The euro zone must identify its problems, then see what changes to its institutions are needed to fix them, euro zone finance ministers said on Friday during informal talks on the future of the single-currency area.
The discussions in the Estonian capital of Tallinn follow differing proposals from France, Germany and the European Commission to revamp the institutions of the 19-country euro zone after Britain leaves the European Union in March 2019.
The proposals include creating a pan-EU or euro zone finance minister, setting up a separate euro zone budget or reserving a part of the existing EU budget for the currency union, and setting up a euro zone parliament alongside or within the existing EU parliament of all 28 EU members.
“I think we should start from the other end,” Jeroen Dijsselbloem, the chairman of euro zone finance ministers, said.
“Instead of having a debate mainly about the institutional side, (we should have) a debate about what is lacking in the economic and monetary union, in terms of resilience, competitiveness, solidarity,” he said.
“So I think we should start from what the problem is and end with an institutional debate,” Dijsselbloem said.
The European Commission on Wednesday backed the idea of a pan-European finance minister in charge of all forms of EU or euro zone financing via the EU budget, not just for the euro zone.
In the Commission’s view, the pan-European minister should also preside over the euro zone bailout fund ESM, which is now a separate institution set up by euro zone governments. The ESM itself would be transformed into a European Monetary Fund.
The Commission does not want a special euro zone parliament, however, stressing the need for unity among the 27 countries that will remain in the EU after Britain leaves. It called for the countries still outside the euro zone to join quickly.
France has a different view, however. It wants a large, separate euro zone budget financed from taxes, a finance minister specifically for the euro zone and a separate euro zone parliament to which the minister would be accountable.
Nor is there agreement on whether all the changes to the euro zone should be done through a separate treaty between governments, or by changing the European Union treaty.
The difference is more than just a technicality, because an intergovernmental treaty would be faster, involve only euro zone governments and leave all powers with these governments.
Changes through the EU treaty would require more time and mean non-euro zone countries and the European Parliament would have to agree, too. The powers of the new euro zone institutions would be shared with EU institutions, which are sometimes mistrusted by some national governments.
French President Emmanuel Macron is to present his views on the future shape of the euro zone on Sept. 26.
Euro zone ministers agree that a budget for the single currency area would help counter external shocks which hit just one or a few euro countries, rather than the whole bloc, when all governments can simply increase budget deficits.
But there is no agreement on its size, how it should be financed or what it should be spent on.
Macron has mentioned such a budget could be several hundred billion euros. The head of the ESM bailout fund, Klaus Regling, suggested a figure of 1-2 percent of euro zone gross national product, which would mean 100-200 billion euros (£88.19 billion – £176.39 billion) .
The gap with the expectations of Germany seems to be large because Berlin has signalled it was thinking about a budget in billions of euros, but in single digits.
If the euro zone budget were to be part of the overall EU warchest it would have to be much smaller than what France or the ESM are suggesting, because the EU budget itself is around 1 percent of the EU’s gross national income.
WHAT TO SPEND IT ON
Ideas for spending such money range from using it for investment during economic downturns, to an unemployment insurance fund and to a more general rainy day fund.
Such a budget, accompanied by strict adherence to the EU’s fiscal rules, would increase the resilience of the euro zone and make the job of the European Central Bank (ECB) easier.
“So the ECB has a stake here… That is something that will make the transmission of our monetary policy smoother,” ECB executive board member Benoit Coeure told a news conference.
French Finance Minister Bruno Le Maire, often mentioned as the likely next chairman of euro zone finance ministers after Dijsselbloem steps down in mid-January, said he hoped the euro zone would agree on further integration within a few months.
Le Maire said the moment for deciding on the reforms was now, because the economy was growing, France had a reform-minded president and Germany would have a new mandate for changes after the Sept. 24 elections.
German Finance Minister Wolfgang Schaeuble agreed the task of revamping the single currency area was urgent.
“It’s about how do we make Europe politically and economically stronger and able to act. How do we do that? That is the urgent task,” he said.
Source: Reuters (Reporting By Jan Strupczewski and Philip Blenkinsop, editing by Larry King and Hugh Lawson)