B. COMPLETING ECONOMIC GOVERNANCE
The exit of the United Kingdom from the European Union constitutes an undeniable opportunity for reasserting the political project that underlies the euro . It is worth recalling at this point that the treaties have stipulated that all of the States will over the long term join the eurozone. Article 3, paragraph 4, of the Treaty of the European Union thus provides that "The Union shall establish an economic and monetary union whose currency is the euro" . Until now only two States had an exemption: Denmark and the United Kingdom. The other member states joined the single currency as soon as they had fulfilled the convergence criteria 8 ( * ) .
The economic and monetary Union was initially based on a clear division of tasks . The Central European Bank, independent and in charge of the monetary policy, should stabilise the zone in the event of an economic shock affecting all member states in the same manner (asymmetric shock). In the event of a local crisis (asymmetric shock), the States are free to act through a budgetary policy, within the limits of the Stability and Growth Pact (public deficit below 3% of the GDP and debt below 60% of GDP). Member states should therefore ensure, via countercyclical policies, that they develop their emergency preparedness. This condition has not however been completely adhered to by the member States.
The sovereign debt crisis has led the Economic and monetary Union to endow itself, as from 2010, with instruments that would allow it to respond in an ad hoc manner to an economic shock, with the European Financial Stability Fund (EFSF) then the European Stability Mechanism (ESM). The Central European Bank has also put in place a certain number of mechanisms designed to guard against an increase in the interest rates of securities of member states in the Eurozone and facilitate a renewed investment: SMP, OMT, LMTO programmes and quantitative easing policy. On a structural level, an incline towards a budgetary federalism could be observed with the adoption of a six-pack then a two-pack , which has allowed for the establishment of a European semester, the strengthening of the Stability and Growth Pact and the creation of a procedure for macroeconomic imbalance. The establishment of a banking Union aimed at preventing the risk of contagion of banking crises in the public sphere has just supplemented these provisions.
The strengthening of the European economic and monetary union now appears to be awaiting a second wind , although European institutions disseminate reports in favour of deepening the euro zone, and implicitly the establishment of counter-cyclical instruments (European budget, European unemployment-insurance mechanism, pooling of part of the debt). Anything further ahead depends on a collective choice in favour of a reinforcement of the coordination of the budgetary policies, and therefore a new sharing of sovereignty.
1. Completing phase I of the enlargement of the economic and monetary union
The presidents of the European Commission, the European Council, the European Parliament, the Eurogroup and the Central European Bank presented, in June 2015, a report entitled "Complementing the Economic and Monetary Union" . This document provides for two phases for the strengthening of structures and resources in the eurozone. The first, due to end on 30 June 2017, must enable an enlargement through practice, using existing instruments, while the second, scheduled to continue until 2025, should lead to more ambitious institutional changes. A number of schemes have already been put in place during phase I : the reform of the European semester, a review of the procedure for macro-economic imbalances, the creation of national productivity authorities, the establishment of a European budgetary consultative committee, the gradual unification of the representation of the euro within the international financial bodies or the launch of a consultation on a European platform of social rights. Some of these - the Budget Committee, national productivity councils - need to have their role clarified in order to better assess their contribution to the enlargement of the Economic and Monetary Union.
We now need to go further in respect of the other proposals, by favouring in particular the establishment of a social and fiscal convergence code (cf infra ). It is necessary to gradually set in place a mechanism for promoting the convergence of rules relating to the labour markets and social systems in order to truly reinforce the social dimension of the eurozone. Social initiatives should also be extended in the tax area , through the ongoing discussions on the common Consolidated Corporate Tax Base (CCCTB) with a view to enhancing economic convergence of the area and to combat the development of tax competition between the States. A timetable should in particular be put in place to reconcile company taxation . Any convergence in the matter must not be done to the detriment of the competitiveness of French companies or national tax revenues. The Franco-German partnership may constitute the framework for accelerating convergence by harmonising their VAT rates, taxes on capital, and by putting in place a single community rate of corporation tax. This convergence code may be extended to investment, in particular in research and development.
The reform of the European Semester - an analysis of the eurozone situation is now inserted at the beginning of the process - must also be extended. The European semester appeared to centre until now on a review of the individual situation of the member states and in particular on their capacity to implement the recommended structural reforms . The European semester should be divided into two periods in order to better highlight the assessment of the eurozone situation. The first quarter (November of year 0 to February of year 1) would consequently be dedicated to the analysis of the eurozone macro-economic situation. The budgetary policy and economic policy stance at Eurozone level may also be defined. The second quarter (March to July of year 1) will be dedicated to the review of the country.
The Banking Union must also be concluded as quickly as possible. This involves, as the European Commission requests, implementing a European deposit insurance fund . The harmonisation of national deposit guarantee funds would serve as the first step. The distributive keys for financial contributions should however take into account the degree of concentration of the banking sector of each participating State. The possibility for the single resolution mechanism, established at the level of the banking Union for borrowing from the European Stability Mechanism in the event that it is required to confront a systemic crisis, should also be envisaged. Failing that, it should be equipped with sufficient resources if it is to be credible.
2. What budget for the euro zone?
a) European Monetary Fund
One of the first ideas put forward was the implementation of the common management of a portion of the debt of Member States. It should be noted that the Maastricht Treaty stipulates a no bail-out clause (Article 125 of the Treaty on the Functioning of the European Union) which states that the European Union and its Member States may not assume the debts of another Member State. The creation of the European Stability Mechanism and the European Central Bank's bond-buying programme (SMP, MTO and quantitative easting) has made the principal of common management less compelling.
