revenues and expenditures, the level of taxation, the performance of public administrations and social systems, these are all political decisions which require a political Commission which can account for its role and action before this Parliament”.

The Luxembourgian veteran of European politics proposed to the EP in exchange a new inter-institutional agreement, which would cement the role of MEPs in determining the future of the euro area. The debates that followed went on for three hours and showed that there is no agreement yet on the analysis of the causes for the crisis. MEPs from different political groups and countries had a different vision for the roots of the crisis, which went combined with the eurosceptic statements of British MEPs from the group of Nigel Farage. The debate showed that there are no more taboos in the euro area discussions. Elisa Ferreira (Socialists and Democrats, Portugal), who is a prominent member of the Economic Committee of the EP stated that seven years after the crisis, in spite of the massive quantitative easing by the ECB and the “more intelligent application of the governance rules by the Commission, the Eurozone economy is stagnant, is basically flat, with strong internal divergences and alarming levels of poverty and unemployment”.

Disagreement in the EP on the causes of the crisis​

According to her, this proves that fiscal policy of the last several years has failed and she urged the EC to finally admit it. She strongly criticised the EC and the Eurogroup for defining aggregate fiscal stance as neutral, when it needs to be expansionist. Elisa Ferreira urged for the formation of a euro area budget, for without it the monetary union cannot exist. Jeroen Dijsselbloem answered that the neutral position is the most sensible approach for the euro area at the moment, but that some states can and should do more. Polish MEP Dariusz Rosati (EPP) also disagreed with Elisa Ferreira’s theory. He feels the euro is not the cause for the problems of some member states, but their bad governance over the last few years. According to him, the political climate at the moment is not favourable for discussions on deepening of integration.

Philippe Lamberts (Greens/EFA, Belgium) urged for the creation of a mechanism for rebalancing of the euro area and liberal MEP Ramon Tremosa (Spain) supported the political outlook of the Commission and appealed that European legislation evolves towards more regulations and less directives. Regulations are binding legislative acts, which must be adopted with no corrections in the national legislation of member states, whereas directives allow for variations nationally.The logic of Ramon Tremosa is that you could not rely on the good will of national governments to be responsible, so more legally binding regulations need to be adopted. “If we want a strong and more integrated eurozone we need first to comply with our own rules”, said the Spanish MEP.

Bernd Lucke (ECR, Germany), however, insisted that it is high time it was considered that maybe the common currency is the problem. To every problem the institutions reply that they do not know what caused it, but it is not the euro. It is time to look back and consider whether actually the common currency might be the problem, appealed the MEP. Sylvie Goulard in turn stated that actually the time has come for a clear statement of affiliation. The euro is the currency of the entire EU. Is it legitimate that we continue as a Union, in which some states are not members of the euro area, she asked and appealed to everyone to state whether they wish to be part of the common project. 

Fabio De Masi of the far left in turn pointed out that in its current form, with high unemployment, the euro area is in fact working in favour of people like Marine Le Pen, while British politicians put forward the rhetorical question why the only alternative is a deepening of the euro area, when there is also the option to not be a part of the common currency. This, however, only applies to countries that have an opt-out or opt-in, like Great Britain, Denmark, and Sweden. All the others are obliged through their accession treaties to accept the common currency when they fulfil the requirements for it. Despite disagreements on key issues, there is noticeable change since June in the attitudes towards the future of the euro area. Once more resorting to the policy of the small step, which seems to be the better option than doing nothing and waiting to see how will the disintegration processes play out. 

Translated by Stanimir Stoev