Recent initiatives to strengthen economic and monetary union

SUMMARY OF:

Communication (COM(2017) 821 final) — roadmap for completing economic and monetary union

WHAT IS THE AIM OF THIS COMMUNICATION ?

The communication:

sets out a roadmap for further strengthening the economic and monetary union (EMU) so that EU countries’ economies are more robust in the event of future challenges to their stability;
draws upon the lessons from the 2008 financial and economic crisis which revealed serious institutional weaknesses. Measures taken subsequently have improved the economic governance of the EU overall, and of the euro area in particular.

EU countries are required to work closely together to coordinate their economic policies for the common good of the EU as a whole. This requirement is set out in Articles 2, 5 and 119 of the Treaty on the Functioning of the European Union.

KEY POINTS

The communication identifies initiatives to be taken in 2018 and 2019. These initiatives are part of a broader agenda set out in the Reflection Paper on the deepening of the economic and monetary union in which the European Commission set out a roadmap for the completion of EMU by 2025.

The communication calls for progress in 3 areas:

1. Financial union

The EU’s banking union and the capital markets union have been established, thus reducing most of the remaining risks in its financial sector. A 2017 Commission communication on completing the banking union stresses how rapid agreement should be reached on outstanding issues, principally how to further strengthen EU banks’ resilience.
A number of initiatives are under discussion in the European Parliament and the Council. These include:
- 2016 proposals to amend banking legislation (Regulation (EU) No 575/2013 — Prudential requirements for credit institutions and investment firms, Directive 2013/36/EU — Banks and investment firms — prudential supervision, Directive 2014/59/EU — rules for the recovery and resolution of credit institutions and investment firms and Council Implementing Regulation (EU) 2015/81) (in 2018);
- proposals on business insolvency and restructuring (in 2018), a European deposit insurance scheme (end 2018) and a common backstop to the single resolution fund (European Monetary Fund — see below) (political agreement in 2018).
The Commission is to propose a regulation to enable the development of a market for sovereign bond-backed securities (SBBS)* (spring 2018). This aims to give SBBSs the same regulatory treatment as national euro-area sovereign bonds.

2. Economic and fiscal union

In the past years, the European semester of economic policy coordination has been strengthened with clearer guidance for the euro area as a whole and a stronger focus on social aspects. The Commission will continue to:

encourage responsible fiscal policy at national level and provide policy guidance;
apply the rules of the Stability and Growth Pact to support reforms and investment;

The Commission is proposing some concrete legislative files in this respect:

the creation of an investment stabilisation function, as part of the proposals for the post-2020 multiannual financial framework. This is designed to maintain investment levels in the event of large asymmetric shocks* (spring 2018);
a Reform Support Programme as part of the new multiannual financial framework with the aim of supporting priority reforms in all EU countries (spring 2018). It comprises 3 elements:
- a Reform Delivery Tool to provide financial support for reforms;
- a Technical Support Instrument to offer and share technical expertise; and
- a Convergence Facility, to help EU countries on their way to joining the euro which will need to be agreed before the European Parliament elections (spring 2019).
For the period 2018-2020, a proposal has been put forward for targeted changes to be made to Regulation (EU) No 1303/2013. By using the performance reserve* of the European Structural and Investment Funds, these changes would allow EU funds to be used in support of national reforms.
In addition, the proposal to strengthen the budget of the Structural Reform Support Programme for 2018-2019 will need to be adopted by the European Parliament and Council (in 2018).

3. Democratic accountability and strengthened governance

Integrating intergovernmental treaties into EU law will also help to strengthen institutional efficiency, transparency and accountability (by mid-2019). This should allow for continuous and improved monitoring as part of the EU’s economic governance processes. Therefore the Commission is adopting:

a proposal to establish a European Monetary Fund, integrating the existing European Stability Mechanism. This fund would have lending and borrowing capacities and a clearly defined mandate, providing the common support to the Single Resolution Fund and acting as a last resort lender to facilitate the orderly resolution of distressed banks (target date for adoption by the European Parliament and the Council: mid-2019);
a proposal to integrate the substance of the Treaty on Stability, Coordination and Governance into EU law, taking into account the appropriate flexibility built into the Stability and Growth Pact.

Furthermore, the Commission is putting forward:

a communication on a European Minister of Economy and Finance — this position would strengthen the coherence, efficiency, transparency and democratic accountability of EU economic policy-making, while fully respecting national competences.

Already in 2015, the Commission put forward a roadmap for moving towards a more consistent external representation of the euro area in international fora as well as a proposal for the unified representation of the euro area in the International Monetary Fund.

