European governments and institutions want to deepen the integration of countries sharing the euro to help the bloc stick together after Britain leaves the European Union in 2019.
Apart from a euro zone budget, ideas include creating the post of a euro zone finance minister, a euro zone parliament, a sovereign insolvency mechanism and transforming the euro zone bailout fund into a European Monetary Fund (EMF).
Top euro zone officials expect key decisions to be taken in the first half of 2018. Below is an outline of these ideas:
EURO ZONE FINANCE MINISTER
If the euro zone were to have its own budget, France believes there should also be a euro zone finance minister in charge of it.
Germany backs the idea of setting up a European finance and economy minister, but sees the role more as someone to better coordinate on budget and economic policies in the bloc.
The European Commission does not want a minister only for the euro zone, but similar to Germany, a European minister of economy and finance who would promote structural reforms and coordinate all EU financial instruments that could be deployed if a country is in a recession or hit by a fundamental crisis.
The Commission believes that such a minister should also be the president of all euro zone finance ministers, which would also mean chairing the euro zone bailout fund and being a vice president of the European Commission.
Senior euro zone officials say, however, that allowing a Commission official to preside over euro zone finance ministers and their money in the bailout fund is very unlikely to happen.
EURO ZONE PARLIAMENT
Responding to criticism that euro zone policy-making is not under sufficient democratic control, Germany’s Wolfgang Schaeuble has proposed setting up a euro zone parliament comprising members of the existing European Parliament.
This euro zone parliament could have consultative powers over the euro zone bailout fund, the European Stability Mechanism, which is owned by euro zone governments, he said.
The Commission is against creating a separate euro zone parliament, saying accountability before the European Parliament of all European Union members is enough.
France has also spoken in favour of a euro zone parliament, to which the euro zone finance minister, in charge of the euro zone budget, would be accountable. But in a speech on Sept 26, French President Emmanuel Macron phrased that cautiously, saying only that he wanted parliamentary oversight “at the European level”.
EUROPEAN MONETARY FUND
Unhappy with the recent experience of the International Monetary Fund forcing the euro zone to discuss debt relief for Greece, many euro zone governments back Germany’s idea to transform the euro zone bailout fund, called the European Stability Mechanism (ESM), into a European Monetary Fund (EMF).
This way the euro zone would not have to ask the IMF for help in any future crises, euro zone officials say. The ESM already has a lending capacity of 500 billion euros ($590.50 billion), based on a capital of 700 billion euros ($826.70 billion) from euro zone governments.
The IMF has a lending capacity of $750 billion.
Berlin believes that an EMF would further stabilise the euro zone and show the world it had all the mechanisms to react well to unexpected situations. France backs the idea.
The European Commission supports developing the bailout fund into an EMF, but wants the new institution to be “firmly anchored in the European Union’s rules and competences” which means it should become an EU institution, rather than an intergovernmental one like the bailout fund is now.
No one has so far officially spelled out in detail what tasks the EMF would have. A Commission paper on the future of the euro zone put together with input from other EU institutions in May said it could provide liquidity assistance to governments and be the last resort financial backstop for the EU’s Single Resolution Fund financing the resolution of failing banks.
Regular monitoring of economies and policy surveillance – something the IMF does for its members – would be problematic, because that job is assigned in the EU treaties to the European Commission.
EURO ZONE SOVEREIGN INSOLVENCY MECHANISM
Many euro zone governments, including Germany, believe that the EU’s budget rules, the so-called Stability and Growth Pact, have become so politicised, that they are no longer effective in disciplining governments to conduct prudent fiscal policy.
Yet running a common euro zone budget would require a higher degree of fiscal discipline than now, they argue.
They are therefore pushing for the creation of a sovereign insolvency mechanism, under which a government that loses market access and needs to ask for a bailout would automatically have to restructure its debt.
This would create market pressure to be fiscally responsible, as investors would start looking very carefully at the probability of getting repaid and reflect their assessment in bond prices.
Officials note, however, that setting up such a mechanism would also require changing the risk weights attached to government bond portfolios now held by banks and would probably entail very long transition periods.
Source: Reuters (Reporting By Jan Strupczewski; Editing by Andrew Bolton)