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PROPOSALS AND PROSPECTS FOR THE REFORM AND COMPLETION OF EUROPEAN MONETARY UNION
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– The architecture of EMU should be designed
to promote convergence and cohesion on
the basis of levelling up, rather than under-
mining these goals. The problems of the
growth and stability of the euro require the
creation of counter-cyclical mechanisms and
investment tools to guarantee rapid recovery
from socioeconomic shocks. In other words,
we need to use instruments at the regional
level to address systemic regional risks (fi-
nancial instability and fragmentation, low
growth and investment, etc.) and this will, in
itself, help to reduce these risks.
– We also need to reform European fiscal ru-
les, articulated as part of the Stability and
Growth Pact (SGP) – which is clearly deflatio-
nary and biased against countries with bud-
get deficits. The new rules must be based on
an aggregate fiscal position for the eurozo-
ne, one that recognizes the EU as a global
player with an explicit commitment to pro-
moting economic growth and is designed to
enable a better distribution of fiscal efforts
between individual countries and the euro-
zone as a whole.
– The governance of EMU must respect the
basic principles of democracy, transparency
and accountability. In other words, there
should be greater integration between EMU
bodies, EU institutions and elected bodies.
– EMU must be more closely aligned with eco-
nomic and social outcomes, and this requires
a strong social dimension to ensure that full
employment remains a key policy goal, while
also addressing social and labour market im-
balances.
– EMU must be completed with clear progress
towards the sharing of risk, drawing on so-
lidarity and mutual trust to guarantee the
stability of the financial and banking sector.
This means completing banking union,
establishing a fair capital markets union, and
issuing joint debt.
Although the majority of countries agree on
the final design of EMU, reform and deepening
appear to have stalled as a result of disagree-
ment regarding the route map. Structural diffe-
rences between the countries of the eurozone
persist, and Germany and the Netherlands
(among others) seem unwilling to accept the
mutualization of risk while the level of risk re-
mains so high. In other words, part of the deba-
te revolves around how to sequence the reduc-
tion and mutualization of risk. Should the EU
first implement a fiscal union which would
enable convergence between eurozone coun-
tries, or should the countries of the periphery
implement the domestic reforms necessary for
such convergence? Should EMU implement a
European deposit guarantee system or do we
need to reform financial systems before banking
risks can be mutualized? Conservatives, particu-
larly in Germany, are using this dichotomy as a
pretext for failing to make further progress in
deepening integration of the mechanisms re-
quired to share risks.
The reality, however, is that risk reduction
has moved forward apace while risk mutualiza-
tion has remained little more than an idea. Over
recent years, most of the countries that have
been worst hit by the crisis have done what was
asked of them: Ireland and Portugal, for exam-
ple, have returned to normality and are growing
steadily; Italy has implemented unpopular re-
forms to its pension system and labour market;
Spain has reformed its financial system and its
labour market, and drastically reduced its deficit
despite high levels of unemployment. If redu-
cing and sharing risk are processes that need to
take place in parallel, as the European
Commission has argued, then it would appear
to be time to make progress towards sharing