For the longer term (post 2019), other elements could be considered. These might include:

the creation of a safe asset;
changes to the regulatory treatment of sovereign exposures*;
the simplification of the rules of the Stability and Growth Pact; and
the setting-up of a euro area Treasury.

BACKGROUND

For more information, see:

Economic and monetary union (European Commission).

KEY TERMS

Asymmetric shock: when an economic event affects one EU country’s economy or a part of that economy more than another.

Performance reserve: EU countries should achieve certain targets and milestones in order to receive a funding allocation as a reward.

Sovereign bond-backed securities (SBBS): a diversified pool of euro-area sovereign bonds which include sovereign bonds (debt securities issued by national governments) from all euro area countries according to their economic weight. When buying SBBS backed by that pool, investors can choose to buy the higher- or the lower-risk securities, depending on their risk appetite. The highest-risk securities would be first in line to bear any losses on the underlying pool should they arise, but would in exchange pay investors a higher return.

Sovereign exposures: the exposure to risk that an investor faces when investing in sovereign bonds, such as that the government issuing the bonds in question will not honour its debt repayments.

MAIN DOCUMENT

Communication from the Commission to the European Parliament, the European Council, the Council and the European Central Bank — Further steps towards completing Europe’s economic and monetary union: A roadmap (COM(2017) 821 final, 6.12.2017)

RELATED DOCUMENTS

Consolidated version of the Treaty on the Functioning of the European Union — Part One — Principles — Title I — Categories and areas of Union competence — Article 2 (OJ C 202, 7.6.2016, p. 50)

Consolidated version of the Treaty on the Functioning of the European Union — Part One — Principles — Title I — Categories and areas of Union competence — Article 5 (OJ C 202, 7.6.2016, p. 52)

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)

Proposal for a Regulation of the European Parliament and of the Council on the establishment of a European Investment Stabilisation Function (COM(2018) 387 final, 31.5.2018)

Proposal for a Regulation of the European Parliament and of the Council on the establishment of the Reform Support Programme (COM(2018) 391 final, 31.5.2018)

Proposal for a Regulation of the European Parliament and of the Council on sovereign bond-backed securities (COM(2018) 339 final, 24.5.2018)

Communication from the Commission to the European Parliament, the European Council, the Council and the European Central Bank: A European Minister of Economy and Finance (COM(2017) 823 final, 6.12.2017)

Proposal for a Council Directive laying down provisions for strengthening fiscal responsibility and the medium-term budgetary orientation in the Member States (COM(2017) 824 final, 6.12.2017)

Proposal for a Regulation of the European Parliament and of the Council amending Regulation (EU) 2017/825 to increase the financial envelope of the Structural Reform Support Programme and adapt its general objective (COM(2017) 825 final, 6.12.2017)

Proposal for a Regulation of the European Parliament and of the Council amending Regulation (EU) No 1303/2013 of the European Parliament and of the Council of 17 December 2013 laying down common provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund, the European Agricultural Fund for Rural Development and the European Maritime and Fisheries Fund and laying down general provisions on the European Regional Development Fund, the European Social Fund, the Cohesion Fund and the European Maritime and Fisheries Fund and repealing Council Regulation (EC) No 1083/2006 as regards support to structural reforms in Member States (COM(2017) 826 final, 6.12.2017)

Proposal for a Council Regulation on the establishment of the European Monetary Fund (COM(2017) 827 final, 6.12.2017)

Proposal for a Regulation of the European Parliament and of the Council amending Regulation (EU) 806/2014 in order to establish a European Deposit Insurance Scheme (COM(2015) 586 final, 24.11.2015)

Communication from the Commission to the European Parliament, the Council and the European Central Bank: A roadmap for moving towards a more consistent external representation of the euro area in international fora (COM(2015) 602 final, 21.10.2015)

Proposal for a Council Decision laying down measures in view of progressively establishing unified representation of the euro area in the International Monetary Fund (COM(2015) 603 final, 21.10.2015)

Regulation (EU) No 806/2014 of the European Parliament and of the Council of 15 July 2014 establishing uniform rules and a uniform procedure for the resolution of credit institutions and certain investment firms in the framework of a Single Resolution Mechanism and a Single Resolution Fund and amending Regulation (EU) No 1093/2010 (OJ L 225, 30.7.2014, pp. 1-90)

Communication from the Commission to the European Parliament, the European Council, the Council, the European Central Bank, the Economic and Social Committee and the Committee of the Regions — Reinforcing economic policy coordination (COM(2010) 250 final, 12.5.2010)

Communication from the Commission to the European Council — A European Economic Recovery Plan (COM(2008) 800 final, 26.11.2008)

last update 17.07.2018