A small step for the Eurozone…prior to a major step for the EMU.
The European Commission adopted on 21 October a set of measures aiming to « complete the Economic and Monetary Union ».
The European Commission adopted on 21 October a set of measures aiming to « complete the Economic and Monetary Union », with an economic as well as a political objective: bringing the economies of the eurozone back onto a path of convergence. I would like to present briefly the key elements of this roadmap, but especially recall the context of this « package » – as one says in the European jargon. This package is a first step in a process that goes some way beyond what has been decided today.
To get straight to the point: this is not a landmark for the Economic and Monetary Union. That was not its purpose. It nevertheless sends a clear political message: the status quo is not a solution. This had to be made clear. What this does is launch our efforts towards the deepening of the EMU, which is going to be easier once convergence has resumed.
We are preparing the renewed architecture of the EMU.
In other words, we are preparing the renewed architecture of the EMU.
In this communication, there are new elements to be found, which pave the way for the final steps.
Eurozone member states will benefit from the support of Competitiveness Boards at the national level. They will encourage the growth of the competitiveness of economies and the implementation of reforms that are too often perceived as diktats from Brussels. In particular, it is worth underlining that:
- The Commission will leave the choice to the Member States whether to establish a new structure or to keep a pre-existing national body. I would rather privilege the second option, for clarity and efficiency. The most important aspect is to have a down-to-earth structure: not a disconnected structure or superstructure.
- The remit of these Boards has been designed in order to tackle the illness of eurozone economies: their weak productivity growth. We can of course boost the competitiveness of our economies by focusing on price-competitiveness, by encouraging the reduction of salaries. But this will not be enough and by itself could be counter-productive. We will also have to take into account the fact that competitiveness is a broader question, challenges regarding education and innovation are important too. This is an approach that I would like to promote in particular.
- Finally, these Boards will allow a better dialogue between the European and the national level. They will play the role of interface between these two levels that lack exchange of views, and they will favour the adoption of reforms for competitiveness.
A European Fiscal Board is going to be created in order to inject economic logic and consistency in the implementation of our monitoring instruments.
Second innovation: a European Fiscal Board is going to be created in order to inject economic logic and consistency in the implementation of our monitoring instruments. Currently, the European Commission is in charge of implementing the Stability and Growth Pact (SGP), a set of rules aimed at preserving healthy public finances and at coordinating budgetary policies across the EU. The European Fiscal Board will be placed within the Commission but will remain independent. It is going to be made of 5 « political personalities » who will advise it on two points: ex ante, focusing on the aggregated effects of budgetary policies of eurozone members and ex post making sure that decisions taken within the SGP are consistent. The European Fiscal Board’s work will be dedicated to enlightening and giving coherence to the eurozone at the heart of its budgetary reality.
Third innovation: emphasising the eurozone dimension with the European Semester. The European Semester is a yearly cycle that makes it possible for us to coordinate structural reforms and budgetary policies, and to prevent excessive macroeconomic imbalances in the Member States. The country specific recommendations for eurozone members will be published prior to the European Semester to give guidance to the 19 economies of the EMU. Again, it is about giving substance to the eurozone. It might seem abstract but it is useful: it helps considering the EMU as a specific entity, reminding us that policies conducted by one member have consequences for the others. It will give crucial information on the recommendations by the Commission to individual countries in the light of the general interest of the euro area.
Fourth innovation of the package: the Commission is proposing that the eurozone speaks with a common voice at the International Monetary Fund.
Fourth innovation of the package: the Commission is proposing that the eurozone speaks with a common voice at the International Monetary Fund. I have been very much in favour of this improvement for a long time now. The EMU needs to be clearly embodied in order to send a strong signal to the external world. I am convinced that if the eurozone spoke with a common voice at IMF, crisis management – notably regarding Greece – would be different. Two models have been considered: this role could have been for the Commission or for the President of the Eurogroup. When I was French Minister of Finance, I was already convinced that this duty should be given to the Commission, whose role is to defend the general European interest and which already represents the entire Union in international financial institutions. In my mind and in my political beliefs, I haven’t changed my view since becoming European Commissioner! The choice made this week is different one and I understand the logic behind it. I will closely follow the upcoming debates in the Council and in the Parliament.
This package is only a first step; it certainly did not announce everything.
This package is only a first step; it certainly did not announce everything. These coordination instruments will support the convergence of the members of the eurozone, with regards to a second phase, which is going to give meaning to the current package: the deepening of the Economic and Monetary Union. It is only a starter before the main dish, which is a stronger eurozone, governed by more democratic processes, endowed with a specific budget, able to implement social and economic policies that favour employment and growth.
All eyes will now turn to the next step. I will take part to the debate, calling for the swift implementation of this « package » and insisting on the implementation of « phase 2″ of the renewal of EMU.