Ber­lin and Lon­don play hard­ball in shap­ing fu­ture vi­sion for the EMU

Financial Mirror (Cyprus) - - FRONT PAGE -

The eu­ro­zone’s rule­book and its anti-cri­sis mech­a­nisms have been bol­stered since the sov­er­eign debt cri­sis hit Europe at the end of 2009. But se­ri­ous risks still loom large, as growth po­ten­tial re­mains low and the bloc’s gov­er­nance frame­work is “not fit for pur­pose”, Benoit Coeuré said af­ter a meet­ing of EU fi­nance min­is­ters over the week­end .

“We need to have a vi­sion” for the fu­ture of the euro area, said Pierre Gramegna, the Fi­nance Min­is­ter of Lux­em­bourg who is chair­ing the Ecofin Coun­cil of fi­nance min­is­ters this se­mes­ter.

In his opin­ion, this vi­sion should Eco­nomic and Mon­e­tary Union (EMU) growth, em­ploy­ment and wel­fare poli­cies.

How­ever, this ’big plan’ could meet ob­sta­cles along the way, as the United King­dom and Ger­many are ready to play hard­ball in shap­ing this fu­ture.

While Lon­don is warn­ing against fur­ther in­te­gra­tion that could push non-eu­ro­zone mem­bers away from the EU sin­gle mar­ket, Ber­lin is drag­ging its feet on the mu­tu­al­i­sa­tion of risks among the sin­gle cur­rency bloc, since the EMU re­mains in­com­plete.

The Euro­pean Com­mis­sion is cur­rently work­ing on a pack­age to strike a bal­ance be­tween ’ins-and-outs’ in the eu­ro­zone and na­tional re­spon­si­bil­ity ver­sus risk shar­ing.

An EU source ex­plained that the pack­age, to be an­nounced in the sec­ond half of Oc­to­ber, will con­sist of pro­pos­als to strengthen the ex­ter­nal rep­re­sen­ta­tion of the euro, in par­tic­u­lar in the In­ter­na­tional Mon­e­tary Fund (IMF); to re­vamp the EU se­mes­ter; and to re­view the fis­cal and macroe­co­nomic rules (the so-called ’two-pack’ and ’six-pack’) in or­der to add a more so­cial di­men­sion. It will also in­clude a plan to set up a eu­ro­zone sys­tem of com­pet­i­tive­ness author­i­ties; an ad­vi­sory Euro­pean Fis­cal Board, to co­or­di­nate the ex­ist­ing fis­cal coun­cils; and set out the Com­mis­sion’s gen­eral view on its plan for a EU de­posit go to be­yond the also in­clude guar­an­tee scheme.

All these el­e­ments were al­ready out­lined in the so-called Five Pres­i­dents’ re­port. Most of the pro­pos­als are un­con­tro­ver­sial, although some mem­ber states are re­luc­tant to con­tinue cre­at­ing new in­sti­tu­tions that could add more bur­dens to the al­ready baroque eco­nomic gov­er­nance sys­tem. How­ever, the EU de­posit guar­an­tee scheme has trig­gered Ger­many’s protest, even more af­ter Com­mis­sion Pres­i­dent Jean-Claude Juncker an­nounced in his state of the union speech that the leg­isla­tive pro­posal will come by the end of the year, ear­lier than ex­pected.

“To now start a dis­cus­sion on fur­ther mu­tu­al­i­sa­tion of bank risks through a com­mon de­posit in­sur­ance or an Euro­pean de­posit rein­sur­ance scheme is un­ac­cept­able,” the Ger­man del­e­ga­tion said in pa­per sent to the cap­i­tals ahead of the Ecofin Coun­cil.

Ger­many pri­ori­tises fi­nal­is­ing the im­ple­men­ta­tion of the ex­ist­ing rules, in par­tic­u­lar the Bank Re­cov­ery and Res­o­lu­tion Di­rec­tive (BRRD). Although the dead­line was 31 De­cem­ber 2014, only half of the mem­ber states had fully adopted it by early Au­gust. The BRRD aims to re­duce the cost of bank res­o­lu­tion by mak­ing the fi­nan­cial in­sti­tu­tions pay the lion’s share be­fore us­ing tax­payer money.

The Lux­em­bourg Pres­i­dency and the Com­mis­sion played down Ger­many’s op­po­si­tion. “It is not that the door is closed, but it is a mat­ter of tim­ing,” Gramegna said. He un­der­lined that there is a “readi­ness” to move for­ward, but the eu­ro­zone needs first to strengthen na­tional re­spon­si­bil­ity (i.e by im­ple­ment­ing the BRRD) be­fore dis­cussing an EU de­posit sys­tem. “Lets not put the car be­fore the horses,” he told re­porters.

Of­fi­cials in Frank­furt and Ber­lin com­mented that an EU de­posit guar­an­tee scheme is needed to com­plete the bank­ing union, its third pil­lar to­gether with the Sin­gle Su­per­vi­sory Mech­a­nism and the Sin­gle Res­o­lu­tion Mech­a­nism. But they also agreed that it would be “very hard” to make any progress against Ger­many’s will in the months to come.

A Eurogroup mem­ber said that Ger­many’s ob­struc­tion is just a ne­go­ti­a­tion tac­tic, and that Ber­lin’s po­si­tion will find lit­tle trac­tion among other mem­ber states.

How­ever, the high-rank­ing of­fi­cial pointed out that the clash be­tween eu­ro­zone and non-eu­ro­zone mem­bers is be­com­ing more im­por­tant.

Ge­orge Os­borne, Bri­tain’s Chan­cel­lor of the Ex­che­quer, warned his col­leagues not to push the United King­dom out­side the EU. More­over, the non-euro part­ners re­called that the sin­gle mar­ket, the bank­ing union, and the up­com­ing cap­i­tal mar­ket union af­fects the EU as a whole.

Mem­ber states out­side the sin­gle cur­rency are feel­ing “more and more ex­cluded”, the source summed up on con­di­tion of anonymity.

In or­der to strengthen eu­ro­zone gov­er­nance, the pres­i­dents of the Euro­pean Com­mis­sion, the Coun­cil, the Eurogroup, the Euro­pean Par­lia­ment and the Euro­pean Cen­tral Bank were in­vited to com­bine their ef­forts to pre­pare the “next steps for a bet­ter eco­nomic gov­er­nance in the euro area”.

The re­port, pre­sented last June, con­cluded that “for the euro area to grad­u­ally evolve to­wards a gen­uine Eco­nomic and Mon­e­tary Union (EMU), it will need to shift from a sys­tem of rules and guide­lines for na­tional eco­nomic pol­i­cy­mak­ing to a sys­tem of fur­ther sovereignty shar­ing within com­mon in­sti­tu­tions, most of which al­ready ex­ist and can pro­gres­sively ful­fil this task”.

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