It is, however, appropriate to question the ESM statute which is no longer a European Union instrument but rather a purely intergovernmental organism. We also need to question the capacity of the ESM to deal with a crisis which directly affects a major euro zone country, such as Italy or France. Its ability to act may be hindered by limited resources (750 billion euros). Granting a banking license to the ESM, now the European Monetary Fund, enabling it to refinance itself through the European Central Bank may act as a guarantee in the event of such interventions.
The European Monetary Fund may also issue debt for Member States facing difficulties. The additional debt will be guaranteed by all euro zone Member States. The degree of supervision of the budgetary policies of the Member States involved will depend on the amount in question. Access to the European Monetary Fund will carry the same conditions as for the ESM with the addition of compliance to the convergence code, as outlined above.
b) Questions surrounding the introduction of a budget for the euro zone
A proposed budget for the euro zone indeed raises many questions surrounding its objectives and the contributions involved. Four options are regularly put forward:
- a fully-fledged euro zone budget oriented towards a counter-cyclical response;
- an intergovernmental insurance mechanism aimed at helping Member States in the event of economic difficulties, via financial transfers (rainy-day fund). Without doubt, this system would be the quickest to implement;
- an insurance system-Economic and Monetary Union level unemployment; part of the national contributions shall be paid into a European fund which in exchange offers short term unemployment insurance (less than 12 months);
- a reinsurance facility for insurances-national unemployment, similar to the American extended benefits scheme: the system, financed through national contributions, would support those states which have a level of unemployment which exceed a given level.
No consensus has so far emerged on these matters. Improving the governance of the Economic and Monetary Union and strengthening its democratic legitimacy are prerequisites to any progress on this matter (see below).
3. Strengthening the governance of the Eurozone and its democratic legitimacy
a) A political directorate for the euro zone
The Treaty on stability, coordination and governance has established euro zone summits, with a president appointed by heads of state and government. Today this function is performed by the president of the European Council. The summit is, however, only held in the event of a crisis.
A significant first development could be to systematise the organisation of Eurozone summits, called to be held every three months. During these summits, the heads of state and government shall establish a work programme for the zone, setting budgetary and fiscal targets. This political directorate should allow effective leadership to be implemented in the zone. Its action is supported at ministerial level by the Eurogroup. The nomination of a euro zone political coordinator could be envisaged, who will preside over the Eurogroup, and whose mission will include the implementation of guidelines set by the euro zone summit and to ensure euro zone representation within international financial authorities.
Strengthening the zone's political leadership would allow the genuine coordination of economic and budgetary policies and fiscal convergence. It should also facilitate greater complementarity with the actions of the European Central Bank. This accommodative policy is only meaningful if it results in structural reforms in Member States which favour investment and employment and an associated reduction in public deficits.
b) Closer involvement of national parliaments
It is vital to have national parliamentary involvement in the function of the Economic and Monetary Union. Article 13 of the Treaty on Stability, Coordination and Governance (TSCG) stipulates an interparliamentary conference, bringing together representatives from national parliaments and the European Parliament. The aim is to reform and reinforce its role. Its format is currently inadequate to allow for the organisation of substantive discussions between national and European parliaments. The time allocated to expert presentations and the number of agenda items must be reduced. The conference should also be linked to the work of the Commission on the evaluation of the actual situation of the euro zone, on draft recommendations directed at Member States within the framework of the Stability and Growth Pact and the procedure of macroeconomic imbalance, but also the monitoring of the situation of Member States in receipt of financial assistance. It should be able to hear from the president of the European Central Bank, the president of the Eurogroup, the euro zone finance minister, those members of the European Commission who are also concerned about the issues affecting the future of the zone, the director general of the European Stability Mechanism (ESM) and members of the European Fiscal Board.
Under these conditions, the real euro zone parliament could meet, in Strasbourg , for at least two sessions . The first at the beginning of the European semester, in November, in order to review the euro zone situation, and the second, in June of the following year, to present draft recommendations from European Commission countries. The rules of procedure of the Conference under Article 13, now allows the adoption, by the presidency, of conclusions after each meeting. We now need to go further and consider the adoption of resolutions by the Conference. It could be envisaged that this conference will validate, on behalf of national parliaments, the principal of a European Monetary Fund commitment to help a Member State. However, financial commitments shall remain the prerogative of national parliaments.
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Eurozone governance recommendations 1. The completion of stage 1 of the deepening of the Economic and Monetary Union: - clarify the role of the European Fiscal Board and national productivity authorities; - progressively promote a code of social and fiscal convergence, respectful of issues of national sovereignty; - further reform the European semester, divided in two terms, one focusing on the euro zone situation and the other on that of Member States; - support the banking union:
2. What budget for the Eurozone? - transform the European Stability Mechanism (ESM) into a «European Monetary Fund» («EMF»):
- determine the creation of a budgetary capacity for the euro zone, to be counter-cyclical, to strengthen the governance of the Economic and Monetary Union and to strengthen its democratic legitimacy. 3. Strengthening the governance of the Economic and Monetary Union and its democratic legitimacy: - to strengthen the executive steering of the euro zone, systematising the organisation of a euro zone summit, for example every three months, heads of state and government shall establish a work programme framework for the zone by setting budgetary and fiscal targets; - the nomination of a euro zone political coordinator, who will preside over the Eurogroup, and whose mission will include the implementation of guidelines set by the euro zone summit and to ensure euro zone representation within international financial authorities; - modernise the Conference on Article 13 of the Treaty on Stability, Coordination and Governance:
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* 8 Sweden, which ruled against the adoption of the euro in a referendum in September 2003, decided not to accede to the second European Exchange Rate Mechanism (MCE II). Participation in the ERM for at least two years was one of the convergence criteria.