Strengthening economic and monetary union

SUMMARY OF:

WHAT IS THE AIM OF THE COMMUNICATION AND THE TREATY ARTICLES ON ECONOMIC AND MONETARY POLICY?

The communication sets out the measures that should be taken to complete the first stage of the economic and monetary union (EMU), which began on 1 July 2015, by early 2017. It has since been followed by a more forward-looking European Commission reflection paper on deepening the EMU.

Articles 119, 120 and 121 of the Treaty on the Functioning of the European Union concern the EU’s economic and monetary policy. Under these articles, EU countries agree to:

coordinate their economic policies,
work towards achieving convergence of their economic performance, and
act in accordance with the principles of an open market economy.

KEY POINTS

The communication calls for:

a revamped European semester* by:
- integrating euro area and national policies more closely,
- giving stronger focus to employment and social policies,
- promoting economic convergence by using benchmarking and best practice,
- using EU Structural and Investment Funds and technical assistance to support economic reforms;
improved economic governance by:
- reducing the complexity and increasing the transparency of fiscal rules,
- strengthening procedures to tackle macroeconomic imbalances,
- creating national competitiveness boards to provide independent expertise,
- establishing an advisory European Fiscal Board to improve fiscal surveillance of the euro area;
stronger external representation of the euro by encouraging euro area countries to speak as one on the international stage, particularly in the International Monetary Fund;
moves towards a financial union, notably by:
- completing a banking union,
- approving a common European deposit insurance scheme,
- putting in place a capital markets union;
more effective democratic legitimacy by strengthening European parliamentary oversight of EMU developments and developing closer involvement of national parliaments.

In May 2017, the Commission, building on the 2015 communication, published a reflection paper on deepening the EMU. This endorsed 4 principles to strengthen the single currency and jointly tackle issues of common interest that go beyond national borders. These are:

jobs, growth, social fairness, economic convergence and financial stability, which are the EMU’s main goals;
responsibility and solidarity, and risk reduction and risk sharing, which are closely connected;
EMU membership, which is open to all EU countries (except the United Kingdom (1) and Denmark, having opt-outs) — the single market is key for a well-functioning single currency and its integrity must be preserved;
decision-making, which should become more transparent and democratically accountable.

The paper highlighted the need for progress in 3 areas:

completing a genuine financial union, especially by making the banking sector more resilient;
achieving a more integrated economic and fiscal union by improving macroeconomic stabilisation in the euro area;
strengthening the EMU architecture through greater sharing of national competences and decisions on euro area matters within a common legal framework.

BACKGROUND

In June 2015, the presidents of the Commission, the European Parliament, the European Central Bank, the Euro Summit and the Eurogroup presented their report (‘Five presidents’ report’) on completing the EMU. The communication elaborates on the Stage 1 roadmap that their report contained.

The Commission’s EMU reflection paper is part of a series launched by its White Paper on the future of Europe in March 2017, which includes:

a reflection paper on the social dimension of Europe and
a reflection paper on the future of EU finances.

For more information, see:

‘Completing Europe’s economic and monetary union: Commission takes concrete steps to strengthen EMU’ — press release (European Commission).

KEY TERMS

European semester: this provides a framework for coordinating national economic and budgetary policies across the EU.

MAIN DOCUMENTS

Consolidated version of the Treaty on the Functioning of the European Union — Part Three — Union policies and internal actions — Title VIII — Economic and monetary policy — Article 119 (ex Article 4 TEC) (OJ C 202, 7.6.2016, pp. 96–97)

Consolidated version of the Treaty on the Functioning of the European Union — Part Three — Union policies and internal actions — Title VIII — Economic and monetary policy — Chapter 1 — Economic policy — Article 120 (ex Article 98 TEC) (OJ C 202, 7.6.2016, p. 97)

Communication from the Commission to the European Parliament, the Council and the European Central Bank — On steps towards Completing Economic and Monetary Union (COM(2015) 600 final, 21.10.2015)