EU chiefs outline ten-year euro rescue plan
By Sarah Collins | Tuesday 26 June 2012
The EU’s top four officials have outlined a ten-year plan to boost integration in the 17-member eurozone, including the “phased” introduction of eurobonds and the use of the ESM bailout fund to backstop ailing banks. In a report, issued on 25 June, three days ahead of a key summit of EU leaders in Brussels, the heads of the European Council, Commission, Central Bank and Eurogroup sketch what they call a “genuine economic and monetary union,” where they do not rule out “possible changes to the EU treaties at some point in time”.
“To ensure stability and growth in the euro area, member states have to act and coordinate according to common rules,” the report says. “There have to be ways on ensuring compliance when there are negative effects on other EMU members.” The report, which is to be presented to EU leaders at a summit, on 28-29 June, pushes for a banking, fiscal, economic and political union that would eventually lead to member states pooling their debt.
The banking union - or “integrated financial framework,” as it is called - would mean setting up a single EU banking supervisor with intervention powers in all the continent’s banks. The leaders suggest that the ECB should be considered for the job - under Article 127(6) of the Lisbon Treaty, the Council can “confer specific tasks” upon the bank when it comes to supervision. Separate insurance schemes would be set up for savers’ deposits and for winding down or “resolving” failing banks - paid for by banks’ themselves - and would be policed by a special resolution authority. The European Stability Mechanism, the bailout fund due to come into effect on 9 July, would step in should the funds be depleted in a future crisis.
European Commission President José Manuel Barroso has said that he could propose most of the banking union legislation by the end of this year. Internal Market Commissioner Michel Barnier has already released proposals on a bank resolution framework - which include the possibility of resolution funds borrowing from each other if they run short - and there are separate proposals on deposit guarantee schemes working their way through a second reading in the European Parliament.
The fiscal union - or “integrated budgetary framework” - would include caps on government spending and borrowing, with governments having to apply for eurozone approval to up the size of their budgets. Eurobonds could be explored “subject to progress on fiscal integration,” on Germany’s insistence. However, the report does suggest short-term euro bills and a debt redemption fund, both of which have been proposed by the European Parliament’s Committee on Economic Affairs (ECON), could be considered along the way. “Progress on the pooling of decisions on budgets would be accompanied with commensurate steps towards the pooling of risks,” the report says. “Different forms of fiscal solidarity could also be envisaged.”
Closer economic union would mean coordinating more social, labour and tax policies, while political union would include more control by the European and national parliaments. European Council President Herman Van Rompuy has said he will develop a “specific and time-bound road map” for the plan by December, with an interim report in October.
EU leaders at the June summit will also be asked to sign up to a ‘growth and jobs pact’, along the lines of the €120 billion plan outlined by France earlier this month, according to draft conclusions seen by
Europolitics(see table). Staffan Nilsson, the president of the European Economic and Social Committee, said leaders at the summit should “take democracy to a new level” and outline a “true master plan with a clear road map,” including eurobonds. “This time it cannot be just one more European summit because people have lost faith,” he said. “We need eurobonds to end the sovereign debt crisis, and we need more political integration to have eurobonds. One cannot go without the other,” he said.
Industry grouping BusinessEurope, which represents 20 million companies employing some 120 million workers, said Europe could double its long-term annual growth rate from 1.25% to 2.5% and create 1.4 million new jobs a year by shoring up the euro in the short-term - including by allowing the ESM to lend directly to banks and introducing eurobonds - while ringfencing investment in research and education, overhauling tax, pension, health and wage systems, upgrading transport and broadband links and boosting international trade. “Europe needs a much stronger investment and competitiveness agenda,” the group’s President, Jürgen R. Thumann, said, on 26 June. “Policy makers simply cannot continue to propose measures which increase costs for companies and lament that we are last in the world league for growth.”
‘Compact for growth and jobs’
Economy: Member states must work to meet the ‘Europe 2020’ targets and enforce stricter economic governance, “growth-friendly fiscal consolidation,” bank restructuring, public sector reforms, tackle unemployment and poverty
Single market: Reducing barriers in digital and network industries, adopting new rules on procurement, professional qualifications, energy efficiency, research and the EU patent
Growth: A financing plan, including a 10 billion euro increase in the EIB’s capital base - by 31 December 2012 - a 4.5 billion euro pilot series of project bonds to fund transport, energy and broadband links, EU Structural Funds to be used to part-guarantee EIB loans, and the European Investment Fund to be involved in more venture capital projects
EU budget: The MFF should contribute to the ‘Europe 2020’ objectives
Trade: New bilateral trade agreements with Singapore and Canada by year end, push for agreements with India and better relations with the US and Japan
Taxation: Agree the CCCTB, energy tax and savings tax directives and battle tax fraud
Banks: Resolution, capital requirements and deposit guarantee schemes should be ratified
Eurozone: Ensure ESM enters into force by 9 July, ratify ‘fiscal compact’, ensure eurozone integration does not harm single market, the 23 euro plus countries coordinate their economies