Recent initiatives to strengthen economic and monetary 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)³ (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 shocks¹ (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 reserve² 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 exposures⁴;
• the simplification of the rules of the Stability and Growth Pact; and
• the setting-up of a euro area Treasury.